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mime-10q_20200930.htm

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, 2020

☐	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 October 27, 2020, the registrant had 63,892,288 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 September 30, 2020 and March 31, 2020	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 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	34
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 6.	Exhibits	56
Signatures		60

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,
	2020			2020
Assets
Current assets
Cash and cash equivalents	$	230,708		$	173,958
Accounts receivable, net		81,143			97,659
Deferred contract costs, net		12,988			11,133
Prepaid expenses and other current assets		19,799			16,145
Total current assets		344,638			298,895

Property and equipment, net		86,885			85,178
Operating lease right-of-use assets		134,201			116,564
Intangible assets, net		45,130			38,394
Goodwill		169,812			150,525
Deferred contract costs, net of current portion		40,775			36,664
Other assets		3,363			3,614
Total assets	$	824,804		$	729,834

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	10,169		$	14,907
Accrued expenses and other current liabilities		47,598			41,607
Deferred revenue		189,956			194,151
Current portion of finance lease obligations		755			1,058
Current portion of operating lease liabilities		34,515			30,379
Current portion of long-term debt		7,828			6,573
Total current liabilities		290,821			288,675

Deferred revenue, net of current portion		11,356			12,816
Long-term finance lease obligations		15			323
Operating lease liabilities		118,773			105,321
Long-term debt		99,532			86,258
Other non-current liabilities		10,056			4,386
Total liabilities		530,553			497,779

Commitments and contingencies (Note 13)

Shareholders' equity
Ordinary shares, $0.012 par value, 300,000,000 shares authorized; 63,842,964 and 62,791,691 shares issued and outstanding as of September 30, 2020 and March 31, 2020, respectively		766			754
Additional paid-in capital		368,813			325,808
Accumulated deficit		(70,472	)		(83,660	)
Accumulated other comprehensive loss		(4,856	)		(10,847	)
Total shareholders' equity		294,251			232,055
Total liabilities and shareholders' equity	$	824,804		$	729,834

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

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,						Six months ended September 30,
	2020			2019			2020			2019
Revenue	$	122,693		$	103,357		$	237,869		$	202,588
Cost of revenue		29,742			26,134			58,211			51,601
Gross profit		92,951			77,223			179,658			150,987
Operating expenses
Research and development		22,287			19,320			45,089			38,705
Sales and marketing		43,994			41,165			88,037			84,535
General and administrative		16,583			16,756			33,751			32,203
Total operating expenses		82,864			77,241			166,877			155,443
Income (loss) from operations		10,087			(18	)		12,781			(4,456	)
Other income (expense)
Interest income		174			1,114			351			2,096
Interest expense		(790	)		(1,195	)		(1,673	)		(2,475	)
Foreign exchange income (expense) and other, net		1,161			(704	)		2,924			252
Total other income (expense), net		545			(785	)		1,602			(127	)
Income (loss) before income taxes		10,632			(803	)		14,383			(4,583	)
Provision for income taxes		582			118			1,195			348
Net income (loss)	$	10,050		$	(921	)	$	13,188		$	(4,931	)

Net income (loss) per ordinary share
Basic	$	0.16		$	(0.01	)	$	0.21		$	(0.08	)
Diluted	$	0.15		$	(0.01	)	$	0.20		$	(0.08	)
Weighted-average number of ordinary shares outstanding
Basic		63,517			61,829			63,268			61,638
Diluted		65,581			61,829			65,114			61,638

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

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three months ended September 30,					Six months ended September 30,
	2020		2019			2020		2019
Net income (loss)	$	10,050	$	(921	)	$	13,188	$	(4,931	)
Other comprehensive income:
Net unrealized losses on investments, net of tax		—		(37	)		—		(7	)
Change in foreign currency translation adjustment		2,091		1,022			5,991		2,555
Total other comprehensive income		2,091		985			5,991		2,548
Comprehensive income (loss)	$	12,141	$	64		$	19,179	$	(2,383	)

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

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

	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		—		—		(733	)		—			—			(733	)
Vesting of RSUs		41		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
	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		—			—		—			13,188			—			13,188
Foreign currency translation adjustment		—			—		—			—			5,991			5,991
Issuance of ordinary shares upon exercise of share options		782			9		15,871			—			—			15,880
Share-based compensation		—			—		27,350			—			—			27,350
ESPP Purchase		87			1		3,094			—			—			3,095
Tax withholding on ESPP purchases and vesting of RSUs		(3	)		—		(3,308	)		—			—			(3,308	)
Vesting of RSUs		185			2		(2	)		—			—			—
Balance as of September 30, 2020		63,843		$	766	$	368,813		$	(70,472	)	$	(4,856	)	$	294,251

	Three months ended September 30, 2019
											Accumulated
	Ordinary Shares				Additional						Other			Total
	Number of				Paid-in			Accumulated			Comprehensive			Shareholders'
	Shares		Amount		Capital			Deficit			Loss			Equity
Balance as of June 30, 2019		61,729	$	740	$	281,130		$	(85,470	)	$	(5,292	)	$	191,108
Net loss		—		—		—			(921	)		—			(921	)
Foreign currency translation adjustment		—		—		—			—			1,022			1,022
Unrealized losses on investments		—		—		—			—			(37	)		(37	)
Issuance of ordinary shares upon exercise of share options		197		3		1,934			—			—			1,937
Share-based compensation		—		—		9,908			—			—			9,908
Tax withholding on vesting of RSUs		—		—		(397	)		—			—			(397	)
Vesting of RSUs		27		—		—			—			—			—
Balance as of September 30, 2019		61,953	$	743	$	292,575		$	(86,391	)	$	(4,307	)	$	202,620

	Six months ended September 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