Zix Reports Fourth Quarter and Full Year 2020 Financial Results

Continued Adoption of Secure Cloud Platform Drives Record 2020 Revenue of $218.5 Million and 21% Cloud ARR Growth Along with Strong Cash Flow from Operations of $31.3 Million

DALLAS–(BUSINESS WIRE)–Zix Corporation (Zix) (NASDAQ: ZIXI), a leading provider of cloud email security, productivity, and compliance solutions, today announced financial results for the fourth quarter and full year ended December 31, 2020.

Fourth Quarter 2020 Financial Highlights (results compared to the same year-ago quarter)

Revenue increased 15% to $57.9 million.
Annual recurring revenue (ARR) increased 14% to $237.7 million. Cloud ARR increased 21% to $206.6 million or 87% of total ARR.
GAAP net loss totaled ($2.9) million compared to a year ago net loss of ($3.1) million.
GAAP net loss attributable to common stockholders totaled ($5.3) million compared to a year ago net loss attributable to common stockholders of ($5.2) million. The company’s Q4 2020 net loss attributable to common shareholders includes the effect of a deemed dividend to preferred shareholders of $2.3 million and acquisition-related expenses of $1.0 million.
GAAP fully diluted earnings (loss) per share attributable to common stockholders totaled ($0.10) compared to ($0.10).
Non-GAAP adjusted net income before deemed dividends and excluding deferred tax (benefit) expense totaled $8.6 million compared to $6.7 million.
Non-GAAP adjusted net income per share before deemed dividends and excluding deferred tax (benefit) expense increased 25.2% to $0.16.
Adjusted EBITDA increased 17% or $1.9 million to $13.4 million, representing an adjusted EBITDA margin of 23%.
The company ended the quarter with $21.4 million in cash. Cash flow from operations for 2020 was $31.3 million, an increase of 124% or $17.3 million compared to 2019.

Recent Operational Highlights

Acquired CloudAlly, an industry leader in cloud-based data backup and recovery, expanding Zix’s product suite into Microsoft Office 365 backup and addressing growing demand from AppRiver’s Managed Service Provider (MSP) channel and Zix’s value-added reseller and direct channels.
99% of all new customers in Q4 2020 were brought onto the new Zix Secure Cloud platform, the company’s cloud-based security and threat protection platform designed for easy provisioning of multiple solutions.
Zix added 54,800 cloud mailboxes in Q4 2020, bringing the total number of productivity mailboxes to nearly 1.2 million.
Direct customers and MSP partners started 3,259 trials of SecureTide, ZixEncrypt and ZixArchive in Q4 2020.

Management Commentary

“The fourth quarter marked a strong finish to a successful and transformative year,” said David Wagner, Zix’s Chief Executive Officer. “We delivered profitable growth for the full year 2020 highlighted by 14% ARR growth, 26% revenue growth, and 29% adjusted EBITDA growth. Achieving these results in the face of a pandemic year is a testament to our team, our partners, our customers, and the resilience of our operating model. Our strategic prioritization in 2020 of investments in our indirect channels and in our Secure Cloud platform was already well timed, and the rapid shift to remote work caused by the pandemic provided further support for this emphasis. The recent, high-profile breaches remind us that Email remains the number one threat vector. Zix Secure Cloud provides security tools and a second layer of threat protection capability that are increasingly critical for small and medium sized enterprises. In Q4 we added cloud backup and recovery to provide robust data resiliency and protection against ransomware attacks that are another bane for our partners and customers. With our Secure Cloud platform and growing array of security compliance and productivity applications, we are positioned to benefit from strong secular growth drivers, including the increasingly dynamic threat landscape and move to the cloud.”

Zix’s Chief Financial Officer Dave Rockvam commented: “We again delivered on our commitment to drive profitable revenue growth, increased adjusted EBITDA, and we generated more than $31 million of operating cash flow for the year. Our continued success with productivity solutions has proven to be an effective beachhead for attaching Zix’s organic, higher-margin products. With more than 5,000 partners and 90,000 end customers today, we have a meaningful, built-in base. Secure Cloud is enabling our partners to accelerate new customer acquisition and is empowering our end customers to add more services, leading to our industry-leading LTV (Lifetime Value) to CAC (Customer Acquisition Cost) ratio. In Q4, 99% of customers on-boarded onto Secure Cloud, and in 2021 we will be migrating thousands of legacy Zix customers to Secure Cloud. As we enter 2021, we have a solid financial foundation and considerable cash flow generation, providing us with the resources and predictability to meet our debt obligations while at the same time executing our growth strategy.”


Fourth Quarter 2020 Corporate Financial Summary and Other Operational Metrics

*$ in Millions, except per share data*	Q4 2020	Q4 2019	Change ⁽¹⁾
Revenue	$57.9	$50.4	14.9%
GAAP Net Income (Loss)	($2.9)	($3.1)	4.4%
GAAP Net Income (Loss) Attributable to Common Stockholders	($5.3)	($5.2)	(1.7%)
GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted	($0.10)	($0.10)	0.4%
Non-GAAP Adjusted Net Income Attributable to Common Stockholders ⁽³⁾	$6.3	$4.6	35.5%
Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted ⁽³⁾	$0.12	$0.09	29.84%
Non-GAAP Adjusted Net Income Before Deemed Dividends⁽³⁾	$6.6	$9.0	(26.3%)
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends – Diluted⁽³⁾	$0.12	$0.17	(27.8%)
Non-GAAP Adjusted Net Income Before Deemed Dividends and Excluding Deferred Tax (Benefit) Expense⁽³⁾	$8.6	$6.7	27.8%
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends and Excluding Deferred Tax (Benefit) Expense⁽³⁾	$0.16	$0.13	25.2%
EBITDA ⁽²⁾⁽³⁾	$9.9	$5.6	77.2%
EBITDA Margin	17.1%	11.1%	6.0 pts
Adjusted EBITDA ⁽³⁾	$13.4	$11.5	16.5%
Adjusted EBITDA Margin ⁽³⁾	23.1%	22.8%	0.3 pts
Total Billings	$56.6	$49.3	14.7%


Full Year 2020 Corporate Financial Summary and Other Operational Metrics

*$ in Millions, except per share data*	FY 2020	FY 2019	Change ⁽¹⁾
Revenue	$218.5	$173.4	26.0%
GAAP Net Income (Loss)	($6.4)	($14.6)	56.1%
GAAP Net Income (Loss) Attributable to Common Stockholders	($15.5)	($24.6)	37.3%
GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted	($0.29)	($0.46)	38.4%
Non-GAAP Adjusted Net Income Attributable to Common Stockholders ⁽³⁾	$23.4	$13.0	80.5%
Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted ⁽³⁾	$0.43	$0.24	77.2%
Non-GAAP Adjusted Net Income Before Deemed Dividends⁽³⁾	$30.6	$27.4	11.9%
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends – Diluted ⁽³⁾	$0.57	$0.52	9.8%
Non-GAAP Adjusted Net Income Before Deemed Dividends and Excluding Deferred Tax (Benefit) Expense⁽³⁾	$32.5	$23.0	41.3%
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends and Excluding Deferred Tax (Benefit) Expense – Diluted⁽³⁾	$0.60	$0.43	38.7%
EBITDA ⁽²⁾⁽³⁾	$37.0	$15.4	139.9%
EBITDA Margin	16.9%	8.9%	8.0 pts
Adjusted EBITDA ⁽³⁾	$50.9	$39.5	28.9%
Adjusted EBITDA Margin ⁽³⁾	23.3%	22.8%	0.5 pts
Total Billings	219.1	170.2	28.7%

(1)	Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding
(2)	Earnings before interest, taxes, depreciation, and amortization
(3)	A reconciliation of GAAP to non-GAAP results is included in this press release and available on the Zix investor relations website at http://investor.zixcorp.com

Financial Outlook

Zix provides guidance based on current market conditions and expectations. The company emphasizes that its guidance is subject to various important cautionary factors referenced in the section entitled “Forward-Looking Statements” below, including risks and uncertainties associated with the COVID-19 pandemic.

For the first quarter of 2021, the company forecasts revenue to range between $58.7 million and $59.8 million. Zix’s revenue forecast for the first quarter of 2021 implies a 12% to 14% growth rate compared to the same year ago quarter. The company forecasts fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to be in the range of ($0.07) and ($0.06), and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense to be in the range of $0.15 and $0.16 for the first quarter of 2021. The company forecasts adjusted EBITDA to be between 22% and 23% of forecast revenue for Q1 2021. The per share guidance figures are based on an approximate basic share count of 55.1 million for Q1 2021.

Based on management’s current visibility, the company forecasts revenue for fiscal 2021 to range between $244.0 million and $248.5 million, representing an increase of between 12% and 14% compared to fiscal year 2020. The company also expects fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to range between ($0.27) and ($0.25) and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense to range between $0.58 to $0.60 for fiscal year 2021. The company forecasts adjusted EBITDA to be $56.0 million (or approximately 23% of forecast revenue) for 2021, representing a year-over-year increase of approximately 10% compared to fiscal year 2020. The per share figures are based on an approximate basic average share count of 55.5 million for 2021. Fiscal 2021 guidance adds back approximately $3.0 million of expenses related to travel, compensation, and marketing, which were reduced in 2020 due to COVID-19.

Conference Call Information

Management will discuss these financial results and outlook on a conference call today (February 25, 2021) at 5:00 p.m. ET (2:00 p.m. PT).

A live webcast of the conference call will be available in the investor relations section of Zix’s website here. Alternatively, participants can access the conference call by dialing 1-855-853-6940 (U.S. toll-free) or 1-720-634-2906 (international) at least 15 minutes before the call and entering access code 8193249. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

An audio replay of the conference will be available for seven days by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 8193249. An archive of the webcast will also be available on the Zix investor relations website.

About Zix Corporation

Zix Corporation (Zix) is a leader in email security. Trusted by the nation’s most influential institutions in healthcare, finance, and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection, unified information archiving and bring your own device (BYOD) mobile security. Focusing on the protection of business communication, Zix enables its customers to better secure data and meet compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visit www.zixcorp.com.

Forward-Looking Statements

As more fully described in Zix’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which was filed with the SEC on November 9, 2020, the company has been actively monitoring the COVID-19 situation and its impact on both the company and the world in which we operate. The impact of COVID-19 and unprecedented measures to prevent its spread are affecting our business in various ways such as causing volatility in demand for our products, changes in customer behavior, including their spending and payment patterns, disruptions in the operations of our third-party suppliers and business partners, and limitations on our employees’ and partners ability to work and travel. We expect the ultimate significance of the impact of the foregoing on our financial and operational results will be dictated by the length of time that these circumstances continue, which will depend on the currently unknowable extent and duration of the COVID-19 pandemic and governmental and public actions taken in response. These factors also make it more challenging for management to estimate the future performance of our business, particularly over the near term.

Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about forecasts of sales, revenue, annual recurring revenue, EBITDA, EBITDA margin, earnings or earnings per share, potential benefits of acquisitions and strategic relationships, or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to Zix on the date this release was issued. Zix undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including but not limited to, risks or uncertainties related to the completion and integration of acquisitions, the effects of our debt and equity financing transactions, year-end adjustments to previously reported preliminary unaudited financial information, market acceptance of both existing and new Zix solutions, changing market dynamics resulting from technological change, innovation and continuing customer migration to the cloud, changes in the competitive ecosystem, how privacy and data security laws may affect demand for Zix data protection solutions, and business disruptions, uncertainty and market instability stemming from the COVID-19 pandemic and governmental actions related thereto. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix’s business and its financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each as filed with the Securities and Exchange Commission, as those risk factors may be supplemented in subsequent filings.

We monitor ARR as an operating metric, which we define as the aggregate annualized contract value attributable to recurring revenue contracts as of the end of the applicable reporting period. We calculate ARR by determining the annual or monthly revenue of subscription agreements that are active as of the end of the applicable period and multiplying by 1 or 12. We monitor this metric to aid in determining to what extent individual customer relationships, considered in the aggregate, are growing or declining in financial magnitude. ARR is an operating metric derived as of the date of determination, and should be viewed independently of revenue, unearned revenue and any other GAAP financial measure over any period.

ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31,
		2020	December 31,
	(unaudited)			2019
ASSETS
Current assets:
Cash and cash equivalents	$	21,362,000	$	13,349,000
Receivables, net		16,831,000		10,081,000
Prepaid and other current assets		5,430,000		4,984,000
Total current assets		43,623,000		28,414,000
Property and equipment, net		7,345,000		8,591,000
Operating lease assets		14,259,000		10,128,000
Other assets and deferred costs		12,767,000		11,968,000
Intangible Assets, Net		144,163,000		145,876,000
Goodwill		195,013,000		171,209,000
Deferred tax assets		32,554,000		36,535,000
Total assets	$	449,724,000	$	412,721,000


LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	30,382,000	$	28,132,000
Deferred revenue		40,447,000		40,757,000
Other current liabilities		7,963,000		6,135,000
Total current liabilities		78,792,000		75,024,000
Long-term liabilities:
Deferred revenue		1,079,000		2,524,000
Operating and finance lease liabilities		10,208,000		9,105,000
Debt		209,658,000		178,250,000
Total long-term liabilities		220,945,000		189,879,000
Total liabilities		299,737,000		264,903,000
Total preferred stock		115,552,000		106,527,000
Total stockholders’ equity		34,435,000		41,291,000
Total liabilities, preferred stock and stockholders’ equity	$	449,724,000	$	412,721,000

ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
`


	Three Months Ended December 31,						Twelve Months Ended December 31,
		2020			2019			2020			2019
Revenue	$	57,867,000		$	50,380,000		$	218,478,000		$	173,428,000

Cost of revenue		30,498,000			24,043,000			112,763,000			76,908,000
Gross profit		27,369,000			26,337,000			105,715,000			96,520,000
Operating expenses:
Research and development		5,887,000			5,383,000			22,813,000			20,431,000
Selling, general and administrative		20,287,000			23,502,000			78,345,000			85,230,000
Total operating expenses		26,174,000			28,885,000			101,158,000			105,661,000

Operating income		1,195,000			(2,548,000	)		4,557,000			(9,141,000	)
Operating margin		2	%		-5	%		2	%		-5	%

Other income (expense)
Investment and other income (expense)		(21,000	)		6,000			83,000			121,000
Interest expense		(2,134,000	)		(2,707,000	)		(9,325,000	)		(10,105,000	)
Total other income (expense)		(2,155,000	)		(2,701,000	)		(9,242,000	)		(9,984,000	)

Income before income taxes		(960,000	)		(5,249,000	)		(4,685,000	)		(19,125,000	)
Income tax benefit (expense)		(1,985,000	)		2,170,000			(1,740,000	)		4,478,000

Net (loss) income	$	(2,945,000	)	$	(3,079,000	)	$	(6,425,000	)	$	(14,647,000	)

Deemed and accrued dividends on preferred stock		(2,311,000	)		(2,090,000	)		(9,025,000	)		(9,984,000	)

Net (loss) income attributable to common shareholders	$	(5,256,000	)	$	(5,169,000	)	$	(15,450,000	)	$	(24,631,000	)

Basic (loss) income per share attributable to common shareholders:	$	(0.10	)	$	(0.10	)	$	(0.29	)	$	(0.46	)

Diluted (loss) income per share attributable to common shareholders:	$	(0.10	)	$	(0.10	)	$	(0.29	)	$	(0.46	)

Shares used in per share calculation – basic		54,291,830			53,199,409			54,024,162			53,025,152

Shares used in per share calculation – diluted		54,291,830			53,199,409			54,024,162			53,025,152

Other Comprehensive income, net of tax:
Foreign currency translation adjustments		1,505,000			267,000			1,387,000			215,000
Comprehensive (loss) income	$	(1,440,000	)	$	(2,812,000	)	$	(5,038,000	)	$	(14,432,000	)

ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Twelve Months Ended December 31,
		2020			2019
Operating activities:
Net (loss) income	$	(6,425,000	)	$	(14,647,000	)
Non-cash items in net income		49,008,000			30,179,000
Changes in operating assets and liabilities		(11,303,000	)		(1,581,000	)
Net cash provided by operating activities		31,280,000			13,951,000

Investing activities:
Purchases of property and equipment and capitalized software		(18,010,000	)		(11,653,000	)
Acquisition of business, net of cash acquired		(30,046,000	)		(284,590,000	)
Net cash used in investing activities		(48,056,000	)		(296,243,000	)

Financing activities:
Proceeds from issuance of series A preferred stock, net of offering costs		–			96,588,000
Proceeds from exercise of stock options		334,000			415,000
Proceeds from long term debt		41,000,000			187,000,000
Debt issuance costs		(653,000	)		(6,444,000	)
Repayment of long term debt		(9,939,000	)		(1,363,000	)
Repayment of finance lease obligations		(1,339,000	)		(1,707,000	)
Payment of acquisition-related contingent consideration		(1,125,000	)		(3,843,000	)
Purchase of treasury stock		(2,733,000	)		(1,906,000	)
Net cash provided used in financing activities		25,545,000			268,740,000

Effect of exchange rate changes on cash		(756,000	)		(208,000	)

(Decrease) Increase in cash and cash equivalents		8,013,000			(13,760,000	)
Cash and cash equivalents, beginning of period		13,349,000			27,109,000
Cash and cash equivalents, end of period	$	21,362,000		$	13,349,000

ZIX CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)

		Three Months Ended						Twelve Months Ended
		December 31,						December 31,
			2020			2019			2020			2019
Revenue:
GAAP revenue		$	57,867,000		$	50,380,000		$	218,478,000		$	173,428,000

Cost of revenue
GAAP cost of revenue		$	30,498,000		$	24,043,000		$	112,763,000		$	76,908,000
Stock-based compensation charges (1)	(A)		(97,000	)		(147,000	)		(1,201,000	)		(569,000	)
Strategic consulting and litigation costs (2)	(B)		(1,000	)		(93,000	)		(116,000	)		(386,000	)
Intangible Amortization (3)	(C)		(2,740,000	)		(2,660,000	)		(10,172,000	)		(7,132,000	)
Corporate separation payment (4)	(D)		–			–			(867,000	)		(52,000	)
Non-GAAP adjusted cost of revenue		$	27,660,000		$	21,143,000		$	100,407,000		$	68,769,000

Gross profit:
GAAP gross profit		$	27,369,000		$	26,337,000		$	105,715,000		$	96,520,000
Stock-based compensation charges (1)	(A)		97,000			147,000			1,201,000			569,000
Strategic consulting and litigation costs (2)	(B)		1,000			93,000			116,000			386,000
Intangible Amortization (3)	(C)		2,740,000			2,660,000			10,172,000			7,132,000
Corporate separation payment (4)	(D)		–			–			867,000			52,000
Non-GAAP adjusted gross profit		$	30,207,000		$	29,237,000		$	118,071,000		$	104,659,000

Research and development expense
GAAP research and development expense		$	5,887,000		$	5,383,000		$	22,813,000		$	20,431,000
Stock-based compensation charges (1)	(A)		(456,000	)		(292,000	)		(1,641,000	)		(1,056,000	)
Strategic consulting and litigation costs (2)	(B)		(5,000	)		(686,000	)		(137,000	)		(1,481,000	)
Intangible Amortization (3)	(C)		(76,000	)		(76,000	)		(303,000	)		(303,000	)
Corporate separation payment (4)	(D)		–			–			(128,000	)		(235,000	)
Non-GAAP adjusted research and development expense		$	5,350,000		$	4,329,000		$	20,604,000		$	17,356,000

Selling and marketing expense
GAAP selling and marketing expense		$	14,191,000		$	17,580,000		$	56,479,000		$	54,903,000
Stock-based compensation charges (1)	(A)		(648,000	)		(350,000	)		(2,524,000	)		(1,941,000	)
Strategic consulting and litigation costs (2)	(B)		(7,000	)		(2,175,000	)		(219,000	)		(3,427,000	)
Intangible Amortization (3)	(C)		(3,279,000	)		(3,433,000	)		(12,612,000	)		(10,478,000	)
Corporate separation payment (4)	(D)		(114,000	)		(171,000	)		(553,000	)		(811,000	)
Non-GAAP adjusted selling and marketing expense		$	10,143,000		$	11,451,000		$	40,571,000		$	38,246,000

General and administrative expense
GAAP general and administrative expense		$	6,096,000		$	5,922,000		$	21,866,000		$	30,327,000
Stock-based compensation charges (1)	(A)		(1,160,000	)		(636,000	)		(4,344,000	)		(2,685,000	)
Strategic consulting and litigation costs (2)	(B)		(973,000	)		(1,328,000	)		(2,098,000	)		(10,755,000	)
Corporate separation payment (4)	(D)		–			–			(109,000	)		(689,000	)
Non-GAAP adjusted general and administrative expense		$	3,963,000		$	3,958,000		$	15,315,000		$	16,198,000

Operating income:
GAAP operating income		$	1,195,000		$	(2,548,000	)	$	4,557,000		$	(9,141,000	)
Stock-based compensation charges (1)	(A)		2,361,000			1,425,000			9,710,000			6,251,000
Strategic consulting and litigation costs (2)	(B)		986,000			4,282,000			2,570,000			16,049,000
Intangible Amortization (3)	(C)		6,095,000			6,169,000			23,087,000			17,913,000
Corporate separation payment (4)	(D)		114,000			171,000			1,657,000			1,787,000
Non-GAAP adjusted operating income		$	10,751,000		$	9,499,000		$	41,581,000		$	32,859,000
											$	–
Adjusted Operating Margin			18.6	%		18.9	%		19.0	%		18.9	%


Net income:
GAAP net (loss) income		$	(2,945,000	)	$	(3,079,000	)	$	(6,425,000	)	$	(14,647,000	)
Stock-based compensation charges (1)	(A)		2,361,000			1,425,000			9,710,000			6,251,000
Strategic consulting and litigation costs (2)	(B)		986,000			4,282,000			2,570,000			16,049,000
Intangible Amortization (3)	(C)		6,095,000			6,169,000			23,087,000			17,913,000
Corporate separation payment (4)	(D)		114,000			171,000			1,657,000			1,787,000
Non-GAAP adjusted net income		$	6,611,000		$	8,968,000		$	30,599,000		$	27,353,000


Deferred tax (benefit) expense			1,990,000			(2,236,000	)		1,861,000			(4,387,000	)
Non-GAAP adjusted net income excluding deferred tax (benefit) expense		$	8,601,000		$	6,732,000		$	32,460,000		$	22,966,000


Deemed and accrued dividends on preferred stock			(2,311,000	)		(2,090,000	)		(9,025,000	)		(9,984,000	)
Adjusted Net income attributable to common stockholders		$	6,290,000		$	4,642,000		$	23,435,000		$	12,982,000


Diluted net income per common share:
GAAP net income per share before deemed dividends		$	(0.05	)	$	(0.06	)	$	(0.12	)	$	(0.28	)
Adjustments per share	(A-D)	$	0.18		$	0.23		$	0.69		$	0.80
Non-GAAP adjusted net income per share before deemed dividends		$	0.12		$	0.17		$	0.57		$	0.52


Deferred tax (benefit) expense impact to Non-GAAP adjusted net income before deemed dividends per share	(E)	$	0.04		$	(0.04	)	$	0.03		$	(0.09	)
Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense		$	0.16		$	0.13		$	0.60		$	0.43


Deemed dividends per share impact to Non-GAAP adjusted net income		$	(0.04	)	$	(0.04	)	$	(0.17	)	$	(0.19	)
Adjusted Net income per share attributable to common stockholders		$	0.12		$	0.09		$	0.43		$	0.24


Shares used to compute Non-GAAP adjusted net income per share – diluted			54,291,830			53,199,409			54,024,162			53,025,152

Reconciliation of Net income to EBITDA and Adjusted EBITDA:	(F)
Net income		$	(2,945,000	)	$	(3,079,000	)	$	(6,425,000	)	$	(14,647,000	)
Income tax provision			1,985,000			(2,170,000	)		1,740,000			(4,478,000	)
Interest expense			2,134,000			2,707,000			9,325,000			10,105,000
Depreciation			1,215,000			1,355,000			5,016,000			4,992,000
Amortization			7,509,000			6,772,000			27,313,000			19,437,000
EBITDA			9,898,000			5,585,000			36,969,000			15,409,000

Adjustments:
Stock-based compensation charges (1)	(A)		2,361,000			1,425,000			9,710,000			6,251,000
Strategic consulting and litigation costs (2)	(B)		986,000			4,282,000			2,570,000			16,049,000
Corporate separation payment (4)	(D)		114,000			171,000			1,657,000			1,787,000
Adjusted EBITDA		$	13,359,000		$	11,463,000		$	50,906,000		$	39,496,000

Adjusted EBITDA margin			23.1	%		22.8	%		23.3	%		22.8	%

(1) Stock-based compensation charges are included as follows:
Cost of revenues		$	97,000		$	147,000		$	1,201,000		$	569,000
Research and development			456,000			292,000			1,641,000			1,056,000
Selling and marketing			648,000			350,000			2,524,000			1,941,000
General and administrative			1,160,000			636,000			4,344,000			2,685,000
		$	2,361,000		$	1,425,000		$	9,710,000		$	6,251,000
(2) Strategic consulting, acquisition, integration and litigation costs are included as follows:
Cost of revenues			1,000			93,000			116,000			386,000
Research and development			5,000			686,000			137,000			1,481,000
Selling and marketing			7,000			2,175,000			219,000			3,427,000
General and administrative			973,000			1,328,000			2,098,000			10,755,000
		$	986,000		$	4,282,000		$	2,570,000		$	16,049,000
(3) Intangible Amortization is included as follows:
Cost of revenues			2,740,000			2,660,000			10,172,000			7,132,000
Research and development			76,000			76,000			303,000			303,000
Selling and marketing			3,279,000			3,433,000			12,612,000			10,478,000
		$	6,095,000		$	6,169,000		$	23,087,000		$	17,913,000
(4) Corporate separation payment is included as follows:
Cost of revenues			–			–			867,000			52,000
Research and development			–			–			128,000			235,000
Selling and marketing			114,000			171,000			553,000			811,000
General and administrative			–			–			109,000			689,000
		$	114,000		$	171,000		$	1,657,000		$	1,787,000

(5) Net Income tax components:
Current tax (benefit)/expense			(5,000	)		66,000			(121,000	)		(91,000	)
Deferred tax (benefit)/expense			1,990,000			(2,236,000	)		1,861,000			(4,387,000	)
		$	1,985,000		$	(2,170,000	)	$	1,740,000		$	(4,478,000	)