Zix (ZIXI) To Report Q3 Earnings: What's In The Offing?

Zix Corporation (NASDAQ:ZIXI) is set to report third-quarter 2019 results on Oct 31.

For the quarter, the company expects revenues in the range of $47-$47.5 million. The Zacks Consensus Estimate is pegged at $47.3 million, indicating a whopping 164.5% rise from the prior-year reported figure.

Non-GAAP adjusted earnings per share are expected to be between 12 cents and 14 cents. The consensus estimate for earnings stands at 13 cents per share, suggesting 14.1% growth from the year-ago reported number.

The company’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, matching it once and missing it once, the average negative surprise being 0.63%.

In the last reported quarter, Zix’s non-GAAP earnings came in at 11 cents per share, which surpassed the Zacks Consensus Estimate of 10 cents, and also grew 51% year over year.

The company generated revenues of $45.9 million, surging 162.4% from the year-earlier quarter. It also outpaced the consensus estimate of $18 million, driven by new customer wins and cross selling.

Factors at Play

New customer wins are expected to have positively impacted Zix’s third-quarter performance. New product trials and higher cross sells, driven by the company’s sales team and channel partners, are expected to have been tailwinds in the third quarter.

High retention rate is also expected to have been a positive, reflecting Zix’s success in cross-selling its installed base.

Moreover, increase in adoption of Microsoft’s (NASDAQ:MSFT) Office 365 might have contributed to ARR (annual recurring revenue) growth during the quarter. This is because AppRiver, which was acquired by Zix earlier this year, is a preferred supplier of Office 365.

The company is also expected to have progressed further with the integration of AppRiver into its operations. On this front, the launch of ZixEncrypt and ZixArchive into the AppRiver platform in the second quarter is likely to have boosted adoption of these offerings in the third quarter.

The integration of AppRiver into Zix’s business is also expected to have benefited the latter’s earnings in the third quarter.

Furthermore, acquired assets of email security provider DeliverySlip are expanding Zix’s product suite and customer base, achieving cost savings, and creating additional cross-selling opportunities. This makes us optimistic about the acquisition’s impact on Zix’s top line and margins in the third quarter.

However, the company’s highly-leveraged balance sheet might have posed a concern.

What Our Model Says

The proven Zacks model does not conclusively predict an earnings beat for Zix this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Zix carries a Zacks Rank #3 and has an Earnings ESP of 0.00%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

Dell Technologies (NYSE:DELL) has an Earnings ESP of +0.78% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Science Applications International (NYSE:SAIC) has an Earnings ESP of +0.52% and is Zacks #3 Ranked.

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