10-Q
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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 December 31, 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 January 27, 2022, the registrant had 66,922,342 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

 

On December 7, 2021, we entered into a Transaction Agreement providing for our acquisition by an entity affiliated with Permira Advisers LLC in an all-cash transaction valued at approximately $5.8 billion (the "Transaction"). The Transaction, the pendency of the Transaction or our failure to complete the Transaction could have a material adverse effect on our business, results of operations, financial condition and share price.

 

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.

 

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.

 

i


 

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

 

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

 

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.

 

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.

 

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 December 31, 2021 and March 31, 2021

1

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2021 and 2020

2

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended December 31, 2021 and 2020

3

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended December 31, 2021 and 2020

4

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

39

PART II.

OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 6.

Exhibits

63

Signatures

67

 

 

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 December 31,

 

 

As of March 31,

 

 

 

2021

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

416,173

 

 

$

292,949

 

Accounts receivable, net

 

 

120,071

 

 

 

114,280

 

Deferred contract costs, net

 

 

18,667

 

 

 

16,165

 

Prepaid expenses and other current assets

 

 

20,729

 

 

 

20,031

 

Total current assets

 

 

575,640

 

 

 

443,425

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

91,066

 

 

 

92,891

 

Operating lease right-of-use assets

 

 

113,810

 

 

 

128,063

 

Intangible assets, net

 

 

40,944

 

 

 

43,193

 

Goodwill

 

 

180,600

 

 

 

173,952

 

Deferred contract costs, net of current portion

 

 

53,577

 

 

 

50,086

 

Other assets

 

 

3,248

 

 

 

3,097

 

Total assets

 

$

1,058,885

 

 

$

934,707

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

7,088

 

 

$

10,487

 

Accrued expenses and other current liabilities

 

 

64,067

 

 

 

54,676

 

Deferred revenue

 

 

253,345

 

 

 

237,749

 

Current portion of finance lease obligations

 

 

429

 

 

 

323

 

Current portion of operating lease liabilities

 

 

29,703

 

 

 

33,447

 

Current portion of long-term debt

 

 

9,738

 

 

 

9,090

 

Total current liabilities

 

 

364,370

 

 

 

345,772

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

10,624

 

 

 

12,936

 

Operating lease liabilities

 

 

98,969

 

 

 

112,316

 

Long-term debt

 

 

69,867

 

 

 

94,671

 

Other non-current liabilities

 

 

7,171

 

 

 

8,143

 

Total liabilities

 

 

551,001

 

 

 

573,838

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

Ordinary shares, $0.012 par value, 300,000,000 shares authorized;
   
66,907,431 and 64,562,222 shares issued and outstanding as of
   December 31, 2021 and March 31, 2021, respectively

 

 

803

 

 

 

775

 

Additional paid-in capital

 

 

508,400

 

 

 

408,249

 

Accumulated deficit

 

 

(12,442

)

 

 

(53,915

)

Accumulated other comprehensive income

 

 

11,123

 

 

 

5,760

 

Total shareholders' equity

 

 

507,884

 

 

 

360,869

 

Total liabilities and shareholders' equity

 

$

1,058,885

 

 

$

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 December 31,

 

 

Nine months ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

151,599

 

 

$

129,636

 

 

$

441,381

 

 

$

367,505

 

Cost of revenue

 

 

34,408

 

 

 

31,572

 

 

 

101,433

 

 

 

89,783

 

Gross profit

 

 

117,191

 

 

 

98,064

 

 

 

339,948

 

 

 

277,722

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

26,305

 

 

 

25,408

 

 

 

83,025

 

 

 

70,497

 

Sales and marketing

 

 

49,738

 

 

 

45,187

 

 

 

146,775

 

 

 

133,224

 

General and administrative

 

 

24,199

 

 

 

16,649

 

 

 

60,373

 

 

 

50,400

 

Total operating expenses

 

 

100,242

 

 

 

87,244

 

 

 

290,173

 

 

 

254,121

 

Income from operations

 

 

16,949

 

 

 

10,820

 

 

 

49,775

 

 

 

23,601

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

82

 

 

 

261

 

 

 

351

 

 

 

612

 

Interest expense

 

 

(465

)

 

 

(578

)

 

 

(1,535

)

 

 

(2,251

)

Foreign exchange (expense) income and other, net

 

 

(1,043

)

 

 

1,441

 

 

 

(2,234

)

 

 

4,365

 

Total other income (expense), net

 

 

(1,426

)

 

 

1,124

 

 

 

