Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Geoff Bibby – VP, Corporate Marketing

Rick Spurr – Chairman, President, CEO and COO

Mike English – Controller

Analysts

Mike Malouf – Craig-Hallum Capital

Jonathan Ruykhaver – Morgan Keegan

Alex Kuen [ph] – Morgan Keegan

Ian Kim [ph] – Lothan [ph] Capital Markets

Zix Corporation (ZIXI) Q2 2011 Earnings Call July 26, 2011 5:00 PM ET

Operator

Good afternoon ladies and gentlemen and welcome to second quarter 2011 Zix Corp earning conference call. My name is Carmen and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions). I would now like to turn the call over to your host for today, Mr. Geoff Bibby. Please proceed.

Geoff Bibby

Thank you Carmen. Good afternoon. My name is Geoff Bibby. I’m Vice President of Corporate Marketing for Zix Corporation. Thank you for joining our Q2 conference call. You can find our earnings press release on our investor website at investor.zixcorp.com. The earnings release contains instructions for accessing a recording of this call.

Our Chairman and Chief Executive Officer, Rick Spurr will provide an overview of the company’s performance in the quarter. Then, our Controller, Mike English, will give you details of our financial results. Later in the call, they will answer questions from analysts and institutional investors. Listeners can also submit questions during the call to our Investor Relations mailbox at invest@zixcorp.com.

Rick and Mike will provide forward-looking statements on matters such as forecasts of revenues, earnings, operating margins and cash flow, projections about contracts for business and comments on trend information. The company undertakes no obligation to publicly update or revise any forward-looking statements. Forward-looking statements are subject to risks that could cause actual results to differ materially from our expectations. The risk factor section of the company’s most recent Form 10-K filing with the SEC gives examples of those risks.

Rick and Mike will refer to various non-GAAP financial measures such as adjusted gross profit, adjusted operating expenses, adjusted earnings and adjusted EBITDA. You can find in our earnings press release, and on our website, detailed explanations of our non-GAAP financial measures along with reconciliations of our adjusted items to the most directly comparable GAAP financial measure.

Now, I am pleased to turn the call over to Rick Spurr. Rick.

Rick Spurr

Thank you Jeff. Good afternoon everyone and thank you for joining us today to discuss our 2011 second quarter financial results. I am very pleased to report another strong quarter for the company.

We generated revenue of $9.4 million in the second quarter, up 15% year over year and above our guidance of $9 million to $9.2 million. The revenue growth that we delivered reflects the solid and predictable business that we have built based on our successful subscription model and our leadership in email encryption.

As we anticipated, new first year orders rebounded from a soft first quarter and reached $2 million in Q2, a 37% improvement sequentially and down only 3% from $2.1 million in the second quarter of 2010. As we stated on the last call, we believe the shortfall we experienced in new first year orders during the first quarter was related to several one-time occurrences, which excluding the impact of the tragedy in Japan, are now behind us. In fact, we are very confident that new first year orders in the back half of 2011 will be stronger than first half.

Total bookings in the second quarter were $12.5 million compared to $9 million in Q1. Our bookings backlog at the end of June was a company record $52.6 million, up 15% over Q2 2010.

We continued to deliver strong bottom line results, achieving our sixth consecutive quarter of GAAP profitability. GAAP net income for the second quarter was $2.6 million, which is a 74% increase over the $1.5 million we reported in the second quarter of last year.

Non-GAAP net income for the second quarter increased 25% year over year to a record $2.7 million, or $0.04 per share. On a cash basis, during the quarter, we generated approximately $2.5 million in cash flow from operations, an increase of $1.5 million year over year.

We ended the quarter with a commercial paper and cash balance of $17.1 million, a decrease of $400,000 compared to the ending cash balance last year at this time. This is very healthy, in that during the second quarter, we completed our repurchase program with the purchase of $10 million worth of our stock. Mike English will provide more details on the buy back in his prepared remarks.

Let’s turn now to some comments about the market and our leadership position. We are seeing continued growth in the Zix directory, which now has over 27 million members that include some of the most respected institutions in the country. This cloud based, shared directory architecture, the only one of its kind, allows for unequaled ease of use, most notably through our transparent email encryption capability, and it continues to grow by approximately 100,000 new users per week.

Two independent industry analysts validated our position as the number one provider of email encryption in the marketplace. These analysts’ reports affirmed our number one ranking atop the email encryption vendor landscape.

One report from Infinity Research detailed the global email encryption market, and named Zix Corp as the number one provider ahead of Cisco, Semantic and MacAfee, to name a few.

The second report was the result of a survey conducted by the Ponemon Institute, which once again, declared Zix Corp as the number one provider. This is in addition to previous such declarations from Gardner and Osterman Research. It’s encouraging to see our leadership firms and the number one ranking gives confidence to prospects and customers as they make decisions to buy and renew from Zix Corp.

We are proud of the leadership position we hold and intend to extend our leadership with continued technology investments, unequalled customer service and ever expanding coverage and distribution.

I mentioned a recent Ponemon survey. That same survey showed that the majority of respondents also believe that insecure email is one of their major sources of data leakage in companies today. So the problem we solve is very important, and our leadership position is both enviable and timely.

Let me share some perspective regarding today’s buyers. As I reflect on the first half of this year, an interesting dynamic to note in the market is that our customers have become far more educated as the make decisions on the need for secure communications.

While even as recently as last year, many customers in the market had viewed encryption as a commodity, now the market is much more interested in the details to assure an effective solution; policy based encryption in the precision of the vendor’s policy filters, product architecture, which is where our Zix directory excels, comprehensive security features and increasingly, ease of use for both senders and receivers of encrypted email.

Also very recently, everyone wants to talk about mobility where our newly delivered Zix mobility product stands out as best in class. Given the better educated set of buyers, we believe that our investments over the years and our resultant superior offering have significantly separated us from our competition and will allow Zix to maintain its leadership position and take market share in this growing market.

Now some specifics on what we saw during the second quarter. As many of you know, we have three core sources of new orders. The first is our Direct Enterprise group, which sells direct to large commercial enterprises.

The second is our Corporate group, based in Burlington, Massachusetts. This is primarily an inside sales team that sells into small and medium business market and to the Federal government, often working closely with what is now more than 135 value added resellers and named securities service partners.

The third source is our large OEM partners, including Google, Symantec, Web Root, Marshal 86 and others, and in this category of large OEM partners, we can now add Dell to this list, in that they resell our email encryption service through our Web Root agreement.

In terms of new orders in the second quarter, the most notable change from Q1 was the significant increase in contribution from our Corporate sales group, recovering from a weak Q1. In Q2, they represented 42% of our new first year orders.

Our large OEM partners remained strong during the quarter, representing 23% of new first year orders and our Enterprise team contributed the rest for 31%.

Now, some of the notable wins we saw during the quarter. We strengthened our distribution partnerships with the addition of Azaleas Corporation. Azaleas Corporation, a key Verizon supplier is a leading provider of cloud based email and collaboration services, and is obviously a natural fit for Zix.

Azaleas proves a flexible set of remotely managed services for unified communications, including exchange, share point, link and active directory on a single platform available in private cloud based or on premise solutions. Azaleas can now deliver an even stronger and more compelling regulatory compliance and ease of use story for their new or existing customers.

We also added Paradigm Development Systems, or PDS, a large IT management services company that supports several hundred clients and will now exclusively resell our solutions. PDS provides technology products, services and solutions to medium and large sized organizations across the country. PDS architects, supplies, implements and manages IT for organizations in four primary markets; health care, government, higher education, corporate and professional services.

During the quarter we also renewed our agreement with X Defenders, one of our large resellers, who will continue to incorporate our six corp solution into their hosted managed Zebra collaboration suite. X Defenders was an early adaptor for us and has been a strong partner with Zix since 2005.

We also had several strong customer wins during the quarter. We are always pleased when we replace a competitive product in the field, as we did with Members First Federal Credit Union, who was using Cisco. With this change, our customer immediately recognized the benefits of our ease of use.

Our cloud based architecture enables our customers to easily transfer from a legacy solution and be up and running quickly. The Zix directory can connect them with many of the key financial regulators, business partners and other financial institutions that are already part of our cloud based directory. This continues to be a key differentiator and selling point for our company.

Another notable customer win in the quarter was ICON, which is a worldwide provider of lab services, specializing in pre-clinical drug trials for large pharmaceutical companies. This is another exciting win for us in a key area that we’ve mentioned previously, which is machine driven or application generated encrypted email.

Overall, we are pleased with our progress in continuing to sign new customers, renew existing customers and further broaden our coverage and distribution, all of which will contribute to our growth. Specifically, over the last 12 month period, we added over 1,000 net new customers and maintained a renewal rate in excess of 90%.

And let me remind you that because most of our contracts a multi-year, this 90% is applied over the course of the year to a sub set of our base, and therefore our annual loss from non-renewals is actually less than 5%.

On the product front, I am very pleased to announce that we’ve begun to roll out our new Zix mobility solution to both new and existing customers. It has generated tremendous response and strong acceptance in the market.

This robust solution brings seamless email encryption designed specifically for the user’s particular device and is unrivalled in the industry. Frankly, the over pushed based technology used by most of our competition, simply doesn’t work in the mobile environment or is far too cumbersome to really be used effectively.

We are rolling out Zix mobility at no additional charge to our paying customers so that we can continue to differentiate our solutions and to give us additional pricing power in new deals and renewals. Needless to say, we are extremely excited with the successful launch of the product and the initial positive feedback.

During the quarter, we also launched our new Zix access product, which is focused on generating new leads from non-Zix paying customers that receive tens of thousands of messages from our paying customer base.

Zix access allows their employees to receive all of their Zix encrypted messages transparently without the need to go to a portal or to enter a password, eliminating any workload disruptions. Having just trained our sales force and launched this product 90 days ago, it is still too early in the process to have any meaningful indication of sales potential.

However, we believe this product, which is aimed at our non-Zix paying customers will highlight the functionality and added benefits that these users could be getting if they were using our full solution.

Another area I’m excited to discuss today is Zix Corp’s support for the recently announced Microsoft Office 365 environment. As I think most of you know, Microsoft recently announced Office 365. It is a cloud based application suite that is the successor to the Microsoft Business Productivity Online Suite, or BPOS.

Zix Corp enables easy integration by leveraging Microsoft’s outbound smart host connector capability to route email from the Microsoft hosted email service to Zix Corp email encryption services. We are currently testing this capability for one of our largest customers.

I believe this now positions us as the most flexible choice for our customers. Zix Corp customer considering the cloud can decide to integrate our services via the Google Cloud, via Microsoft and the 360 environment or through any of our managed service providers that offer email hosting, including our new partner Azaleas.

Now, I will turn the call over to Mike English and after his remarks, we will open the call for questions. Before Mike gets started though, I had an important announcement to make.

I am pleased to announce that Mike English is now our Vice President and Chief Financial Officer. Mike has been with us now for four years and has developed a very strong knowledge of our business and he has proved, respected leadership skills. He was a natural choice for this role.

Mike English

Thanks Rick and good afternoon everyone. As Rick mentioned, we are pleased to report strong results for the second quarter by key financial metrics; revenue, GAAP and adjusted net income and EBITDA. GAAP net income was $2.6 million for the quarter as compared to $1.5 million for the same period in 2010.

Let me detail the second quarter financial results beginning with revenue. We achieved record revenues from continuing operations of $9.4 million for the second quarter, which compares to $8.2 million for the second quarter of 2010. This is above our previous upper end guidance of $9.2 million.

Our OEM partners drove approximately $400,000 of the revenue increase, a 63% improvement from the second quarter a year ago. Our direct sales to enterprise and corporate customers, including through our resellers and managed security service providers drove the remaining growth.

We ended the second quarter with booking backlog of $52.6 million, which is a 15% increase over the $45.6 million backlog at the end of second quarter 2010. As a reminder to everyone, our backlog is comprised of contractual commitments that we expect to amortize into revenue in the future as the services are performed.

The timing of the revenue recognition from the backlog is affected by both the length of time required to deploy a service and the length of the service contract. We anticipate approximately 57% of the backlog being recognized into revenue within the next 12 months.

Let’s move on to look at our various margins as well as the details on our expenses. We achieved second quarter adjusted gross profit from continuing operations of $7.7milion, 82% of revenues. This compares to $6.7 million, 81% of revenues for the same quarter last year. On a sequential basis, it compares to $7.5 million or 81% of revenues for the first quarter of 2011.

With regard to adjusted operating expenses from continuing operations, adjusted R&D and SG&A expenses totaled $5 million in the second quarter of 2011 compared to $4.8 million for the same period last year.

Adjusted R&D expenses were $1.3 million in the second quarter of 2011 compared to $1.2 million in the second quarter of 2010. SG&A expenses for the second quarter were $3.7 million, an increase of $100,000 over the same period last year.

Adjusted operating margin for the second quarter was $2.7 million, 29% of revenues. This compares to a margin of $2 million or 24% of revenues for the same quarter last year. Adjusted operating margin year to date was $5.2 million, 28% of revenues.

Our adjusted EBITDA for the second quarter was $3 million compared to $2.6 million in the same quarter of 2010. The adjusted EBITDA margin for the second quarter was 32.3% while the year to date margin was 31.7%.

Capital expenditures for the second quarter were $470,000 and depreciation expense for the quarter was approximately $341,000. Depreciation is recorded in the various P&L line items, with approximately 72% recorded in cost of revenues.

Pending cash including commercial paper investments was $17.1 million, a decrease of approximately $7 million from the Q1, 2011 ending cash balance. Compared to this time last year, cash including commercial paper investments decreased $400,000.

The decrease in the second quarter was driven by the repurchase of $10 million of Treasury stock, which more than offset the cash provided by operating activities, by stock option and warrant exercises.

During the second quarter, under our previously announced share repurchase program, we repurchased approximately 2.9 million shares at a weighted average price of $3.40 per share. The second quarter purchases bring the previously announced $15 million share repurchase program to a close.

For the total program that spanned the first and second quarters, we repurchased approximately 4.3 million shares at a weighted average price of $3.48 per share.

Adjusted net income for the second quarter was $2.7 million, which compares to $2.2 million for the same period in 2010. Our adjusted net income for fully diluted share of common stock for the quarter was $0.04 versus $0.03 for the same period in 2010.

Let’s now move to guidance for 2011. For the third quarter of 2011, we project our fully diluted adjusted earnings per share to be $0.04 per share on a projected revenue guidance ranging from $9.5 million to $9.7 million.

For full year guidance, we reaffirm previously issued 2011 revenue guidance of $38 million to $40 million and fully diluted adjusted earnings per share of $0.14 to $0.16. Adjusted EBITDA margin percent is expected to be in the low 30’s and adjusted operating margin in the high 20’s.

In closing, I would like to say again that we are pleased with the second quarter operating results and look forward to continued strong performance in 2011. With that, I’ll turn it back to Rick.

Rick Spurr

Thank you Mike. Before I turn the call over to the operator, I would like to mention the exciting addition of Dr. Taher Elgermal of the Zix Corp Board of Directors. Taher is an internationally recognized leader in the field of data security and a cryptographic expert. He is thus known as the father of SSL and at one time, served at Netscape’s Chief Scientist.

He has served on several public company boards and founded several companies. I had the good fortune of working with Taher before, and I look forward to working with him again, so that Zix Corp can benefit from his vision and experience.

Now let’s turn the call back to the operator to see if you have any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And the first question comes from the line of Mike Malouf of Craig-Hallum Capital. Please proceed.

Mike Malouf – Craig-Hallum Capital

Hey, thanks a lot and hi Rick and hi Mike, and Mike, congratulations on the promotion. Well deserved.

Mike English

Thanks Mike.

Mike Malouf – Craig-Hallum Capital

I wanted to start off with just a question on Microsoft. That sounds great that you’re compatible. Could you just broaden your comments a little bit? Is there – what is the actual difference between maybe this agreement and some of the agreements that have been announced from some of the competitors and is there any chance that this agreement could be expanded in the future or is this sort of what you were hoping to get out of this? Thanks.

Rick Spurr

So to be clear, this isn’t an agreement other than the fact that Microsoft has announced this smart host connector capability, which is available to allow their customers to route their mail to other smart host providers like ourselves, in our case, providing email encryption.

I think the most substantive difference between this and whatever other announcements I’ve seen is the fact that we are actually in the process of testing with a very large customer, so this isn’t some interesting idea, but actually something that’s not in production but is certainly operational.

Mike Malouf – Craig-Hallum Capital

Can it be expanded or do you want to expand it in any other way or is this pretty much the opportunity as we see it.

Rick Spurr

I can’t predict the future Mike. I mean we would expand any relationship that would benefit our shareholders, but...

Mike Malouf – Craig-Hallum Capital

Okay. Let me just move on to gross margins real quick. Mike, maybe you can help me here. I don’t have too many companies that I follow that have higher than 100% incremental gross margin so maybe you could just tell me a little bit about why those gross margins popped up more so than even the revenue lines on a sequential basis. Thanks.

Mike English

So Mike, just so I’m clear, when you say incremental gross margins greater than 100%, what do you mean by that?

Mike Malouf – Craig-Hallum Capital

I mean that your gross profit dollars went up more than your revenue dollars on a sequential basis.

Rick Spurr

He’s talking about absolute dollars.

Mike English

Well the margin, obviously just a function of the revenue running at about 81% to 82%, and that has been consistent. So for Q2, we saw the increase in the revenue. Depending on the mix and the timing, some of that revenue may be on hold and when it is released from hold for whatever reason; a customer changes their deployment or any number of things that might release it, the expenses relating to that deployment may have already been booked in a prior period.

So there may be things like that going on although it’s generally not the kind of thing that we see pop up all the time. Generally, it’s a pretty good match but what you’re seeing here is there might be just a bit of a timing thing, Mike.

Mike Malouf – Craig-Hallum Capital

Okay, great. That’s helpful. And then just a final question; with regards new first year orders Rick, you had said on the call that you expect them to be higher than they were, higher than they are. I can’t remember. Did you say the back half is going to be better than the front half?

Rick Spurr

Yes.

Mike Malouf – Craig-Hallum Capital

Or is it going to better than the half last year?

Rick Spurr

No, I said the first thing Mike. I said that the back half of this year, 2011, we expect will be stronger than the first half of this year 2011.

Mike Malouf – Craig-Hallum Capital

Okay. So okay. And then do you think that you have the potential to be up year over year on the back half to back half basis?

Rick Spurr

We have that potential, yes.

Mike Malouf – Craig-Hallum Capital

Is that likely to get the growth going back in the right direction or is it – is there something else going on now that we’ve gotten through some of these onetime events?

Rick Spurr

State your question again. When you say growth, growth on what metric?

Mike Malouf – Craig-Hallum Capital

When you take a look at the back half of 2010, you did $4.3 million in new first year orders and I’m just wondering what would hold us back from growing in the back half of 2011 versus that 2010 metric given that we’ve gone through or that we’ve gone past all of these onetime issues that we faced in the first quarter?

Rick Spurr

Yeah, so I’m not predicting that we will, but I told you we certainly could. And if we didn’t, then in my mind, it would only be a function of slowness in the market in a general sense as opposed to any specific event or occurrence or product or competition or anything like that. So it’s just our inability to predict the acceleration of the market that keeps me from giving you more.

Mike Malouf – Craig-Hallum Capital

And are you seeing a slowdown in the overall market?

Rick Spurr

Well no. No, we’re not. But I would have told you that last quarter too and yet our numbers didn’t reflect it so I have to be cautious. The market is as strong as it’s ever been Mike in terms of activity and interest and pipeline and all that.

Mike Malouf – Craig-Hallum Capital

Okay, great. Thanks for the help guys.

Rick Spurr

Thank you.

Operator

And the next question comes from the line of Jonathan Ruykhaver of Morgan Keegan. Please proceed.

Jonathan Ruykhaver – Morgan Keegan

Hey Rick. Hey Mike.

Rick Spurr

Hi Jonathan.

Mike English

Hi Jonathan.

Jonathan Ruykhaver – Morgan Keegan

Hey, did you disclose the percent of revenues from the OEM channel Rick?

Rick Spurr

I think Mike did.

Mike English

I don’t know if we did.

Rick Spurr

Mike’s looking it up. I thought that...

Jonathan Ruykhaver – Morgan Keegan

You mentioned the strength on your direct side through your reseller and managed services channel. Was the OEM channel in line with your expectations or was there some weakness there?

Rick Spurr

No, there was no weakness. I said that it represented on the first year new order side, I think I said 23% and that was up from 21%, which is not a weakening. It’s fundamentally better. A little better. And then on the revenue view through the prism...

Mike English

Yeah, the revenue continued to grow. We mentioned Jonathan that our OEM partners drove approximately $400,000 of the revenue increase and year over year, that particular metric improved 63%.

Jonathan Ruykhaver – Morgan Keegan

Okay. Okay, that’s nice. And given these new partnerships, I know that nothing is formalized with Microsoft and it sounds like there’s a big opportunity with one customer and also with potentially other partners on the OEM side. Would you expect that contribution from OEM’s to continue to grow as a percentage of total revenues in the second half? Just trying to get a sense for what channel you’re expecting greater growth from; your managed services reseller and/or the OEM.

Rick Spurr

Okay. So just for clarity though Jonathan, so that we don’t mislead anybody, we are working with one of our largest customers to help them with their transition and then as a result of that, you would have this integration with Microsoft. That will not yield additional revenues for us. We already have an agreement with that client that’s in place. But, it will improve that capability and get the word out, helps us in the marketplace generally.

But back to your specific question; I have been saying for two years that once we get this OEM third party channel cranking and get their people trained, that logically, given the number of people that are out reselling our products, we would expect to see that be a greater and greater contributor to both sales and revenue over time, and there’s nothing that’s changed my view.

In fact, as you point out, we’ve added some additional resellers to the team, so all is good.

Jonathan Ruykhaver – Morgan Keegan

Okay. And can you elaborate a bit more. I didn’t quite catch what you said of a partnership. Would Dell be a Web Route. Can you give us some detail? What’s new between Dell and Web Route and how you participate in that?

Rick Spurr

You asked. Here we go. It’s pretty complicated. I’ll try to net it out. We had an OEM relationship with a company called Secure Works for a very long time, I think since 2004, 2005, and about I don’t know, nine months to a year ago, Secure Works said we want to still sell your products because we love you guys, but we don’t want to host your appliances anymore.

And that was just about the time we were doing our agreement with Web Route. So the two of them got together and said Secure Works would continue to resell the product, but Web Route would actually be the appliance hosting mechanism for them.

And then shortly thereafter, like within 60 days, and maybe their move was preparatory to this, but Dell acquired Secure Works. Now just coincidently, or as an added point, we’ve had a good relationship with Dell for years. They haven’t been as active or as forthright as they are now, but certainly we’ve done some reseller deals with them over the years and we have a strong relationship with them.

So this all just came together to where Dell is now offering a bundle on their website and if you peel back the onion, what you find is it’s being provided. It’s a hosted email encryption service being provided, powered by Web Route, which of course is in this instance, Zix. So long story, but it’s just becoming more visible and we think should portend good news for going forward.

Jonathan Ruykhaver – Morgan Keegan

When did Dell actively kind of put that other website and support it more in the marketplace?

Rick Spurr

My embarrassing admission is I don’t know, but it’s been there for the last few weeks. As far as I’m concerned, it’s pretty new, but...

Jonathan Ruykhaver – Morgan Keegan

Okay.

Rick Spurr

(inaudible) website and they don’t need my permission to post it so.

Jonathan Ruykhaver – Morgan Keegan

Just looking at the first year new order growth in the quarter, is that number for June, is that what you had anticipated? Are there any lingering issues from first quarter that make you think it might be more than just one time in nature or are you pretty comfortable that – just give us a little color on you already mentioned comfort with it growing in the second half, but just elaborate a little bit in terms of the details that support that as much as you can obviously.

Rick Spurr

Sure. Sure. Well in the first quarter, I said there was some one time occurrences. I said it was a re-organization in corporate sales. I’ve been pretty direct in saying that’s now behind us. Those guys are blown and going and selling again and as you see, contributed a significant amount to 2Q. That momentum seems to be positive and I expect will continue.

The Federal government budgeting thing is loosening up. We had some – oh, no we didn’t actually. We see it loosening up so we’re going to – we’re feeling pretty good about our Federal government expansion opportunity and I did mention in the script today, that the only impact that’s not resided is the implications from the Japanese tsunami where we had some big deals in motion that seem to have gone quite, and those are we expect still out there, but they’re not front and center.

Jonathan Ruykhaver – Morgan Keegan

So those deals in the guidance or not?

Rick Spurr

No.

Jonathan Ruykhaver – Morgan Keegan

No. Okay.

Rick Spurr

No.

Operator

(Operator Instructions). And the next question comes from the line of Alex Kuen [ph] from Morgan Keegan. Please proceed.

Alex Kuen [ph] – Morgan Keegan

Hey guys. I was just wondering what is the reason. Is it seasonality that’s kind of contributing to the kind of decline in OEM revenues sequentially from partners? I realize it’s up year over year but it seems like last quarter it was about $1 million where the kind of OEM contributions to new first year orders and this quarter it’s about $460,000.

Rick Spurr

Yeah, I think you’re mixing up new first year orders and revenue. There’s been no dramatic increase or decrease.

Alex Kuen [ph] – Morgan Keegan

Okay. I just wanted to clear it up.

Rick Spurr

I think the commentary about the revenue contribution, and you may have picked that up and put it in the wrong bucket and thinking that was the new first year order contribution. That was the revenue contribution, which of course is smaller and grows over time.

Alex Kuen [ph] – Morgan Keegan

Okay. So what was the OEM contribution for new first year orders for last quarter then?

Rick Spurr

Let me think about that. New is about – well it’s been flat at right around $500,000. So last quarter was $500,000 out of a $1.5 million. This quarter it was $500,000 on $2 million.

Alex Kuen [ph] – Morgan Keegan

Okay. Understood. That’s it for me.

Rick Spurr

Yeah. And by the way, there was not a pullback in the first quarter from our OEM business so on an absolute basis, they did fine in the first quarter. In fact, they were up 15% to 20% from the prior year’s quarter on quarter comparison. So the channels have been going great. The stumble in the first quarter was, as I repeated multiple times, the primarily the Corporate group that’s now back in the saddle.

Anything else?

Operator

And the next question comes from the line of Ian Kim [ph] from Lothan [ph] Capital Markets. Please proceed.

Ian Kim [ph] – Lothan [ph] Capital Markets

Yeah, hey guys, and Mike, congrats on the new position as well.

Mike English

Thanks Ian.

Ian Kim [ph] – Lothan [ph] Capital Markets

Just a couple; most of mine have been asked here. Just on the total bookings, you had $12.5 million it looks like. That’s the most it’s been here in a few years I got on my screen anyway. Just what went into that in terms of was it a preponderance of larger deals or was it just deal volume and what happened there?

Rick Spurr

So what will cause that to swing is the timing beyond just new orders of course. But what causes it to swing sometimes dramatically is the timing of renewals and particularly as it relates to our largest customers.

So our largest customer did not – was up like March 31st and they didn’t renew until four days later. So when you renew your largest customer in a given quarter, it’s a nice hike to your backlog and total orders of course.

Ian Kim [ph] – Lothan [ph] Capital Markets

Sure. Okay. All right. And then government, I heard, you said it was loosening a bit. Just in terms of performance, I mean was it safe to say it was ahead of what you thought it would be?

Rick Spurr

In the past quarter, Q2?

Ian Kim [ph] – Lothan [ph] Capital Markets

In Q2, yeah.

Rick Spurr

So actually in Q2 it didn’t contribute very much.

Ian Kim [ph] – Lothan [ph] Capital Markets

Okay.

Rick Spurr

Again, it’s in the works, but there was one deal in particular we thought we might end up taking, but it slid.

Ian Kim [ph] – Lothan [ph] Capital Markets

Okay. All right.

Rick Spurr

(inaudible) deal. I’m not trying to get everybody excited, but a deal. Other expansion stuff.

Ian Kim [ph] – Lothan [ph] Capital Markets

All right. And Japan, I missed what you said. Is it – you think those couple of larger deals come back in the pipeline at some point here? Are they back in the pipeline? What’s the story there?

Rick Spurr

They went quiet and they have not come back to life. I mean that the needs and the requirements still exist and so we hope they will come back to life, but right now, they’re quiet.

Ian Kim [ph] – Lothan [ph] Capital Markets

All right. That’s all I’ve got. Thanks.

Rick Spurr

All right. And thank you.

Operator

And we have no further questions as this time. I would now like to turn the call back over to Geoff Bibby for closing remarks.

Rick Spurr

So I just want to thank everybody for joining us today and for your continued interest and we’re all very excited here. We got a great quarter behind us and we’re looking forward to an exciting second half of 2011. Thank you.

Operator

This concludes the presentation for today. Ladies and gentlemen, you may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Zix Corporation's CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts