UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2020
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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 001-37637
MIMECAST LIMITED
(Exact name of Registrant as specified in its Charter)
Bailiwick of Jersey |
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Not Applicable |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
1 Finsbury Avenue London EC2M 2PF United Kingdom |
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EC2M 2PF |
(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (781) 996-5340
Securities registered pursuant to Section 12(b) of the Act:
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(Trading Symbol) |
(Name of each exchange on which registered) |
Ordinary Shares, nominal value $0.012 per share |
MIME |
The Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 |
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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 ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of our ordinary shares on the Nasdaq Global Select Market on September 30, 2019, the last business day of the registrant’s second fiscal quarter, was $1,990,718,872. This calculation does not reflect a determination that certain persons or entities are affiliates of the registrant for any other purpose.
The number of registrant’s ordinary shares outstanding as of May 8, 2020 was 62,965,224.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to the 2020 Annual General Meeting of Shareholders of Mimecast Limited, scheduled to be held on October 8, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K. The Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended March 31, 2020. Except with respect to information specifically incorporated by reference into this Annual Report on Form 10-K, the Definitive Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K.
Table of Contents
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PART I |
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1 |
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Item 1. |
3 |
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Item 1A. |
15 |
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Item 1B. |
32 |
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Item 2. |
32 |
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Item 3. |
33 |
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Item 4. |
33 |
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PART II |
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Item 5. |
34 |
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Item 6. |
35 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
40 |
Item 7A. |
58 |
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Item 8. |
60 |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
98 |
Item 9A. |
98 |
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Item 9B. |
100 |
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PART III |
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Item 10. |
101 |
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Item 11. |
101 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
101 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
101 |
Item 14. |
101 |
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PART IV |
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Item 15. |
102 |
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Item 16. |
107 |
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108 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “guidance,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “probable,” “potential,” “can,” “could,” “should,” “contemplate,” “would,” “project,” “seek,” “target,” “might,” “explore,” “plan,” “strategy,” and similar expressions or variations that are not statements of historical fact are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements set forth in this Annual Report on Form 10-K include, but are not limited to, statements about the following:
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the impact that the global COVID-19 pandemic may have on our business, financial position and results of operations; |
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our expectations regarding our revenue, expenses and other results of operations; |
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our plans to invest in sales and marketing efforts, increase the size of our sales and marketing team, and expand our channel partnerships; |
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our ability to attract new customers in each of our markets, retain existing customers, and maintain a relatively consistent revenue retention rate over the next twelve months; |
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our plans to continue to invest in the research and development of technology for both existing and new products, and increase the size of our research and development team; |
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the potential impact of foreign currency exchange rates on our results of operations; |
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the growth rates of the markets in which we compete; |
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our liquidity and working capital requirements; |
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our anticipated strategies for growth; |
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our ability to anticipate market needs, develop new and enhanced solutions to meet those needs, and market acceptance of any new and enhanced solutions; |
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our ability to compete in our industry and innovation by our competitors; |
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our ability to adequately protect our intellectual property and risks we face from organizations that claim we are infringing their intellectual property; |
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our ability to respond to evolving regulatory requirements regarding data protection and privacy, including the European Union’s General Data Protection Regulation and the California Consumer Privacy Act of 2018; |
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the effects of the United Kingdom exiting from the European Union; and |
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our plans to pursue strategic acquisitions and our ability to use the technology we acquire to enhance the products and services we offer to our customers. |
We caution you that the foregoing list does not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
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You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements are subject to risks, uncertainties and other factors described in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
As used in this Annual Report on Form 10-K, the terms “Mimecast,” “Company,” “Registrant,” “we,” “us,” and “our” mean Mimecast Limited and its subsidiaries, unless the context indicates otherwise.
Certain amounts and percentages that appear in this Annual Report on Form 10-K have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including in tables, may not be exact arithmetic aggregations of the figures that precede or follow them.
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PART I
Item 1. Business.
