ZIX CORP MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)


NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Statements in this report which are not purely historical facts or which
necessarily depend upon future events, including statements about trends,
uncertainties, hopes, beliefs, anticipations, expectations, plans, intentions or
strategies for the future, may be forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. 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. Forward-looking statements in this document include,
among other things, statements about the proposed acquisition of Zix by
OpenText, and the anticipated timing of various aspects of the proposed
acquisition. Risks and uncertainties include, among other things, risks related
to the satisfaction or waiver of the conditions to closing the proposed
acquisition (including the failure to obtain necessary regulatory approvals) in
the anticipated timeframe or at all, including uncertainties as to how many of
Zix's stockholders will tender their shares in the tender offer and the
possibility that the acquisition does not close; the possibility that competing
offers may be received; risks related to obtaining the requisite consents to the
acquisition, including the timing (including possible delays) and receipt of
regulatory approvals from various governmental entities; risks and uncertainties
related to how privacy and data security law mandates may affect demand for
Zix's products, business disruptions, uncertainty and market instability
stemming from the COVID-19 pandemic, or variants thereof, as well as
governmental actions related thereto, and those risks additionally described in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Any
of these risk factors could have a material adverse effect on our business,
financial condition or financial results and reduce the value of an investment
in our securities. We may not succeed in addressing these and other risks
associated with an investment in our securities, with our business and with our
achieving any forward-looking statements. Readers are cautioned not to place
undue reliance on forward-looking statements. All forward-looking statements are
based upon information available to us on the date the statements are made. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

Overview



Zix® (the "Company," "we," "our," or "us") is a leading cloud provider of email
security, productivity and compliance solutions. 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, data loss
prevention ("DLP"), advanced threat protection, unified archiving and cloud data
backup. As a leading provider of cloud-based cybersecurity, compliance, and
productivity solutions for businesses of all sizes, we are focused on the
protection of business communication, enabling our customers to better secure
data and meet compliance needs. We serve organizations in many industries, with
particular emphasis on the healthcare (including multiple major hospitals and
several Blue Cross Blue Shield plans), financial services (including several
major U.S. Banks), and insurance and government (including the U.S. Securities
and Exchange Commission (the "SEC")) sectors.

Our email encryption and DLP capabilities enable the secure exchange of email
that includes sensitive information. Through a comprehensive secure messaging
service, called Email Encryption (formerly ZixEncrypt), we allow an enterprise
to use policy-driven rules to determine which email messages should be sent
securely or quarantined for review to comply with regulations or company-defined
policies.

The main differentiation for Email Encryption in the marketplace is our
exceptional ease of use. The best example of this is our ability to provide
transparent delivery of encrypted email. Most email encryption solutions are
focused on the sender. They typically introduce an added burden on recipients,
often requiring additional user authentication with the creation of a new user
identity and password. We designed our solution to alleviate the recipient's
burden by enabling the delivery of encrypted email automatically and
transparently. Zix enables transparent delivery through (1) The Directory
(formerly ZixDirectory®), an email encryption community which is designed to
share identities of our tens of millions of members, (2) Zix's patented Best
Method of Delivery®, which is designed to deliver email in the most secure, most
convenient method possible for the recipient, and (3) policy-based encryption,
which automatically encrypts and decrypts messages with sensitive content. Our
Email Encryption also addresses a business's greatest source of data loss -
corporate email- with an easy, straightforward DLP approach. By focusing
strictly on the risks of email, Email Encryption simplifies DLP in comparison to
other DLP solutions by decreasing complexity and cost, reducing deployment
time and minimizing impact on customer resources and workflow.

Our Email Encryption solution enables DLP capabilities for email by combining
proven policy and content scanning capabilities with quarantine functionality.
The quarantine system and its intuitive interface allow administrators to
(1) easily define policies and create custom lexicons for quarantining email
messages, (2) conveniently manage quarantined messages using flexible searching
and filtering options, (3) release or delete individual or multiple quarantined
messages with one click, (4) review reports that monitor quarantine activities
and trends and (5) automate custom notifications informing employees of
quarantined messages.

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In March 2017, Zix acquired Greenview Data, Inc. ("Greenview"), an email
security company. Zix's acquisition of Greenview addresses increasing buyer
demand for email security bundles by adding advanced threat protection,
antivirus, anti-spam and archiving capabilities to its industry-leading email
encryption. Greenview was a good fit for Zix's business based on its employees'
expertise in email security and its emphasis on customer success, which align
with Zix's reputation for delivering industry-leading solutions and a superior
experience.

Through the acquisition of Greenview, Zix launched two new solutions in April
2017 - ZixProtectSM and ZixArchiveSM. ZixProtect is now called Advanced Email
Threat Protection while ZixArchive is now called Information Archive. Advanced
Email Threat Protection defends organizations from zero-day malware, ransomware,
phishing, CEO fraud, W-2 phishing attacks, spam and viruses in email with
multi-layer filtering techniques. Accuracy in protecting organizations from
email threats is increased further with automated traffic analysis, machine
learning and real-time threat analysis. The solution is available as a
cloud-based service in a variety of bundles. Information Archive is a low-cost,
cloud-based email retention solution that easily enables user retrieval,
compliance and eDiscovery. Available as a standalone or add-on solution for
other products, Zix's Information Archive includes policy-based retention,
automatic indexing and flexible search capabilities for audit and legal
requirements. With on-demand access through the cloud, organizations can
conveniently share messages with employees, auditors and outside consultants or
legal counsel, as well as revoke access when needed.

In April 2018, Zix acquired Erado, a unified archiving company. Erado
strengthened Zix's comprehensive archiving solutions with unified archiving,
supervision, security, and messaging solutions for customers that demand bundled
services. Erado's long standing focus on helping its customers comply with FINRA
and SEC regulations helped further strengthen Zix's offerings for customers with
compliance requirements. This acquisition also expanded Zix's cloud-based email
archiving capabilities into more than 50 content channels, including social
media, instant message, mobile, web, audio and video.

On February 20, 2019, Zix acquired AppRiver, a leading provider of cloud-based
cybersecurity solutions for Small and Medium Businesses ("SMB"). The combined
company creates one of the leading cloud-based security solutions providers,
particularly for the small and mid-size enterprise market. This acquisition
further strengthened that alignment by bolstering our Advanced Threat Protection
offerings, expanding our go-to-market channels, and providing a stronger cloud
platform to drive even more value for our customers and partners. In addition,
we now can directly offer Microsoft's substantial catalog of productivity and
Microsoft Office 365 cloud email solutions.

At May 7, 2019, Zix acquired DeliverySlip, expanding our portfolio with additional solutions for email encryption, information rights management, electronic signatures and secure file sharing.

On November 5, 2020, Zix acquired CloudAlly, a pioneer of enterprise-grade,
software-as-a-service (SaaS) cloud backup and recovery solutions. CloudAlly
provides a secure cloud data backup solution for critical business information,
including backup services for Microsoft O365 cloud email, Google applications,
and Salesforce.

Our business operations and service offerings are supported by the ZixData
Centerâ„¢, which is ISO 27001 certified, SOC2 accredited and SOC 3 certified for
applicable services. The operations of the ZixData Center are independently
audited annually to maintain ISO 27001 certification covering numerous
categories and controls and AICPA SOC3 certification in the areas of security,
confidentiality, integrity and availability. Auditors also produce a SOC2 report
on the effectiveness of operational controls used over the audit period.

Our company was incorporated as a corporation in Texas in 1988. Originally named
Amtech Corporation, we changed our name to ZixIt® Corporation in 1999 when we
entered the encrypted email market. In 2002, we became Zix Corporation, and in
2017, the Company rebranded to Zix.



Impacts of COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel
strain of the coronavirus ("COVID-19") to be a pandemic. The pandemic has
resulted in significant, unpredictable, and rapidly changing impacts on the
United States and global economies. The COVID-19 pandemic and government
responses have included limiting the operations of non-essential businesses and
may result in long-term harm or permanent closures impacting our customers and
our vendors. While COVID-19 had a minimal impact to our first, second and third
quarter 2021 financial results, Zix has taken steps to ensure the resilience of
our company, while protecting the email security of our customers and the health
of our employees, including the following actions:

• Offer healthy email checks and evaluate other efficiency solutions

for our customers;

• Work with partners and customers to provide more flexible billing

schedules;

• Initially, over 95% of our employees opted for remote working arrangements

then move towards a mainly hybrid approach to working methods

        while maintaining the integrity of our data center operations and
        providing continued support for our customers;


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• Maintain effective governance and internal controls in remote work

environment;

• Reduce the salaries and fees of the officers of our board of directors in 2020;

• Implementation of a workforce reduction in 2020 and 2021, supplemented by

both voluntary and involuntary separation;

• Slowdown in our hiring plans and reduction in planned trips and conferences

expenses; and

• Continued review and adjustment of other operating expenses for

        savings, including reduction of excess capacities in our network data
        centers;


We have continued to provide our cloud email security, productivity and
compliance solutions services to our customers and vendors during this ongoing
pandemic. The full extent of the impact of the COVID-19 pandemic, or variants
thereof, on the Company's operational and financial performance is currently
uncertain and will depend on many factors outside the Company's control,
including, without limitation, the timing, extent, trajectory and duration of
the pandemic, or variants thereof, the development and availability of effective
treatments and vaccines, the imposition of protective public safety measures,
and the impact of the pandemic and its variants on the global economy, demand
for consumer products, and the labor market competition resulting in increased
employee turnover. See the additional risk factor regarding COVID-19 included in
Part I - Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year
ended December 31, 2020.


Critical accounting conventions and estimates



The preparation of financial statements and related disclosures in accordance
with accounting principles generally accepted in the United States requires the
Company's management to make estimates and assumptions that affect the amounts
reported in the Company's condensed consolidated financial statements and
accompanying notes. These estimates and assumptions take into account historical
and forward-looking factors that the Company believes are reasonable, including
but not limited to the potential impacts arising from COVID-19, or variants
thereof, and public and private sector policies and initiatives aimed at
reducing its transmission. As the extent and duration of the impacts of
COVID-19, and variants thereof, remain unclear, the Company's estimates and
assumptions may evolve as conditions change. Actual results could differ from
these estimates and assumptions. Critical accounting policies and estimates are
defined as those that are both most important to the portrayal of the Company's
financial condition and results and require management's most subjective
judgments.



We describe our significant accounting policies in Note 2, Summary of
Significant Accounting Policies, of the "Notes to Consolidated Financial
Statements" included in our Annual Report on Form 10-K for the year ended
December 31, 2020. We discuss our Critical Accounting Policies and Estimates in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the year ended December 31,
2020.

Results of Operations

Summary of operations for the third quarter of 2021

Financial

• Revenue for the quarter ended September 30, 2021, was $ 64.9 million,

compared to $ 54.8 million for the same period in 2020, representing a

18% increase.

• Gross margin for the quarter ended September 30, 2021, was $ 28.6 million

(i.e. 44% of turnover), against $ 26.9 million (49% of turnover) for

the comparable period in 2020.

• Net loss for the quarter ended September 30, 2021, was $ 2.4 million,

        compared with net loss of $0.7 million in the comparable period in 2020.


    •   Net loss attributable to common shareholders for the quarter ended

September 30, 2021, was $ 4.9 million, compared to the net loss attributable

        to common shareholders of $3.0 million in the comparable period in 2020.
        The Company's net loss attributable to common shareholders includes a

deemed and accrued dividend to preferred shareholders of $ 2.5 million and

        $2.3 million, for the three month periods ended September 30, 2021 and
        2020, respectively.

• The net loss per diluted share was $ 0.09 for the quarter ended September 30,

2021, compared to the net loss per diluted share of $ 0.05 in the comparable

period in 2020.

• Closing cash and cash equivalents were $ 39.0 million to September 30, 2021,

        compared with $23.7 million on September 30, 2020, and $21.4 million on
        December 31, 2020.


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Operations

    •   Total billings for the quarter ended September 30, 2021, were $61.6
        million, compared with $54.6 million for the same period in 2020,
        representing a 13% increase.

• The annual value of recurring revenue from our customer subscriptions to the

September 30, 2021, was $ 262.8 million, compared to $ 222.3 million for

the same period in 2020, which represents an increase of $ 40.5 million.

• Net cash provided by operations during the nine months ended September 30,

2021, was $ 35.5 million, compared to $ 24.2 million provided by

operations for the same period in 2020, representing a $ 11.3 million

to augment.

• From the September 30, 2021, the backlog was $ 82.8 million, compared to $ 85.0

millions from September 30, 2020, a decrease of 3%.

Income

Our company provides subscription services. The following table presents the quarter-to-quarter comparison of the Company’s revenues:



                     Three Months Ended            3-month Variance            Nine Months ended            9-month Variance
                        September 30,               2021 vs. 2020                September 30,               2021 vs. 2020
(in thousands)        2021          2020            $              %          2021          2020             $              %
Revenues           $   64,850     $ 54,840     $    10,010           18 %   $ 187,694     $ 160,611     $    27,083           17 %




Our revenue increase is the result of 14% and 12% growth in our core business in
the three and nine months ended September 30, 2021, respectively, due to
continued success in our subscription-based business model with both steady
additions to the subscriber base and a high rate of existing customer renewals
and the realization of previously contracted revenue in our backlog. Our
CloudAlly business, acquired in November 2020, additionally contributed $2.1
million and $7.0 million in revenue to our three and nine months ended September
30, 2021, respectively. Additionally, with continued expansion into Europe, our
German subsidiary, launched in the second quarter of 2021, contributed $92
thousand and $329 thousand of revenue in our three and nine months ended
September 30, 2021, respectively.



Annual Recurring Revenue



We measure the health of our subscriber base by the growth of our Annual
Recurring Revenue ("ARR"), which is defined 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. ARR aids us in determining to what
extent individual customer relationships, considered in the aggregate, are
growing or declining in financial magnitude. ARR is summarized in the table
below:



                                                             Variance
                             As of September 30,          2021 vs. 2020
(in thousands)                2021          2020            $          %
Annual Recurring Revenue   $  262,813     $ 222,335     $  40,478       18 %


Backlog

Our end-user order backlog is comprised of contractually binding agreements that
we expect to amortize into revenue as the services are performed. The timing of
revenue is affected by both the length of time required to deploy a service and
the length of the service contract.

As of September 30, 2021, total backlog was $82.8 million, and we expect
approximately 76% of the total backlog, or approximately $63.0 million, to be
recognized as revenue during the next twelve months. As of September 30, 2021,
the backlog was comprised of the following elements: $42.5 million of deferred
revenue that has been billed and paid, $12.9 million billed but unpaid, and
approximately $27.4 million of unbilled contracts. The backlog at September 30,
2021, was 3% lower than the $85.0 million backlog at the end of the third
quarter 2020, and 1% lower than the ending backlog of $83.4 million at
December 31, 2020. Our decrease in backlog is the result of timing of our
customer contracts and our continued shift toward a monthly subscription model.

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Cost of income

The following table sets forth the quarter-over-quarter comparison of the cost
of revenues:



                      Three Months Ended            3-month Variance           Nine Months ended            9-month Variance
                         September 30,               2021 vs. 2020               September 30,               2021 vs. 2020
(in thousands)         2021          2020            $              %          2021          2020            $              %
Cost of revenues    $   36,219     $ 27,928     $     8,291           30 %   $ 103,961     $ 82,265     $    21,696           26 %




Cost of revenues is comprised of costs related to operating and maintaining the
ZixData Center, a field deployment team, customer service and support, Microsoft
fees associated with the resale of Microsoft Office365 and hosted exchange
products, and the amortization of Company-owned, customer-based computer
appliances. The increases in 2021 compared to 2020 reflected in the table above
result from our sales of Microsoft Office365 and hosted exchange products, which
comprise 54% and 53% of total Company revenue earned in the three and nine
months ended September 30, 2021, respectively.

Research and development costs

The following table presents the quarter-to-quarter comparison of our research and development expenses:


                             Three Months Ended          3-month Variance          Nine Months ended          9-month Variance
                                September 30,              2021 vs. 2020             September 30,              2021 vs. 2020
(in thousands)                2021          2020           $             %         2021          2020            $            %
Research and development
  expenses                 $    6,429      $ 5,720     $     709         
12 %   $  19,371     $ 16,926     $     2,445        14 %




Research and development expenses consist primarily of salary, benefits, and
stock-based compensation for our development staff, independent development
contractor expenses, amortization of internally developed software, and other
direct and indirect costs associated with enhancing our existing products and
services and developing new products and services. The increase in 2021 compared
to 2020 reflected in the table above resulted primarily from the amortization of
previously capitalized internal use software due to project completions.

Sales and marketing costs

The following table shows the quarter-over-quarter comparison of our sales and marketing expenses:


                          Three Months Ended            3-month Variance           Nine Months ended            9-month Variance
                             September 30,               2021 vs. 2020               September 30,                2021 vs. 2020
(in thousands)             2021          2020            $              %          2021          2020            $               %

Sales and Marketing

  expenses              $   15,657     $ 13,489     $     2,168           16 %   $  46,225     $ 42,288     $     3,937             9 %




Selling and marketing expenses consist primarily of salary, commissions, travel,
stock-based compensation and employee benefits for selling and marketing
personnel as well as costs associated with promotional activities and
advertising. The increase in the three months ended September 30, 2021, compared
to the same period in 2020, was due primarily to increases in stock-based
compensation, higher commission expense, increased amortization of intangible
customer assets related to our CloudAlly acquisition, and additional credit card
fees attributable to increased monthly billings.



The increase in the nine months ended September 30, 2021, compared to the same
period in 2020, resulted primarily from increases in stock-based compensation,
commission expense, credit card fees, and amortization of intangible customer
assets.


General and administrative expenses

The following table shows the quarter-to-quarter comparison of our general and administrative expenses:


                               Three Months Ended          3-month Variance          Nine Months ended          9-month Variance
                                  September 30,              2021 vs. 2020             September 30,              2021 vs. 2020
(in thousands)                  2021          2020            $            %         2021          2020            $            %

general and administrative

  expenses                   $    6,811      $ 5,324     $     1,487        28 %   $  19,931     $ 15,770     $     4,161        26 %




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General and administrative expenses consist primarily of salary and bonuses,
travel, stock-based compensation and benefits for administrative and executive
personnel as well as fees for professional services and other general corporate
activities. The increase in the three months ended September 30, 2021, compared
with the same period in 2020, resulted primarily from increases in our
stock-based compensation expense and in our salaries and benefits, offset by
decreases in acquisition-related expenses.



The increase in the nine months ended September 30, 2021, compared to the same period in 2020, results mainly from the increase in our stock-based compensation expense and our salaries and benefits.

Other income (expenses)

Our other income (expense) consists primarily of interest expense associated
with our debt. During the three months ended September 30, 2021 and 2020, we
recorded interest expense of $2.2 million and $2.0 million, respectively. During
the nine months ended September 30, 2021 and 2020, we recorded interest expense
of $6.5 million and $7.2 million, respectively. At September 30, 2021, our
outstanding debt balance was $211.1 million based on 4.09% effective interest
rate during the period. See above Note 7 "Long-term Debt" for additional
information regarding our debt.

Provision for income taxes

The provision for income taxes was a $113 thousand benefit and a $1.2 million
tax expense for the three month periods ended September 30, 2021 and 2020,
respectively, and a $568 thousand and a $244 thousand benefit for each of the
nine months ended September 30, 2021 and 2020, respectively. The operating
losses incurred by the Company's U.S. operations in past years and the resulting
net operating losses for U.S. Federal income tax purposes are subject to a $22.9
million reserve because of the uncertainty of future taxable income levels
sufficient to utilize our net operating losses and credits. Our September 30,
2021, provision benefit of $568 thousand included $1.1 million deferred taxes
benefit, offset by state taxes payable based on gross revenues. Our September
30, 2020, provision benefit of $244 thousand included $76 thousand in deferred
taxes, and a $337 thousand tax benefit related to the return of federal
Alternative Minimum Tax credits, all of which was offset by state taxes then
payable based on gross revenues.

No tax penalty-related charges were accrued or recognized for the nine month
periods ended September 30, 2021 and 2020. Additionally, we have not taken a tax
position that would have a material effect on our financial statements or our
effective tax rate for the nine-month period ended September 30, 2021. We are
currently subject to a three-year statute of limitations by major tax
jurisdictions.

At September 30, 2021, the Company partially reserved its U.S. net deferred tax
assets due to the uncertainty of future taxable income being sufficient to
utilize net loss carryforwards prior to their expiration, as noted above. The
Company did not reserve $33.7 million of its U.S. net deferred tax assets. The
majority of this unreserved portion related to $25.5 million in U.S. net
operating losses ("NOLs") because we believe the Company will generate
sufficient taxable income in future years to utilize these NOLs prior to their
expiration. The remaining balance consists of $6.7 million relating to temporary
differences between GAAP and tax-related expense, Federal R&D credits of $1.9
million, and $873 thousand relating to U.S. state income tax credits and net
operating loss carryovers. These items are offset by a $1.3 million Israeli
deferred tax liability.

Any reduction or increase to the $22.9 million valuation allowance related to
our deferred tax asset would be based on an assessment of future utilization
following accounting guidance, which relies largely on historical and projected
earnings. For this reason, the Company has recognized its first, second and
third quarter 2021 federal deferred tax provision in full. If in future periods
we conclude our future U.S. federal taxable estimate established at the end of
the year will either fail to meet or exceed the prior year estimate, the Company
will offset its federal deferred tax provision by increasing or reducing its
valuation allowance accordingly by an equal amount, thereby eliminating from its
deferred tax provision federal taxes from the Company's financial statements.
Significant judgment is required in determining any valuation allowance recorded
against the deferred tax asset. In assessing the need for such an allowance, we
consider all available evidence, including past operating results, estimates of
future taxable income, and the feasibility of tax planning strategies. The
Company will continue to reevaluate the need for its valuation allowance each
quarter, following the same assessment methodology described above. An increase
or decrease to our valuation allowance could have a significant impact on
operating results for each period during which it becomes more likely than not
that an additional portion of our deferred tax assets will or will not be
realized.

We have determined that utilization of existing net operating losses against
future taxable income is not currently subject to limitation by Section 382 of
the Internal Revenue Code. Future ownership changes, however, may limit the
Company's ability to fully utilize its existing net operating loss carryforwards
against future taxable income. At September 30, 2021, the Company had U.S.
federal net operating loss carryforwards of approximately $232 million, which
begin to expire in 2021.

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Net loss

Our net loss for the three months ended September 30, 2021, of $2.4 million was
an increase of $1.7 million compared to our net loss of $725 thousand for the
same period last year. The increase in our net loss was primarily due to
increases in our operating expenses, offset by increased revenue.

Liquidity and capital resources

Overview

Based on our performance over the last four quarters and current expectations,
including our assessment of the COVID-19 pandemic's potential impact to our
Company, we believe our cash and cash equivalents, cash generated from
operations, and availability under our $25 million Revolving Facility (which was
undrawn as of September 30, 2021 and available to fund working capital and for
other general corporate purposes, including the financing of permitted
acquisitions, investments, and restricted payments, subject, in both cases, to
the conditions contained in the Credit Agreement) will satisfy our working
capital needs, capital expenditure requirements, investment requirements,
contractual obligations, commitments, and other liquidity requirements
associated with our operations through at least the next twelve months. We plan
for and measure our liquidity and capital resources through an annual budgeting
process and quarterly reviews, and we will continue to monitor our position to
protect our Company against uncertainties related to the COVID-19
pandemic. During the first nine months of 2021, net cash provided by operations
was $35.5 million, an increase of $11.3 million compared with the $24.2 million
of net cash provided by operations in the first nine months of 2020. At
September 30, 2021, our cash and cash equivalents totaled $39.0 million, an
increase of $17.6 million from the December 31, 2020 balance, and we had
outstanding debt of $211.1 million.

Sources and uses of cash


                                                          Nine Months Ended September 30,
(In thousands)                                              2021                   2020
Net cash provided by operations                       $         35,479       $         24,245
Net cash used in investing activities                 $        (13,171 )     $        (13,992 )
Net cash (used in) provided by financing activities   $         (4,430 )     $             18




Our primary source of liquidity from our operations is the collection of revenue
in advance from our customers and collection of accounts receivable from our
customers, net of the timing of payments to our vendors and service providers.

Our investing activities in the first nine months of 2021 consisted of $12.8
million for capital expenditures, which includes $11.2 million in capitalized
internal-use software, $1.4 million in computer and networking equipment and
$0.2 million in other acquired technology. The Company additional incurred a
$339 thousand working capital adjustment for our CloudAlly acquisition completed
in November 2020. Our investing activities in the first nine months of 2020
consisted of $14.0 million for capital expenditures, which included $10.9
million in capitalized internal-use software, $2.9 million in computer and
networking equipment and $0.2 million in other acquired technology.

Financing activities in the first nine months of 2021 include using $2.5 million
in the repurchase of common stock related to the tax impact of vesting
restricted awards, $1.7 million for principal payments of our long-term debt,
and $528 thousand for payments on our finance leases. This usage was offset by
$251 thousand received from the exercise of stock options. Financing activities
in the first nine months of 2020 included $6.0 million drawn from our Revolving
Facility and $334 thousand received from the exercise of stock options. We used
$2.7 million in the repurchase of common stock related to the tax impact of
vesting restricted awards, $1.1 million for contingent consideration payment
associated with our acquisition of Erado, $1.4 million for principal payments of
our long-term debt, and $1.1 million for payments on our finance leases.

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Zix Common Stock Options

We have significant stock options outstanding that are currently vested. There
is no assurance that any of these options will be exercised; therefore, the
extent of future cash inflow from additional option activity is not certain. The
following table summarizes the options that were outstanding as of September 30,
2021. The vested shares are a subset of the outstanding shares. The value of the
shares is the number of shares multiplied by the exercise price for each share.



                                                      Summary of Outstanding Options
                                                  Total Value of       Vested Options
                                                   Outstanding          (included in        Total Value of
                                Outstanding          Options            outstanding         Vested Options
Exercise Price Range              Options         (In thousands)          options)          (In thousands)
$2.00 - $3.49                        180,000     $            481              180,000     $            481
$3.50 - $4.99                        397,010                1,504              397,010                1,504
$5.00 - $6.49                              -                    -                    -                    -
$6.50 - $7.99                        100,000                  670               18,750                  125
$8.00 - $9.50                        100,000                  803               37,500                  301
Total                                777,010     $          3,458              633,260     $          2,411



Off-balance sheet provisions

Nothing.

Contractual obligations, contingent liabilities and commitments

We have not made any material, non-cancellable purchase commitments to
September 30, 2021.

We have severance agreements with certain employees which would require the
Company to pay approximately $5.6 million if all such employees were terminated
from employment with our Company following a triggering event (e.g., change of
control) as defined in the severance agreements.

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About Jonathan J. Kramer

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