Email encryption expert Zix (Nasdaq: ZIXI) doesn't look terribly sexy today.
The company reported third-quarter results last night, and in response, share prices have fallen more than 12% at the time of this writing. I think it's safe to say that investors are disappointed.
Management bends over backwards to highlight that $9.6 million of revenue and net income of $0.04 per share met official guidance figures. "Zix Corporation Meets Guidance" is the title of the press release, for crying out loud. Indeed, the published results fell smack in the center of the original guidance ranges.
To close out the fiscal year, Zix once again reaffirmed that earnings will land near the top end of earlier full-year guidance around $0.16 per share, while sales end up closer to the bottom end, or $38 million. Analysts have seen these numbers repeated a couple of times already, so it should be no surprise that nobody was surprised.
But Zix did have some ugly surprises buried under the raw numbers. OEM sales in the quarter were down by about 20% year-over-year, which is an unusual change for Zix and a big surprise to analysts. Major client Google (Nasdaq: GOOG) isn't showing any signs of slowing down, and Symantec (Nasdaq: SYMC) remains a valued partner with a "good relationship" to Zix, in the words of CEO Rick Spurr. Privately held Webroot, on the other hand, has "some fundamental issues to deal with." And everybody is working in the shadow of economic uncertainty.
The company set financial records in many areas, with the notable exception of new orders from first-year customers. That's a troubling area to find weakness in, because it's hard to maintain reasonable growth on just signing bigger contracts with existing clients -- new accounts are crucial to a strong business in any service-oriented field.
Of course, management keeps a stiff upper lip and expects that unfortunate condition to go away in the next quarter. Remember that when the next report comes in. For the record, Spurr told us three months ago to expect a strong second half in this area. That promise isn't exactly on track so far.
It sounds to me like larger rivals such as the security divisions of EMC (NYSE: EMC), Cisco Systems (Nasdaq: CSCO), and Websense (Nasdaq: WBSN) might be stealing potential new accounts from under Zix's nose. Management had better get on top of that situation before things get out of hand and customers like Google start casting bedroom eyes on the competition.
Can Zix get sexy again? Add the company to My Watchlist to follow its fortunes on a more intimate level.
