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Zix Seeks Larger MSP Partners for Secure, Compliant, Resilient Push

Zix, the cloud-based email security and backup provider, has two key objectives for its MSP (managed IT services provider) partner push, according to CEO David Wagner.

One objective involves attracting larger MSPs that focus on the “secure, compliant, resilient” portion of the Zix product suite — namely, Zix Secure Cloud. The second objective involves growing revenues with 5,000 MSPs that already work with the software company, Wagner said during the Zix earnings call on February 25, 2021.

The coronavirus pandemic at times has pressured the MSP partner effort, but Zix remains upbeat about the overall MSP partner opportunity. “This quarter was a little bit better than last quarter in terms of the number of MSPs added,” Wagner told Wall Street analysts on the call. “So we’re continuing to add MSPs. It’s just a little bit slower than the pre-pandemic pace. But our laser focus for this year is on larger MSPs.”

Wagner mentioned several specific MSP and channel partner milestones and metrics during the call. They included:

  • About 85% of new Zix customers in Q4 2020 were added by partners — primarily MSP partners.
  • Sales to existing customers through MSPs in Q4 2020 accounted for 46% of the MRR (monthly recurring revenue) increases in the quarter, which compares to 47% in the prior quarter and 44% in Q4 last year.
  • Zix worked with distributors in the United States and Europe to win multiple large MSP deals. The deals typically involve MSPs that want to consolidate their Office 365 and security to a single provider.

Zix Blends Email Security and Cloud Backup

Zix expanded into the MSP channel in February 2019, when the company acquired AppRiver. At the time, the company focused on email security and cloud-based cybersecurity solutions. Next, Zix acquired CloudAlly in November 2020 to expand into cloud backup services — particularly Microsoft Office 365 backup and disaster recovery (BDR).

The Zix strategy in some ways resembles such rivals as Acronis and OpenText (which owns Webroot and Carbonite). All of those technology companies are blending backup, disaster recovery (BDR), data protection and cybersecurity services while further engaging MSPs.

Admittedly, the cloud backup market is extremely crowded and intensely competitive. Most major BDR companies now offer some form of Microsoft 365 backup. One of the first movers was Datto, which acquired Backupify way back in 2014. Meanwhile, some of today’s fastest-growth cloud backup players — names like OwnBackup — have momentum in the Salesforce cloud backup market.

Nevertheless, Zix sees major opportunities ahead for the recent CloudAlly acquisition. “CloudAlly has performed exceedingly well since joining Zix,” said Wagner. “The last three months have been the three strongest ARR [annual recurring revenue] growth months in their history. No one factor accounts for this increasing momentum. Surely, some is due to their acquisition by a larger company. But there’s also a growing buzz in the market as cloud data sets become increasingly valuable and the large cloud players step away from the backup market. Both Salesforce and Microsoft recommend third-party backups, and Google only retains backups for 25 days.”

Zix plans to integrate CloudAlly into the Zix Secure Cloud platform in Q3 2021, Wagner added.

Zix Email Security, Cloud Backup: Going Global

Zix also is expanding internationally. The company in 2020 more than doubled its international ARR. Most of that growth involved the United Kingdom. Next up, Zix is launching into the German market during the second quarter of 2021 with the localization of Secure Cloud, Wagner revealed.

“Our survey suggests that the German market is three years behind the U.K. market and five years behind the North American market in the rate of cloud adoption,” Wagner said. “And we know the German market opportunity is larger than the U.K. market, both in terms of population and in the number of knowledge workers. Traditional IT providers in Germany need to transform their business models from on-premise hardware to modern cloud subscription businesses and secure cloud is a perfect solution for that use case.”

Zix Q4 2020 Financial Results

Roll all of those data points together, and the Zix business continues to grow. Q4 2020 financial results include:

  • Revenue of $57.9 million, up 15 percent from Q4 of 2019.
  • A GAAP net loss of $2.9 million, roughly 4.4 percent better than a $3.1 million GAAP net loss from Q4 of 2019.

The revenue figure generally beat Wall Street’s expectations, according to SeekingAlpha.

Based on anecdotal evidence from software companies, the MSP market appears to have held up well amid the coronavirus pandemic. The Zix results surfaced the same day that SolarWinds announced similar momentum for its SolarWinds MSP business group — which now serves 25,000 MSPs. SolarWinds MSP is set to be spun off as N-able in Q2 2021. MSP-focused Datto is expected to announce quarterly results in March.

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