(3,418

)

 

 

2,726

 

Income before income taxes

 

 

15,523

 

 

 

11,944

 

 

 

46,357

 

 

 

26,327

 

Provision for income taxes

 

 

1,705

 

 

 

1,155

 

 

 

4,884

 

 

 

2,350

 

Net income

 

$

13,818

 

 

$

10,789

 

 

$

41,473

 

 

$

23,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per ordinary share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

 

$

0.17

 

 

$

0.63

 

 

$

0.38

 

Diluted

 

$

0.20

 

 

$

0.16

 

 

$

0.60

 

 

$

0.37

 

Weighted-average number of ordinary shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

66,575

 

 

 

63,987

 

 

 

65,921

 

 

 

63,509

 

Diluted

 

 

70,133

 

 

 

66,023

 

 

 

68,767

 

 

 

65,419

 

 

 

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 December 31,

 

 

Nine months ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

13,818

 

 

$

10,789

 

 

$

41,473

 

 

$

23,977

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

3,006

 

 

 

15,775

 

 

 

5,363

 

 

 

21,766

 

Total other comprehensive income

 

 

3,006

 

 

 

15,775

 

 

 

5,363

 

 

 

21,766

 

Comprehensive income

 

$

16,824

 

 

$

26,564

 

 

$

46,836

 

 

$

45,743

 

 

 

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 December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance as of September 30, 2021

 

 

66,326

 

 

$

796

 

 

$

476,805

 

 

$

(26,260

)

 

$

8,117

 

 

$

459,458

 

Net income

 

 

 

 

 

 

 

 

 

 

 

13,818

 

 

 

 

 

 

13,818

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,006

 

 

 

3,006

 

Issuance of ordinary shares upon exercise of share options

 

 

456

 

 

 

6

 

 

 

15,983

 

 

 

 

 

 

 

 

 

15,989

 

Share-based compensation

 

 

 

 

 

 

 

 

14,618

 

 

 

 

 

 

 

 

 

14,618

 

ESPP purchases

 

 

67

 

 

 

 

 

 

3,051

 

 

 

 

 

 

 

 

 

3,051

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(28

)

 

 

 

 

 

(2,056

)

 

 

 

 

 

 

 

 

(2,056

)

Vesting of RSUs

 

 

86

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

66,907

 

 

$

803

 

 

$

508,400

 

 

$

(12,442

)

 

$

11,123

 

 

$

507,884

 

 

 

 

Nine months ended December 31, 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

 

 

 

 

 

 

 

 

 

 

 

41,473

 

 

 

 

 

 

41,473

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,363

 

 

 

5,363

 

Issuance of ordinary shares upon exercise of share options

 

 

1,750

 

 

 

21

 

 

 

56,686

 

 

 

 

 

 

 

 

 

56,707

 

Share-based compensation

 

 

 

 

 

 

 

 

47,334

 

 

 

 

 

 

 

 

 

47,334

 

ESPP purchases

 

 

142

 

 

 

1

 

 

 

6,424

 

 

 

 

 

 

 

 

 

6,425

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(220

)

 

 

(2

)

 

 

(10,285

)

 

 

 

 

 

 

 

 

(10,287

)

Vesting of RSUs

 

 

673

 

 

 

8

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

 

 

66,907

 

 

$

803

 

 

$

508,400

 

 

$

(12,442

)

 

$

11,123

 

 

$

507,884

 

 

 

 

Three months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of September 30, 2020

 

 

63,843

 

 

$

766

 

 

$

368,813

 

 

$

(70,472

)

 

$

(4,856

)

 

$

294,251

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,789

 

 

 

 

 

 

10,789

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,775

 

 

 

15,775

 

Issuance of ordinary shares upon exercise of share options

 

 

378

 

 

 

5

 

 

 

8,812

 

 

 

 

 

 

 

 

 

8,817

 

Share-based compensation

 

 

 

 

 

 

 

 

13,833

 

 

 

 

 

 

 

 

 

13,833

 

ESPP purchases

 

 

91

 

 

 

1

 

 

 

3,320

 

 

 

 

 

 

 

 

 

3,321

 

Tax withholding on ESPP purchases and vesting of RSUs

 

 

(17

)

 

 

 

 

 

(867

)

 

 

 

 

 

 

 

 

(867

)

Vesting of RSUs

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

64,347

 

 

$

772

 

 

$

393,911

 

 

$

(59,683

)

 

$

10,919

 

 

$

345,919

 

 

 

 

Nine months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

Paid-in