Overview
We are a leading global provider of next generation cloud security and risk management services for email and corporate information. Our integrated suite of proprietary cloud services protects customers of all sizes from the significant business and data security risks to which their email and other corporate systems expose them. Our Email Security 3.0 and Cyber Resilience Extension offerings are designed to protect customers from today’s rapidly changing security environment.
The threat landscape and the resulting opportunity for disruption have evolved significantly over the last several years. Organizations of all sizes are increasingly dependent on digital technology and corporate systems that often extend beyond the perimeter of the organization. These systems typically do not operate in a stand-alone environment but instead are connected with and rely upon other systems, many of which are outside the control of the organization. Finally, an everchanging and increasingly complex regulatory environment places significant compliance burdens on organizations and subjects them to harsh penalties in the event of failure. These evolving trends, dependencies, interdependencies and regulatory burdens, have only increased the potential impact of disruption caused by perennial risks, such as malicious action, human error and technological failure.
We developed our proprietary cloud architecture to offer customers a comprehensive cyber resilience strategy. Our 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). Our Cyber Resilience Extensions expand resilience to other critical elements of an organization’s digital infrastructure.
Our primary offerings include the following features and functionality:
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Email security, which provides a critical defense against hackers seeking to capture and exploit valuable organizational information and disrupt business operations. Email is a powerful attack vector and data leak concern. |
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Continuity, which ensures employees can continue using email during unexpected and planned outages. |
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Archiving, which unifies email data to support e-discovery, forensic analysis, and compliance initiatives, while also giving employees fast access to their personal archive, which improves productivity. |
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Awareness training, which addresses security risks associated with the activities of employees by combining effective, modern, and engaging training techniques with predictive analytics. Employee errors are one of the leading causes of cybersecurity incidents. |
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Web security, which protects against malicious web activity and enables customers to block access to inappropriate websites. |
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DMARC analyzer, which allows our customers to more effectively implement and manage complex domain-based message authentication reporting and conformance, or DMARC, deployments by providing greater visibility and improved governance across all email channels. |
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Brand exploit protection, which provides integrated brand protection that helps prevent attackers from tricking customers and partners with fake websites by detecting brand attacks in their early stages, blocking them before they can launch, and quickly remediating them if they have gone live. |
Our historical focus has been email security. Email is a critical tool for organizations of all sizes. Protecting and managing email has become more complicated due to expanding security and compliance requirements and the rapid increase in both the volume and the importance of the information transmitted via email. Organizations are increasingly at risk from security breaches of sensitive data as sophisticated email-based attacks or data leaks have become far more common than in the past. Additionally, organizations are not just using email for communication. Email archives are used as an active repository of vital corporate information needed to meet compliance and regulatory requirements and ensure employee productivity. As a result, email represents one of the highest concentrations of business risk that organizations face.
Traditional approaches to addressing these risks leave customers managing disparate point products from multiple vendors that are often difficult to use, costly to manage, and difficult to scale; that can fail to fully address advanced threats; and that limit the use of corporate information to enhance productivity. The resulting infrastructure complexity caused by disparate products and legacy architectures also makes it difficult to move more IT workloads to the cloud, which continues to be an increasing priority for organizations of all sizes.
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Our offerings are delivered from an easy-to-use single platform, and our integrated services also simplify ongoing management and service deployment. As a result, our customers can decommission the often costly and complex point products and on-premises technology they have traditionally used to address these risks, which also makes it easier for them to move more of their IT workloads to the cloud.
We serve approximately 38,100 customers and protect millions of their employees around the world. Our services scale effectively to meet the needs of customers of all sizes. We sell our services through direct sales efforts and through our channel partners. Our sales model is designed to meet the needs of organizations of all sizes across a wide range of industries and in over 140 countries. For the fiscal years ended March 31, 2020, 2019 and 2018, our revenue was $427.0 million, $340.4 million and $261.9 million, respectively.
