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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 September 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 October 26, 2021, the registrant had 66,394,758 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 of our services 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.

 

 

 

If we fail to maintain successful relationships with our channel partners, our business, financial position and results of operations may suffer.

 

 

 

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.

 

 

 

Actions we have taken to restructure our business to better align our resources with our strategy were costly and may not be as effective as anticipated.

 

 

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.

 

 

i


 

 

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

 

 

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, and 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 or disclose 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 September 30, 2021 and March 31, 2021

1

 

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

2

 

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

3

 

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

4

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 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

36

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 6.

Exhibits

60

Signatures

64

 

 

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 September 30,

 

 

As of March 31,

 

 

 

2021

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

366,652

 

 

$

292,949

 

Accounts receivable, net

 

 

102,752

 

 

 

114,280

 

Deferred contract costs, net

 

 

17,621

 

 

 

16,165

 

Prepaid expenses and other current assets

 

 

23,166

 

 

 

20,031

 

Total current assets

 

 

510,191

 

 

 

443,425

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

92,289

 

 

 

92,891

 

Operating lease right-of-use assets

 

 

112,529

 

 

 

128,063

 

Intangible assets, net

 

 

39,226

 

 

 

43,193

 

Goodwill

 

 

177,422

 

 

 

173,952

 

Deferred contract costs, net of current portion

 

 

51,648

 

 

 

50,086

 

Other assets

 

 

2,085

 

 

 

3,097

 

Total assets

 

$

985,390

 

 

$

934,707

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,368

 

 

$

10,487

 

Accrued expenses and other current liabilities

 

 

53,914

 

 

 

54,676

 

Deferred revenue

 

 

235,581

 

 

 

237,749

 

Current portion of finance lease obligations

 

 

692

 

 

 

323

 

Current portion of operating lease liabilities

 

 

29,262

 

 

 

33,447

 

Current portion of long-term debt

 

 

9,729

 

 

 

9,090

 

Total current liabilities

 

 

336,546

 

 

 

345,772

 

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

10,979

 

 

 

12,936

 

Operating lease liabilities

 

 

98,744

 

 

 

112,316

 

Long-term debt

 

 

72,303

 

 

 

94,671

 

Other non-current liabilities

 

 

7,360

 

 

 

8,143

 

Total liabilities

 

 

525,932

 

 

 

573,838

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

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

   66,326,404 and 64,562,222 shares issued and outstanding as of

   September 30, 2021 and March 31, 2021, respectively

 

 

796

 

 

 

775

 

Additional paid-in capital

 

 

476,805

 

 

 

408,249

 

Accumulated deficit

 

 

(26,260

)

 

 

(53,915

)

Accumulated other comprehensive income

 

 

8,117

 

 

 

5,760

 

Total shareholders' equity

 

 

459,458

 

 

 

360,869

 

Total liabilities and shareholders' equity

 

$

985,390

 

 

$

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 September 30,

 

 

Six months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

147,233

 

 

$

122,693

 

 

$

289,782

 

 

$

237,869

 

Cost of revenue

 

 

33,476

 

 

 

29,742

 

 

 

67,025

 

 

 

58,211

 

Gross profit

 

 

113,757

 

 

 

92,951

 

 

 

222,757

 

 

 

179,658

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

25,234

 

 

 

22,287

 

 

 

56,720

 

 

 

45,089

 

Sales and marketing

 

 

48,775

 

 

 

43,994

 

 

 

97,037

 

 

 

88,037

 

General and administrative

 

 

18,251

 

 

 

16,583

 

 

 

36,174

 

 

 

33,751

 

Total operating expenses

 

 

92,260

 

 

 

82,864

 

 

 

189,931

 

 

 

166,877

 

Income from operations

 

 

21,497

 

 

 

10,087

 

 

 

32,826

 

 

 

12,781

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

111

 

 

 

174

 

 

 

269

 

 

 

351

 

Interest expense

 

 

(534

)

 

 

(790

)

 

 

(1,070

)

 

 

(1,673

)

Foreign exchange (expense) income and other, net

 

 

(677

)

 

 

1,161

 

 

 

(1,191

)

 

 

2,924

 

Total other income (expense), net

 

 

(1,100

)

 

 

545

 

 

 

(1,992

)

 

 

1,602

 

Income before income taxes

 

 

20,397

 

 

 

10,632

 

 

 

30,834

 

 

 

14,383

 

Provision for income taxes

 

 

2,814

 

 

 

582

 

 

 

3,179

 

 

 

1,195

 

Net income

 

$

17,583

 

 

$

10,050

 

 

$

27,655

 

 

$

13,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per ordinary share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

$

0.16

 

 

$

0.42

 

 

$

0.21

 

Diluted

 

$

0.26

 

 

$

0.15

 

 

$

0.41

 

 

$

0.20

 

Weighted-average number of ordinary shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

65,982

 

 

 

63,517

 

 

 

65,592

 

 

 

63,268

 

Diluted

 

 

68,844

 

 

 

65,581

 

 

 

67,925

 

 

 

65,114

 

 

 

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 September 30,

 

 

Six months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

17,583

 

 

$

10,050

 

 

$

27,655

 

 

$

13,188

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(2,821

)

 

 

2,091

 

 

 

2,357

 

 

 

5,991

 

Total other comprehensive (loss) income

 

 

(2,821

)

 

 

2,091

 

 

 

2,357

 

 

 

5,991

 

Comprehensive income

 

$

14,762

 

 

$

12,141

 

 

$

30,012

 

 

$

19,179

 

 

 

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 September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance as of June 30, 2021

 

 

65,662

 

 

$

788

 

 

$

440,801

 

 

$

(43,843

)

 

$

10,938

 

 

$

408,684

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,583

 

 

 

 

 

 

17,583

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,821

)

 

 

(2,821

)

Issuance of ordinary shares upon exercise of share options

 

 

622

 

 

 

7

 

 

 

21,744

 

 

 

 

 

 

 

 

 

21,751

 

Share-based compensation

 

 

 

 

 

 

 

 

15,320

 

 

 

 

 

 

 

 

 

15,320

 

Tax withholding on vesting of RSUs

 

 

(18

)

 

 

 

 

 

(1,059

)

 

 

 

 

 

 

 

 

(1,059

)

Vesting of RSUs

 

 

60

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2021

 

 

66,326

 

 

$

796

 

 

$

476,805

 

 

$

(26,260

)

 

$

8,117

 

 

$

459,458

 

 

 

 

Six months ended September 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

 

 

 

 

 

 

 

 

 

 

 

27,655

 

 

 

 

 

 

27,655

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,357

 

 

 

2,357

 

Issuance of ordinary shares upon exercise of share options

 

 

1,294

 

 

 

15

 

 

 

40,703

 

 

 

 

 

 

 

 

 

40,718

 

Share-based compensation

 

 

 

 

 

 

 

 

32,716

 

 

 

 

 

 

 

 

 

32,716

 

ESPP purchases

 

 

75

 

 

 

1

 

 

 

3,373

 

 

 

 

 

 

 

 

 

3,374

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(192

)

 

 

(2

)

 

 

(8,229

)

 

 

 

 

 

 

 

 

(8,231

)

Vesting of RSUs

 

 

587

 

 

 

7

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2021

 

 

66,326

 

 

$

796

 

 

$

476,805

 

 

$

(26,260

)

 

$

8,117

 

 

$

459,458

 

 

 

 

Three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of June 30, 2020

 

 

63,269

 

 

$

759

 

 

$

345,029

 

 

$

(80,522

)

 

$

(6,947

)

 

$

258,319

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,050

 

 

 

 

 

 

10,050

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,091

 

 

 

2,091

 

Issuance of ordinary shares upon exercise of share options

 

 

533

 

 

 

6

 

 

 

10,834

 

 

 

 

 

 

 

 

 

10,840

 

Share-based compensation

 

 

 

 

 

 

 

 

13,684

 

 

 

 

 

 

 

 

 

13,684

 

Tax withholding on vesting of RSUs

 

 

(16

)

 

 

 

 

 

(733

)

 

 

 

 

 

 

 

 

(733

)

Vesting of RSUs

 

 

57

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2020

 

 

63,843

 

 

$

766

 

 

$

368,813

 

 

$

(70,472

)

 

$

(4,856

)

 

$

294,251

 

 

 

 

Six months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated