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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________

 

Commission File Number: 001-37637

 

MIMECAST LIMITED

(Exact Name of Registrant as Specified in its Charter)

 

 

Bailiwick of Jersey

Not applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1 Finsbury Avenue

London EC2M 2PF

United Kingdom

EC2M 2PF

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (781) 996-5340

Securities registered pursuant to Section 12(b) of the Act:

 

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

Ordinary Shares, par value $0.012 per share

MIME

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 28, 2021, the registrant had 65,738,818 shares of ordinary shares, $0.012 par value per share, outstanding.

 

 

 


 

SUMMARY of the Material and Other Risks Associated with Our Business

 

Business and Operational Risks

 

 

Data security and integrity are critically important to our business, and breaches of our information and technology networks and unauthorized access to a customer’s data, including our recent security incident, could harm our business and operating results.

 

 

 

The global COVID-19 pandemic has had, and will likely continue to have, certain negative impacts on our business, financial results and operations.

 

 

 

If we are unable to attract new customers, sell additional services, features and products to our existing customers, and retain customers, our business and results of operations will be affected adversely.

 

 

 

The markets in which we participate are highly competitive, and our failure to compete successfully would make it difficult for us to add and retain customers and would reduce or impede the growth of our business.

 

 

 

If we are unable to effectively increase sales to large enterprises, our business, financial position and results of operations may suffer.

 

 

 

Our business and results of operations may be negatively impacted by the United Kingdom’s withdrawal from the European Union.

 

 

 

We must maintain successful relationships with our channel partners.

 

 

 

Any serious disruptions in our services may cause us to lose revenue and market acceptance and may affect the service level commitments under our subscription agreements, which could obligate us to provide refunds.

 

 

 

We have acquired, and may acquire in the future, other businesses, products or technologies, which could require significant management attention, disrupt our business, dilute shareholder value and adversely affect our results of operations.

 

 

 

If we are not able to provide successful updates, enhancements and features to our technology to, among other things, keep up with emerging cyber threats and customer needs, our business could be adversely affected.

 

 

 

We are subject to a number of risks associated with global sales and operations, including without limitation the recent societal unrest in South Africa.

 

 

 

Our research and development efforts may not produce new services or enhancements to existing services.

 

 

 

We employ third-party licensed software for use in or with our services, and the inability to maintain these licenses or errors or vulnerabilities in the software we license could result in increased costs, reduced service levels or security risks, which would adversely affect our business.

 

 

 

Interruptions or performance problems associated with our information and technology infrastructure could impair the delivery of our services and harm our business.

 

 

Legal and Regulatory Risks

 

 

Our failure to comply with evolving data privacy, data protection and cloud computing regulations, cross-border data transfer restrictions and other domestic or foreign laws and regulations may result in substantial liability and may limit the use and adoption of, or require modifications to, our products and services, all of which could reduce our revenue, harm our operating results and adversely affect our business.

 

 

 

We are subject to governmental export controls and funds dealings restrictions that could impair our ability to compete in certain international markets and subject us to liability if we are not in full compliance with applicable laws.

 

 

 

We may become involved in litigation that may materially adversely affect us.

 

 

 


i


 

Human Capital Risks

 

 

We are dependent on the continued services and performance of our key employees, including our co-founder.

 

 

 

If we are unable to hire, retain and motivate qualified personnel, our business may be adversely impacted.

 

 

 

Our recent workforce reduction may adversely affect our business.

 

 

Risks Related to Intellectual Property

 

 

Third parties have sued us for alleged infringement of their proprietary rights.

 

 

 

Failure to protect our intellectual property rights could impair our ability to protect our technology and our brand.

 

 

 

Our employees may disclose our trade secrets and other proprietary information.

 

 

 

Our employees or contractors may wrongfully use alleged trade secrets or confidential information of their former employers or other parties.

 

 

 

The use of open source software in our offerings may expose us to additional risks, including security risks, and harm our intellectual property.

 

 

Financial Risks

 

 

Because we recognize revenue from subscriptions for our services over the term of the agreement, downturns or upturns in new business may not be immediately reflected in our operating results and may be difficult to discern.

 

 

 

We have incurred net losses in the past, and we may not be able to sustain profitability.

 

 

 

Fluctuations in currency exchange rates could adversely affect our business.

 

 

 

Financial covenants and other restrictions under our credit facility create default risks and reduce our flexibility.

 

 

 

We must maintain the adequacy of internal controls over financial reporting.

 

 

Tax Risks

 

 

We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, including issues related to our tax residence, allocations of our taxable income among our subsidiaries, and limitations on our use of net operating losses or tax credit carryforwards.

 

 

Risks Related to Owning Our Ordinary Shares and Our Organization in Jersey, Channel Islands

 

 

Our share price has been and may continue to be volatile based on many factors, many of which are not within our control.

 

 

 

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

 

 

 

We do not expect to pay dividends and investors should not buy our ordinary shares expecting to receive dividends.

 

 

 

The rights afforded to our shareholders are governed by Jersey law. Not all rights available to shareholders under English law or U.S. law will be available to shareholders, potentially including the ability to enforce civil liabilities against us.

 

 

The summary described above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations. For more information on these risk factors, see Part II, Item 1A, “Risk Factors”, included in this Quarterly Report on Form 10-Q.


ii


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2021 and 2020

2

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2021 and 2020

3

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2021 and 2020

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2021 and 2020

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

36

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 6.

Exhibits

57

Signatures

61

 

 

iii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MIMECAST LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

As of June 30,

 

 

As of March 31,

 

 

 

2021

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

338,433

 

 

$

292,949

 

Accounts receivable, net

 

 

101,217

 

 

 

114,280

 

Deferred contract costs, net

 

 

16,952

 

 

 

16,165

 

Prepaid expenses and other current assets

 

 

21,778

 

 

 

20,031

 

Total current assets

 

 

478,380

 

 

 

443,425

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

92,858

 

 

 

92,891

 

Operating lease right-of-use assets

 

 

122,739

 

 

 

128,063

 

Intangible assets, net

 

 

41,447

 

 

 

43,193

 

Goodwill

 

 

176,908

 

 

 

173,952

 

Deferred contract costs, net of current portion

 

 

50,853

 

 

 

50,086

 

Other assets

 

 

2,601

 

 

 

3,097

 

Total assets

 

$

965,786

 

 

$

934,707

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,576

 

 

$

10,487

 

Accrued expenses and other current liabilities

 

 

48,843

 

 

 

54,676

 

Deferred revenue

 

 

232,645

 

 

 

237,749

 

Current portion of finance lease obligations

 

 

50

 

 

 

323

 

Current portion of operating lease liabilities

 

 

33,237

 

 

 

33,447

 

Current portion of long-term debt

 

 

9,722

 

 

 

9,090

 

Total current liabilities

 

 

337,073

 

 

 

345,772

 

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

12,595

 

 

 

12,936

 

Operating lease liabilities

 

 

107,669

 

 

 

112,316

 

Long-term debt

 

 

92,238

 

 

 

94,671

 

Other non-current liabilities

 

 

7,527

 

 

 

8,143

 

Total liabilities

 

 

557,102

 

 

 

573,838

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Ordinary shares, $0.012 par value, 300,000,000 shares authorized;

   65,661,585 and 64,562,222 shares issued and outstanding as of

   June 30, 2021 and March 31, 2021, respectively

 

 

788

 

 

 

775

 

Additional paid-in capital

 

 

440,801

 

 

 

408,249

 

Accumulated deficit

 

 

(43,843

)

 

 

(53,915

)

Accumulated other comprehensive income

 

 

10,938

 

 

 

5,760

 

Total shareholders' equity

 

 

408,684

 

 

 

360,869

 

Total liabilities and shareholders' equity

 

$

965,786

 

 

$

934,707

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


1


 

 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

Revenue

 

$

142,549

 

 

$

115,176

 

Cost of revenue

 

 

33,549

 

 

 

28,469

 

Gross profit

 

 

109,000

 

 

 

86,707

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

31,486

 

 

 

22,802

 

Sales and marketing

 

 

48,262

 

 

 

44,043

 

General and administrative

 

 

17,923

 

 

 

17,168

 

Total operating expenses

 

 

97,671

 

 

 

84,013

 

Income from operations

 

 

11,329

 

 

 

2,694

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

158

 

 

 

177

 

Interest expense

 

 

(536

)

 

 

(883

)

Foreign exchange (expense) income and other, net

 

 

(514

)

 

 

1,763

 

Total other income (expense), net

 

 

(892

)

 

 

1,057

 

Income before income taxes

 

 

10,437

 

 

 

3,751

 

Provision for income taxes

 

 

365

 

 

 

613

 

Net income

 

$

10,072

 

 

$

3,138

 

 

 

 

 

 

 

 

 

 

Net income per ordinary share

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.05

 

Diluted

 

$

0.15

 

 

$

0.05

 

Weighted-average number of ordinary shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

65,198

 

 

 

63,019

 

Diluted

 

 

66,934

 

 

 

64,676

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

Net income

 

$

10,072

 

 

$

3,138

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

5,178

 

 

 

3,900

 

Total other comprehensive income

 

 

5,178

 

 

 

3,900

 

Comprehensive income

 

$

15,250

 

 

$

7,038

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


3


 

 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

Three months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance as of March 31, 2021

 

 

64,562

 

 

$

775

 

 

$

408,249

 

 

$

(53,915

)

 

$

5,760

 

 

$

360,869

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,072

 

 

 

 

 

 

10,072

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,178

 

 

 

5,178

 

Issuance of ordinary shares upon exercise of share options

 

 

672

 

 

 

8

 

 

 

18,959

 

 

 

 

 

 

 

 

 

18,967

 

Share-based compensation

 

 

 

 

 

 

 

 

17,396

 

 

 

 

 

 

 

 

 

17,396

 

ESPP purchase

 

 

75

 

 

 

1

 

 

 

3,373

 

 

 

 

 

 

 

 

 

3,374

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(174

)

 

 

(2

)

 

 

(7,170

)

 

 

 

 

 

 

 

 

(7,172

)

Vesting of RSUs

 

 

527

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2021

 

 

65,662

 

 

$

788

 

 

$

440,801

 

 

$

(43,843

)

 

$

10,938

 

 

$

408,684

 

 

 

 

 

Three months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of March 31, 2020

 

 

62,792

 

 

$

754

 

 

$

325,808

 

 

$

(83,660

)

 

$

(10,847

)

 

$

232,055

 

Net income

 

 

 

 

 

 

 

 

 

 

 

3,138

 

 

 

 

 

 

3,138

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,900

 

 

 

3,900

 

Issuance of ordinary shares upon exercise of share options

 

 

249

 

 

 

3

 

 

 

5,037

 

 

 

 

 

 

 

 

 

5,040

 

Share-based compensation

 

 

 

 

 

 

 

 

13,666

 

 

 

 

 

 

 

 

 

13,666

 

ESPP purchase

 

 

87

 

 

 

1

 

 

 

3,094

 

 

 

 

 

 

 

 

 

3,095

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(76

)

 

 

(1

)

 

 

(2,574

)

 

 

 

 

 

 

 

 

(2,575

)

Vesting of RSUs

 

 

217

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

 

63,269

 

 

$

759

 

 

$

345,029

 

 

$

(80,522

)

 

$

(6,947

)

 

$

258,319

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three months ended June 30

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

10,072

 

 

$

3,138

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,876

 

 

 

8,852

 

Share-based compensation expense

 

 

17,388

 

 

 

13,653

 

Amortization of deferred contract costs

 

 

4,161

 

 

 

2,869

 

Amortization of debt issuance costs

 

 

111

 

 

 

114

 

Amortization of operating lease right-of-use assets

 

 

8,330

 

 

 

7,111

 

Deferred income tax expense (benefit)

 

 

117

 

 

 

(178

)

Unrealized currency losses (gains) on foreign denominated transactions

 

 

83

 

 

 

(2,733

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

13,935

 

 

 

12,405

 

Prepaid expenses and other current assets

 

 

(1,218

)

 

 

(497

)

Deferred contract costs

 

 

(5,403

)

 

 

(5,203

)

Other assets

 

 

405

 

 

 

217

 

Accounts payable

 

 

4,368

 

 

 

(2,037

)

Deferred revenue

 

 

(6,599

)

 

 

(5,645

)

Operating lease liabilities

 

 

(8,045

)

 

 

(8,221

)

Accrued expenses and other liabilities

 

 

(6,881

)

 

 

5,460

 

Net cash provided by operating activities

 

 

40,700

 

 

 

29,305

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property, equipment and capitalized software

 

 

(9,095

)

 

 

(10,771

)

Net cash used in investing activities

 

 

(9,095

)

 

 

(10,771

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares

 

 

21,926

 

 

 

8,135

 

Withholding taxes related to net share settlement of ESPP purchases and vesting of RSUs

 

 

(7,172

)

 

 

(2,575

)

Payments on debt

 

 

(1,875

)

 

 

(1,250

)

Payments on finance lease obligations

 

 

(273

)

 

 

(347

)

Net cash provided by financing activities

 

 

12,606

 

 

 

3,963

 

Effect of foreign exchange rates on cash

 

 

1,273

 

 

 

2,086

 

Net increase in cash and cash equivalents

 

 

45,484

 

 

 

24,583

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

292,949

 

 

 

173,958

 

Cash and cash equivalents at end of period

 

$

338,433

 

 

$

198,541

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

426

 

 

$

763

 

Cash paid during the period for income taxes

 

$

225

 

 

$

82

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Unpaid purchases of property, equipment and capitalized software

 

$

4,279

 

 

$

8,731

 

Operating lease right-of-use assets exchanged for lease obligations

 

$

2,000

 

 

$

1,004

 

Proceeds receivable from issuance of ordinary shares

 

$

415

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

MIMECAST LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data, unless otherwise noted)

(unaudited)

1. Summary of Business and Significant Accounting Policies

Description of Business

Mimecast Limited (Mimecast or the Company) is a public limited company organized under the laws of the Bailiwick of Jersey on July 28, 2015 and is headquartered in London, England.

The principal activity of the Company is the provision of cloud security and risk management services for email and corporate information. The Company’s Email Security 3.0 and Cyber Resilience Extension offerings are designed to protect customers from today’s rapidly changing security environment. The Email Security 3.0 strategy addresses threats in three distinct zones: at the email perimeter (Zone 1); inside the network and the organization (Zone 2); and beyond the perimeter (Zone 3). The Company’s Cyber Resilience Extensions expand resilience to other critical elements of an organization’s digital infrastructure. The Company’s primary offerings include: email security; email continuity and sync & recover; email archiving; awareness training; web security; DMARC analyzer; CyberGraph; brand exploit protection; and threat intelligence and our API ecosystem. Mimecast operates principally in Europe, North America, Africa and Australia.

The Company is subject to a number of risks and uncertainties common to companies in similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, customer concentration, security risks, management of international activities, protection of proprietary rights, patent litigation, and dependence on key individuals.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These financial statements and notes should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2021 and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on May 27, 2021.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended March 31, 2021 contained in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of June 30, 2021, and for the three months ended June 30, 2021 and 2020. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Company reclassified certain amounts within its condensed consolidated statement of cash flows to conform to current period presentation. The reclassifications include $0.1 million from other assets and $0.1 million from accrued expenses and other liabilities to deferred income tax benefit for the three months ended June 30, 2020. These reclassifications had no impact on the Company’s previously reported results of operations or balance sheets.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 


6


 

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period.

Significant estimates relied upon in preparing these condensed consolidated financial statements include revenue recognition, variable consideration, valuation at fair value of assets acquired or sold, including intangible assets, goodwill, tangible assets, and liabilities assumed, amortization periods, expected future cash flows used to evaluate the recoverability of long-lived assets, contingent liabilities, determination of incremental borrowing rates, restructuring liabilities, expensing and capitalization of research and development costs for internal-use software, the determination of the fair value of share-based awards issued, the average period of benefit associated with costs capitalized to obtain revenue contracts and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Due to the global COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of June 30, 2021. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Changes in estimates are recorded in the period in which they become known.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions, other events, and circumstances from non-owner sources. Comprehensive income consists of net income and other comprehensive income, which includes certain changes in equity that are excluded from net income. As of June 30, 2021 and March 31, 2021, accumulated other comprehensive income is presented separately on the condensed consolidated balance sheets and consists of cumulative foreign currency translation adjustments.

Accounting Policies

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As of June 30, 2021, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K, have not changed.

2. Revenue and Deferred Revenue

Revenue recognized during the three months ended June 30, 2021 and 2020 from amounts included in deferred revenue at the beginning of the respective periods was approximately $99.9 million and $80.8 million, respectively. Revenue recognized during the three months ended June 30, 2021 and 2020 from performance obligations satisfied or partially satisfied in previous periods was not material.

Contracted revenue as of June 30, 2021 and March 31, 2021

7


 

that has not yet been recognized (contracted and not recognized) was $116.6 million and $117.5 million, respectively, which includes deferred revenue and non-cancellable amounts that will be invoiced and recognized as revenue in future periods and excludes contracts with an original expected length of one year or less. The Company expects 53% of contracted and not recognized revenue to be recognized over the next year, 46% in years two and three, with the remaining balance recognized thereafter.

3. Concentration of Credit Risk and Off-Balance Sheet Risk

The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments and accounts receivable. The Company maintains its cash, cash equivalents and investments with major financial institutions of high-credit quality. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits.

Credit risk with respect to accounts receivable is dispersed due to the Company’s large number of customers. The Company’s accounts receivable are derived from revenue earned from customers primarily located in the United States, the United Kingdom, and South Africa. The Company generally does not require its customers to provide collateral or other security to support accounts receivable. The Company maintains an allowance for its doubtful accounts receivable due to estimated credit losses. The Company estimates credit losses at the reporting date resulting from the inability of its customers to make required payments, including its historical experience of actual losses and the aging of such receivables. These receivables have been pooled by shared risk characteristics. Based on known information the Company may also establish specific allowances for customers in an adverse financial condition or adjust its expectations of changes in conditions that may impact the collectability of outstanding receivables. Credit losses historically have not been significant and the Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable. The Company will continue to actively monitor the impact of the global COVID-19 pandemic on expected credit losses. As of June 30, 2021 and March 31, 2021, no individual customer represented more than 10% of the Company’s accounts receivable. During the three months ended June 30, 2021 and 2020, no individual customer represented more than 10% of the Company’s revenue.

When investments are held the Company diversifies its investment portfolio by investing in multiple types of investment-grade securities and attempts to mitigate the risk of loss by using a third-party investment manager. As of June 30, 2021 and March 31, 2021, the Company did not hold any investments.

4. Cash, Cash Equivalents and Investments

The Company considers all highly liquid instruments purchased with an original maturity date of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, amounts held in interest-bearing money market funds and investments with maturities of 90 days or less from the date of purchase. Cash equivalents are carried at cost, which approximates their fair market value. Investments not classified as cash equivalents are presented as either short-term or long-term investments based on both their stated maturities as well as the time period the Company intends to hold such securities. The Company determines the appropriate classification of investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company adjusts the cost of investments for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion in interest income in the condensed consolidated statements of operations. As of June 30, 2021 and March 31, 2021, cash and cash equivalents of $338.4 million and $292.9 million, respectively, were carried at amortized cost, which approximates their market value.

5. Fair Value of Financial Instruments

The Company’s financial instruments include cash, cash equivalents, investments, accounts receivable, accounts payable, accrued expenses and borrowings under the Company’s long-term debt arrangements. The carrying amount of the Company’s long-term debt arrangements approximates its fair values due to the interest rates the Company believes it could obtain for arrangements with similar terms. The carrying amount of the remainder of the Company’s financial instruments approximated their fair values as of June 30, 2021 and March 31, 2021, due to the short-term nature of those instruments.

The Company has evaluated the estimated fair value of financial instruments using available market information. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

Fair values determined using “Level 1 inputs” utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.  Fair values determined using “Level 2 inputs” utilize quoted prices that are directly or indirectly observable. Fair values determined using “Level 3 inputs” utilize unobservable inputs for determining fair values of assets or liabilities that reflect an entity's own assumptions in pricing assets or liabilities. As of June 30, 2021 and March 31, 2021, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The Company measures eligible assets and liabilities at fair value, with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or liabilities and did not elect the fair value option for any financial assets and liabilities transacted in the three months ended June 30, 2021 and the year ended March 31, 2021.

8


 

The following table summarizes financial assets measured and recorded at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of June 30, 2021 and March 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

 

June 30, 2021

 

 

 

Quoted Prices in

Active Markets

for Identical Assets

(Level 1 Inputs)

 

Assets:

 

 

 

 

Money market funds

 

$

15,808

 

 

 

 

March 31, 2021

 

 

 

Quoted Prices in

Active Markets

for Identical Assets

(Level 1 Inputs)

 

Assets:

 

 

 

 

Money market funds

 

$

15,366

 

 

6. Leases

The Company has operating leases for data centers and facilities and finance leases for certain equipment. The leases have remaining lease terms of less than one year to 8 years, some of which include options to extend the leases for up to 10 years. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term. Variable costs, which are based on actual usage, are not included in the measurement of right-of-use assets (ROUA) and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. Amortization expense of the ROUA for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the effective interest method using an incremental borrowing rate.

 

The components of lease expense were as follows:

 

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

Short-term lease cost

 

$

26

 

 

$

67

 

Variable lease cost

 

 

1,411

 

 

 

1,743

 

Operating lease cost

 

 

9,946

 

 

 

8,377

 

Finance lease cost:

 

 

 

 

 

 

 

 

Amortization of lease assets

 

 

250

 

 

 

250

 

Interest on lease liabilities

 

 

3

 

 

 

16

 

Total finance lease cost

 

$

253

 

 

$

266

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Three months ended June 30,

 

 

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash outflows from operating leases

 

$