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Zixit Corp. has a market cap of $152.27 million; its shares were traded at around $2.38 with a P/E ratio of 79.33 and P/S ratio of 4.97. ZIXI is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: As of June 30, 2010, Email Encryption backlog was $45,593,000 and we expect approximately 57% of the backlog to be recognized as revenue during the next twelve months. As of June 30, 2010, the Email Encryption backlog was comprised of the following elements: $17,657,000 of deferred revenue that has been billed and paid, $4,830,000 billed but unpaid, and approximately $23,107,000 of unbilled backlog relating primarily to the second and third years of multi-year contracts.
Email Encryption Orders — Total orders for Email Encryption were $9,598,000 and $9,966,000 for the three month periods ended June 30, 2010 and 2009, respectively. The decline in total Email Encryption orders in the second quarter 2010 compared to the same period in 2009 was attributable to a higher number of larger sized contacts scheduled for renewal in the second quarter 2009 and the length of those contracts. Total orders includes anticipated revenues from customer orders, which management groups into three categories: first twelve months of renewing contracts, NFYOs, and new and renewing orders beyond the first year of service in a multi-year service contract. NFYOs were $2,108,000 and $1,650,000 for the three month periods ended June 30, 2010 and 2009, respectively. We believe the increase in demand is the result of customers’ increased awareness of the need to protect sensitive information in transit and customers’ efforts to comply with new federal and state privacy regulations.
For the six month period ended June 30, 2010, the Cost of revenues improvement resulted primarily from (i) a $630,000 decrease in salary and benefits for individuals performing deployment activities due to a decrease in average headcount in the e-Prescribing product line, (ii) a $188,000 decrease in e-Prescribing device costs, (iii) a $90,000 decrease in travel costs, primarily related to e-Prescribing field services, (iv) an $84,000 decrease in stock-based compensation expense, and (v) a $21,000 net decrease in other various non-people costs primarily associated with decreased deployments of our e-Prescribing product. Although to a lesser extent, the year to date results include the aforementioned reassignment of e-Prescribing personnel.
Other income, net consists primarily of investment income. Investment income was $20,000 and $79,000 for the quarters ended June 30, 2010 and 2009, respectively. The change was primarily due to sublease income of $20,000 related to an operating lease in Ohio that expired in 2009 and a decrease in interest rates between periods. Also included in the three month periods ended June 30, 2010 and 2009, is interest expense of $5,000 and $6,000, respectively, which resulted from a third party note for a 36 month Microsoft license subscription.
Other income, net, consists of $56,000 investment income and $12,000 interest expense for the six month period ended June 30, 2010. For the same period in 2009, Other income, net consists of $147,000 investment income and $6,000 interest expense. Included in 2009 investment income is sublease income of $40,000. In the second quarter of 2009 we also recognized $36,000 of investment income related to an e-Prescribing project which was not generally released and was discontinued by customer request. The remaining variance is due to a decrease in interest rates between periods.
The Provision for income taxes was $90,000 and $26,000 for the three month period ended June 30, 2010 and 2009, respectively and $138,000 and $46,000 for the six month period ended June 30, 2010 and 2009, respectively. The operating losses incurred by the Company’s U.S. operations and the resulting net operating losses for U.S. Federal tax purposes are subject to a $112,348,000 reserve due to the historical uncertainty of future taxable income. Our 2010 provision for the six month period ended June 30, 2010, of $138,000 consists of taxes on our U.S. operations totaling $53,000, and Canadian operation totaling $69,000, and a small amount of state taxes based on gross revenues. The 2009 provision for income tax of $46,000 consisted of taxes on our Canadian operation totaling $96,000, a small amount of state taxes based on gross revenues and a $56,000 refund for historical U.S. tax credits.
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