UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
Bailiwick of |
Not applicable |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) |
(Trading Symbol) |
(Name of each exchange on which registered) |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of January 28, 2021, the registrant had
Summary of the Material and Other Risks Associated with Our Business
The following is a summary of the material and other risks that could adversely affect our business and financial results:
Business and Operational Risks
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The global COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business and operations. |
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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 could harm our business and operating results. |
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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. |
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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. |
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Failure to effectively expand our sales and marketing capabilities could harm our ability to acquire new customers. |
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Our business and results of operations may be negatively impacted by the United Kingdom’s withdrawal from the European Union. |
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Any serious disruptions in our services may cause us to lose revenue and market acceptance. |
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If we are unable to increase sales to large enterprises, our business, financial position and results of operations may suffer. |
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We must maintain successful relationships with our channel partners. |
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We provide service level commitments under our subscription agreements and service disruptions, including any related to our recently disclosed security incident, could obligate us to provide refunds and we could face subscription terminations. |
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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. |
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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. |
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We are subject to a number of risks associated with global sales and operations. |
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If the prices we charge for our services are unacceptable to our customers, our operating results will be harmed. |
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Our research and development efforts may not produce new services or enhancements to existing services. |
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We employ third-party licensed software for use in or with our services, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which would adversely affect our business. |
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Interruptions or performance problems associated with our information and technology infrastructure that could impair the delivery of our services and harm our business. |
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Our restructuring actions may be costly and may not be as effective as anticipated. |
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Legal and Regulatory Risks
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Data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and other domestic or foreign laws and regulations may limit the use and adoption of, or require modification of, our products and services. |
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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. |
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We may become involved in other litigation that may materially adversely affect us. |
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Human Capital Risks
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We are dependent on the continued services and performance of our key employees, including our co-founder. |
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If we are unable to hire, retain and motivate qualified personnel, our business may be adversely impacted. |
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Our planned workforce reductions may adversely affect our business. |
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Risks Related to Intellectual Property
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Third parties have sued us for alleged infringement of their proprietary rights. |
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Failure to protect our intellectual property rights could impair our ability to protect our technology and our brand. |
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Our employees may disclose trade secrets and other proprietary information. |
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Our employees or contractors may wrongfully use alleged trade secrets of their former employers or other parties. |
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The use of open source software in our offerings may expose us to additional risks and harm our intellectual property. |
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Financial Risks
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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. |
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We have incurred net losses in the past, and we may not be able to achieve or sustain profitability for the foreseeable future. |
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Fluctuations in currency exchange rates could adversely affect our business. |
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Financial covenants and other restrictions under our Credit Agreement create default risks and reduce our flexibility |
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We must maintain the adequacy of internal controls over financial reporting. |
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Tax Risks
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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. |
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Risks Related to Owning Our Ordinary Shares and Our Organization in Jersey, Channel Islands
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Our share price has been and may continue to be volatile based on many factors, many of which are not within our control. |
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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. |
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We do not expect to pay dividends and investors should not buy our ordinary shares expecting to receive dividends. |
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The rights afforded to 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. |
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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 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
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 |
1 |
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2 |
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3 |
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2020 and 2019 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
Item 3. |
35 |
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Item 4. |
37 |
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PART II. |
38 |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 6. |
59 |
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63 |
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
MIMECAST LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
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As of December 31, |
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As of March 31, |
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2020 |
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2020 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Deferred contract costs, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Deferred contract costs, net of current portion |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders' equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Deferred revenue |
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Current portion of finance lease obligations |
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Current portion of operating lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Deferred revenue, net of current portion |
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Long-term finance lease obligations |
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Operating lease liabilities |
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Long-term debt |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Shareholders' equity |
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Ordinary shares, $ December 31, 2020 and March 31, 2020, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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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)
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Three months ended December 31, |
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Nine months ended December 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Income (loss) from operations |
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( |
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Other income (expense) |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Foreign exchange income (expense) and other, net |
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( |
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Total other income (expense), net |
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( |
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( |
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Income (loss) before income taxes |
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( |
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Provision for income taxes |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Net income (loss) per ordinary share |
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Basic |
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$ |
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$ |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
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$ |
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$ |
( |
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Weighted-average number of ordinary shares outstanding |
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Basic |
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Diluted |
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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)
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Three months ended December 31, |
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Nine months ended December 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
( |
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Other comprehensive income: |
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Net unrealized losses on investments, net of tax |
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— |
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( |
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— |
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Change in foreign currency translation adjustment |
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Total other comprehensive income |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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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)
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Three months ended December 31, 2020 |
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Accumulated |
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Ordinary Shares |
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Additional |
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Other |
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Total |
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Number of |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance as of September 30, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Issuance of ordinary shares upon exercise of share options |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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ESPP Purchases |
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— |
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— |
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Tax withholding on ESPP purchases and vesting of RSUs |
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( |
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— |
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( |
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— |
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— |
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( |
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Vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Nine months ended December 31, 2020 |
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Accumulated |
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Ordinary Shares |
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Additional |
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Other |
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Total |
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Number of |
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Paid-in |
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Accumulated |
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Comprehensive |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance as of March 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Issuance of ordinary shares upon exercise of share options |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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ESPP Purchases |
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— |
|
|
|
— |
|
|
|
|
|
Tax withholding on ESPP purchases and vesting of RSUs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Vesting of RSUs |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
Three months ended December 31, 2019 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
||||||||
|
|
Number of |
|
|
|
|
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders' |
|
|||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
Balance as of September 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Unrealized losses on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Issuance of ordinary shares upon exercise of share options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |