Company Quick10K Filing
Mimecast
Price36.06 EPS-0
Shares62 P/E-349
MCap2,234 P/FCF35
Net Debt-104 EBIT2
TEV2,130 TEV/EBIT883
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-03
10-K 2020-03-31 Filed 2020-05-22
10-Q 2019-12-31 Filed 2020-02-10
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-05
10-K 2019-03-31 Filed 2019-05-29
10-Q 2018-12-31 Filed 2019-02-11
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-K 2018-03-31 Filed 2018-05-29
20-F 2017-03-31 Filed 2017-05-26
20-F 2016-03-31 Filed 2016-05-25
8-K 2020-08-31
8-K 2020-08-03 Earnings, Exhibits
8-K 2020-07-30 Other Events, Exhibits
8-K 2020-07-30 Other Events, Exhibits
8-K 2020-05-11
8-K 2020-04-27
8-K 2020-02-10
8-K 2020-01-21
8-K 2020-01-06
8-K 2019-11-14
8-K 2019-11-07
8-K 2019-11-06
8-K 2019-10-03
8-K 2019-09-20
8-K 2019-08-05
8-K 2019-05-13
8-K 2019-04-05
8-K 2019-03-13
8-K 2019-02-11
8-K 2019-02-07
8-K 2019-01-29
8-K 2018-12-18
8-K 2018-11-08
8-K 2018-10-04
8-K 2018-09-04
8-K 2018-08-09
8-K 2018-07-31
8-K 2018-07-23
8-K 2018-07-09
8-K 2018-05-22
8-K 2018-05-14
8-K 2018-03-31

MIME 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-10.45 mime-ex1045_284.htm
EX-31.1 mime-ex311_6.htm
EX-31.2 mime-ex312_7.htm
EX-32.1 mime-ex321_8.htm
EX-32.2 mime-ex322_9.htm

Mimecast Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
0.70.60.40.30.10.02015201620182020
Assets, Equity
0.20.10.10.0-0.0-0.12015201620182020
Rev, G Profit, Net Income
0.10.0-0.0-0.1-0.1-0.22015201620182020
Ops, Inv, Fin

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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, 2020

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, nominal 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, 2020, the registrant had 63,290,548 shares of ordinary shares, $0.012 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and March 31, 2020

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2020 and 2019

2

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2020 and 2019

3

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2020 and 2019

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2020 and 2019

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

31

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

35

Item 6.

Exhibits

53

Signatures

57

 

 

i


 

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,

 

 

 

2020

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

198,541

 

 

$

173,958

 

Accounts receivable, net

 

 

86,128

 

 

 

97,659

 

Deferred contract costs, net

 

 

12,002

 

 

 

11,133

 

Prepaid expenses and other current assets

 

 

16,658

 

 

 

16,145

 

Total current assets

 

 

313,329

 

 

 

298,895

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

85,980

 

 

 

85,178

 

Operating lease right-of-use assets

 

 

111,176

 

 

 

116,564

 

Intangible assets, net

 

 

39,852

 

 

 

38,394

 

Goodwill

 

 

154,201

 

 

 

150,525

 

Deferred contract costs, net of current portion

 

 

38,624

 

 

 

36,664

 

Other assets

 

 

3,437

 

 

 

3,614

 

Total assets

 

$

746,599

 

 

$

729,834

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,113

 

 

$

14,907

 

Accrued expenses and other current liabilities

 

 

44,217

 

 

 

41,607

 

Deferred revenue

 

 

190,519

 

 

 

194,151

 

Current portion of finance lease obligations

 

 

984

 

 

 

1,058

 

Current portion of operating lease liabilities

 

 

30,318

 

 

 

30,379

 

Current portion of long-term debt

 

 

7,202

 

 

 

6,573

 

Total current liabilities

 

 

285,353

 

 

 

288,675

 

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

12,472

 

 

 

12,816

 

Long-term finance lease obligations

 

 

50

 

 

 

323

 

Operating lease liabilities

 

 

98,926

 

 

 

105,321

 

Long-term debt

 

 

84,456

 

 

 

86,258

 

Other non-current liabilities

 

 

7,023

 

 

 

4,386

 

Total liabilities

 

 

488,280

 

 

 

497,779

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

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

   63,269,191 and 62,791,691 shares issued and outstanding as of

   June 30, 2020 and March 31, 2020, respectively

 

 

759

 

 

 

754

 

Additional paid-in capital

 

 

345,029

 

 

 

325,808

 

Accumulated deficit

 

 

(80,522

)

 

 

(83,660

)

Accumulated other comprehensive loss

 

 

(6,947

)

 

 

(10,847

)

Total shareholders' equity

 

 

258,319

 

 

 

232,055

 

Total liabilities and shareholders' equity

 

$

746,599

 

 

$

729,834

 

 

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,

 

 

 

2020

 

 

2019

 

Revenue

 

$

115,176

 

 

$

99,231

 

Cost of revenue

 

 

28,469

 

 

 

25,467

 

Gross profit

 

 

86,707

 

 

 

73,764

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

22,802

 

 

 

19,385

 

Sales and marketing

 

 

44,043

 

 

 

43,370

 

General and administrative

 

 

17,168

 

 

 

15,447

 

Total operating expenses

 

 

84,013

 

 

 

78,202

 

Income (loss) from operations

 

 

2,694

 

 

 

(4,438

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

177

 

 

 

982

 

Interest expense

 

 

(883

)

 

 

(1,280

)

Foreign exchange income and other, net

 

 

1,763

 

 

 

956

 

Total other income (expense), net

 

 

1,057

 

 

 

658

 

Income (loss) before income taxes

 

 

3,751

 

 

 

(3,780

)

Provision for income taxes

 

 

613

 

 

 

230

 

Net income (loss)

 

$

3,138

 

 

$

(4,010

)

 

 

 

 

 

 

 

 

 

Net income (loss) per ordinary share

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

(0.07

)

Diluted

 

$

0.05

 

 

$

(0.07

)

Weighted-average number of ordinary shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

63,019

 

 

 

61,444

 

Diluted

 

 

64,676

 

 

 

61,444

 

 

 

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

2


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2020

 

 

2019

 

Net income (loss)

 

$

3,138

 

 

$

(4,010

)

Other comprehensive income:

 

 

 

 

 

 

 

 

Net unrealized gains on investments, net of tax

 

 

 

 

 

30

 

Change in foreign currency translation adjustment

 

 

3,900

 

 

 

1,533

 

Total other comprehensive income

 

 

3,900

 

 

 

1,563

 

Comprehensive income (loss)

 

$

7,038

 

 

$

(2,447

)

 

 

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, 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

 

 

(3

)

 

 

 

 

 

(2,575

)

 

 

 

 

 

 

 

 

(2,575

)

Vesting of RSUs

 

 

144

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

 

63,269

 

 

$

759

 

 

$

345,029

 

 

$

(80,522

)

 

$

(6,947

)

 

$

258,319

 

 

 

 

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of March 31, 2019

 

 

61,158

 

 

$

734

 

 

$

263,388

 

 

$

(83,632

)

 

$

(6,855

)

 

$

173,635

 

Cumulative effect adjustment ASU 2016-02 (1)

 

 

 

 

 

 

 

 

 

 

 

2,172

 

 

 

 

 

 

2,172

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,010

)

 

 

 

 

 

(4,010

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,533

 

 

 

1,533

 

Unrealized gains on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Issuance of ordinary shares upon exercise of share options

 

 

441

 

 

 

5

 

 

 

6,669

 

 

 

 

 

 

 

 

 

6,674

 

Share-based compensation

 

 

 

 

 

 

 

 

10,015

 

 

 

 

 

 

 

 

 

10,015

 

ESPP Purchase

 

 

89

 

 

 

1

 

 

 

2,489

 

 

 

 

 

 

 

 

 

2,490

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(6

)

 

 

 

 

 

(1,431

)

 

 

 

 

 

 

 

 

(1,431

)

Vesting of RSUs

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

61,729

 

 

$

740

 

 

$

281,130

 

 

$

(85,470

)

 

$

(5,292

)

 

$

191,108

 

 

 

(1)

Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02 or ASC 842)

 

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,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,138

 

 

$

(4,010

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,852

 

 

 

7,442

 

Share-based compensation expense

 

 

13,653

 

 

 

10,034

 

Amortization of deferred contract costs

 

 

2,869

 

 

 

2,116

 

Amortization of debt issuance costs

 

 

114

 

 

 

157

 

Amortization of operating lease right-of-use assets

 

 

7,111

 

 

 

7,677

 

Other non-cash items

 

 

 

 

 

(42

)

Unrealized currency gains on foreign denominated transactions

 

 

(2,733

)

 

 

(856

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

12,405

 

 

 

11,927

 

Prepaid expenses and other current assets

 

 

(497

)

 

 

8,856

 

Deferred contract costs

 

 

(5,203

)

 

 

(4,806

)

Other assets

 

 

156

 

 

 

(638

)

Accounts payable

 

 

(2,037

)

 

 

(808

)

Deferred revenue

 

 

(5,645

)

 

 

1,295

 

Operating lease liabilities

 

 

(8,221

)

 

 

(5,145

)

Accrued expenses and other liabilities

 

 

5,343

 

 

 

(4,675

)

Net cash provided by operating activities

 

 

29,305

 

 

 

28,524

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property, equipment and capitalized software

 

 

(10,771

)

 

 

(9,161

)

Purchases of strategic investments

 

 

 

 

 

(3,025

)

Maturities of investments

 

 

 

 

 

14,000

 

Net cash (used in) provided by investing activities

 

 

(10,771

)

 

 

1,814

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares

 

 

8,135

 

 

 

9,164

 

Withholding taxes related to net share settlement of ESPP purchases and

   vesting of RSUs

 

 

(2,575

)

 

 

(1,431

)

Payments on debt

 

 

(1,250

)

 

 

(625

)

Payments on finance lease obligations

 

 

(347

)

 

 

(166

)

Net cash provided by financing activities

 

 

3,963

 

 

 

6,942

 

Effect of foreign exchange rates on cash

 

 

2,086

 

 

 

(44

)

Net increase in cash and cash equivalents

 

 

24,583

 

 

 

37,236

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

173,958

 

 

 

137,576

 

Cash and cash equivalents at end of period

 

$

198,541

 

 

$

174,812

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

763

 

 

$

1,075

 

Cash paid during the period for income taxes

 

$

82

 

 

$

73

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Unpaid purchases of property, equipment and capitalized software

 

$

8,731

 

 

$

5,086

 

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

 

$

1,004

 

 

$

1,195

 

 

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; email archiving; awareness training; web security; DMARC analyzer; and brand exploit protection. 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, 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, 2020 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 22, 2020.

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, 2020 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, 2020, and for the three months ended June 30, 2020 and 2019. 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 $0.3 million from proceeds from issuance of ordinary shares to tax withholding on employee share purchase plan purchases and vesting of restricted share units within its condensed consolidated statement of shareholders’ equity and condensed consolidated statement of cash flows for the three months ended June 30, 2019 to conform to current period presentation. These reclassifications had no impact on the Company’s previously reported results of operations or its 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.

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.

6


 

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, 2020. 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 (Loss)

Comprehensive income (loss) 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 (loss) consists of net income (loss) and other comprehensive income, which includes certain changes in equity that are excluded from net income (loss). As of June 30, 2020 and March 31, 2020, accumulated other comprehensive loss is presented separately on the condensed consolidated balance sheets and consists of cumulative foreign currency translation adjustments and unrealized gains and losses on investments.

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, 2020, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K, have not changed, other than those impacted by new accounting standards as described below. 

Recently Issued and Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date.

Recently Adopted Accounting Pronouncements

On April 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Entities will be required to use an expected loss model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The Company adopted the standard utilizing the modified retrospective approach. The adoption of the standard did not have a material impact on its condensed consolidated financial statements.

7


 

On April 1, 2020, the Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. The adoption of this standard had no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 is intended to simplify various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020. The Company is currently in the process of evaluating the impact and timing of adoption of the ASU 2019-12 on its consolidated financial statements.

2. Revenue and Deferred Revenue

Revenue recognized during the three months ended June 30, 2020 and 2019 from amounts included in deferred revenue at the beginning of the respective periods was approximately $80.8 million and $67.2 million, respectively. Revenue recognized during the three months ended June 30, 2020 from performance obligations satisfied or partially satisfied in previous periods was not material.

Contracted revenue as of June 30, 2020 and 2019 that has not yet been recognized (contracted and not recognized) was $98.9 million and $90.5 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 56% of contracted and not recognized revenue to be recognized over the next twelve months, 42% 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 our 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 COVID-19 pandemic on expected credit losses. As of June 30, 2020 and March 31, 2020, no individual customer represented more than 10% of the Company’s accounts receivable. During the three months ended June 30, 2020 and 2019, no individual customer represented more than 10% of the Company’s revenue.

The Company diversifies its investment portfolio by investing in multiple types of investment-grade securities and attempts to mitigate a risk of loss by using a third-party investment manager. As of June 30, 2020 and March 31, 2020, 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. 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, 2020 and March 31, 2020, cash and cash equivalents of $198.5 million and $174.0 million, respectively, were carried at amortized cost, which approximates their market value.

8


 

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, 2020 and March 31, 2020, 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 we have 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, 2020 and March 31, 2020, 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, 2020 and the year ended March 31, 2020.

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, 2020 and March 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: