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If Zix Shares Fall Post-Earnings, It's a Buying Opportunity

Zix Corp. is seeing traction with its bundled solutions.
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Tuesday night, Zix Corp. (ZIXI) reported in-line EPS for the third quarter of 2017 and offered EPS guidance for the current quarter that matched the consensus expectation of the two analysts that follow the shares.

When we turn and look at revenue, however, Zix fell modestly short for the third quarter ($16.6 million versus the expected $16.83 million) and offered a softer-than-expected view on current quarter revenue ($16.6-$16.8 million versus the consensus of $17.3 million), but one that still equates to 7%-8% top line growth.

While we are disappointed in the revenue shortfall that appears to be the result of deployment slippages for newer products at partner-based accounts, there were still a number of positives to be had in the quarter.

First, the company is seeing traction with its bundled solutions, which include advance threat protection and email archiving, and should lead to larger sales and keep Zix competitive amid vendor down selection.

Second, the company's EBITDA margins ticked higher quarter over quarter, reflecting the better margins associated with its bundled offering.

Third, at current sales run rates, the company's quarter ending backlog spans more than four quarters, which offers ample visibility.

Even so, we'd note the company's backlog declined modestly vs. the June quarter, which alongside the modest revenue miss and softer revenue guidance could weigh on ZIX shares Wednesday morning.

Given the escalating cyber threat environment, we're inclined to be patient with the shares and gauge the uptake of recently introduced solutions. At 4.2% of the portfolio's overall assets, we have room to use any such post earnings weakness to scale into the position further.

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