Our Growth Strategy
We will continue to invest in our cloud security, data, and risk management services. As more organizations move IT workloads such as email to the cloud, we believe we are well positioned to continue capitalizing on this growing opportunity globally.
Our growth strategy is focused on acquiring new customers, driving revenue growth from our existing customer base, developing our technology and releasing new services, actively investing in our channel partner network, continuing to strategically expand our geographic presence, and pursuing growth and technology through acquisitions.
Our Solutions
Our integrated suite of cloud services is designed to offer true cyber resilience for email and web and delivers comprehensive email risk management beyond the primary mail server. We protect customers and their data from the growing threat of email attacks through malware, spam, data leaks, and advanced threats such as phishing and impersonation attacks. Our continuity services ensure email and corporate information remain available in the event of a primary system failure or scheduled maintenance downtime. We also help organizations securely and cost effectively archive their growing email and file repositories to support employee productivity, compliance, and e-discovery.
Our customers benefit from:
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Comprehensive Email, Web, and Data Risk Management in a Single, Unified Cloud Service. Our services integrate a range of technologies into a comprehensive service that would otherwise require an array of individual devices or services from multiple vendors. |
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Best-of-Breed Security, Continuity, Awareness Training, and Archiving Services. We believe our customers should not have to compromise on the quality of their email and web security, continuity, archiving or awareness training services in order to benefit from integration. |
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Web Scale Performance for Organizations of All Sizes. Our cloud service is built to address the most demanding scale, performance, and availability requirements of large enterprises through a subscription-based cloud service that also puts these capabilities within reach of small and mid-market organizations. We meet demanding continuity service commitments with data centers that are replicated in each of our primary geographies and operate in active-active mode, enabling fast failover and fail-back as required. |
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Easy to Deploy and Manage. Our service is designed to be easy to deploy. Customers simply route their email traffic through our cloud and can be up and running in a matter of days and sometimes less. We then enable our customers to add or delete new services and manage all security and other policies centrally via a single web-based administration console that significantly simplifies the ongoing management of their email and data environment. |
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Highly Agile and Adaptable Service. We are continually improving our cloud architecture and services. Our common code base and multi-tenant cloud architecture enables us to perform maintenance updates and add new features or products without interruption to our customers. Continuous service development and multi-tenant rapid deployment also allows us to keep pace with emerging threats to protect customers and respond quickly to changing needs. |
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Facilitate the Movement of Additional Critical Workloads to the Cloud. For those customers that want to put more workloads into the cloud, our technology facilitates the migration of email by removing the complexity that has stalled many customers to date. Our interoperability with cloud-based email servers, such as Microsoft® Office® 365®, makes this easier to achieve and helps mitigate remaining concerns about the reliance of single-vendor security, data integrity, and continuity. Our data ingestion offering also allows customers to more easily migrate legacy data into our cloud archive to ensure it is a complete record of current and historic data. |
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Compelling Return on Investment. Our unified, cloud-based services enable our customers to decommission a range of legacy and disparate technologies that support their email server and data environment and recover these costs. We utilize hardware efficiently and share a single instance of operating software, as well as storage and processing hardware, securely across the whole customer base within each data center, allowing us to deliver cloud-scale economic and performance benefits to our customers. |
Our Technology
We have developed a native cloud architecture, including our own proprietary software-as-a-service, or SaaS, operating system, known as Mime | OS™, and customer-facing services to address the specific risks and functional limitations of business email and data.
We have a proven record of performing successfully at considerable scale and addressing rapidly growing customer demands. We process approximately 655 million emails per day and manage approximately 386 billion emails in total with our service. We archive approximately 85 petabytes of customer data and add approximately 132 terabytes of customer data per month.
Our Proprietary Native Cloud Architecture— Mime | OS™
We developed our proprietary operating system, Mime | OS™, for native cloud services. Mime | OS™ enables secure multi-tenancy and takes advantage of the cost and performance benefits of using industry-standard hardware and resource sharing specifically for the secure management of email and data. This enables us to provision efficiently and securely across our customer base, minimizing the impact of spare or over-provisioned processing and storage capacity and reducing the cost of providing our services.
Mime | OS™ comprises 20+ microservices that control the hardware, storage, indexing, processing, services, administrator, and user interface layers of our cloud environment. We designed it to enable us to scale our storage, processing, and services to meet large enterprise-level email and data demands, while retaining the cost and performance benefits of a native cloud environment.
Mime | OS™ also streamlines our customer application development and enables strong integration across our services. All of our customer applications and services, except DMARC Analyzer and Brand Exploit Protect, use Mime | OS™ to interact with our data stores and processing technology, as well as interoperate effectively with each other.
Continuous Development Methodology and Multi-Tenancy Advantage
As we enhance and expand our technology, we can update services centrally with little or no intervention required by the customer, as each customer shares the same core operating and application software. Improvements, upgrades, new products or patches are applied once and are available immediately across our whole service to all customers. That means we have only one up-to-date version of our service to maintain and support, as well as a common data store for all customers that simplifies management, support, and product development.
Our commitment to continual improvement in Mime | OS™, our customer applications, and our hardware infrastructure means we are constantly strengthening the performance of our service as we scale. Each week, we roll out upgrades and enhancements centrally that benefit our customers without the need for additional infrastructure investment on their part.
Our Global Data Center Grid and Points of Presence
We operate eight highly available grids in fourteen locations around the world to deliver our services. This gives customers geographic and jurisdictional control over data location, which enables them to address data privacy concerns. Each grid is exclusive to a region and comprises two identical data centers that function in active-active mode in different locations and are built with N+1 resiliency to meet our continuity of service commitments. Because of this redundancy, we can switch operations from one data center to another to maintain our customers’ email and data services in the event of downtime or maintenance for one of the data centers. We have developed a modular approach to provisioning a new data center and can transition among data centers as needed in existing or new geographies.
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Each of the above fourteen locations, along with an additional dedicated fifteenth location, also operate as an individual point of presence, or PoP, to deliver our Web Security services. These services are delivered to customers from the geographically closest PoP within their region. In the event of a PoP outage, customers are served from next closest PoP within their region to maintain continuity of service.
We use other third-party cloud hosting providers to support certain of our services, including DMARC Analyzer and Brand Exploit Protect.
Our Services
The offerings within the Mimecast Solution Framework, which include Email Security 3.0 and Cyber Resilience Extensions, including continuity, web security, and archiving, are designed to protect customer data and provide organizations with comprehensive risk management in a single, cloud-based, integrated service, which is licensed on a subscription basis.
Our primary offerings include:
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Mimecast Email Security 3.0 service protects against the delivery of malware, malicious URLs and attachments, spam, viruses, impersonation attacks, phishing, and spear-phishing attacks, including business email compromise, identity theft, extortion, fraud, and other emerging attacks, while also preventing data leaks and other internal threats. Our Email Security 3.0 offerings also include awareness training, which addresses security risks associated with the activities of employees by combining effective, modern, and engaging training techniques with predictive analytics, DMARC Analyzer, which allows our customers to more effectively implement and manage complex DMARC deployments, and Brand Exploit Protect, which provides integrated brand exploitation protection. |
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Mimecast Mailbox Continuity service ensures employees can continue using email during unexpected and planned outages such as system maintenance, whether their email is managed in the cloud or on-premises. |
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Mimecast Enterprise Information Archiving unifies email data to support e-discovery, forensic analysis, and compliance initiatives, and gives employees fast access to their personal archive via PC, Mac® and mobile apps. |
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Mimecast Web Security service protects against malicious web activity initiated by user action or malware and blocks access to inappropriate websites based on acceptable use policies. |
Mimecast Email Security 3.0
Our Email Security 3.0 offering provides a comprehensive form of protection against email attacks by helping customers advance from perimeter email security to a comprehensive, more pervasive discipline. Our approach 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).
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Zone 1: The Perimeter
Mimecast Secure Email Gateway provides a critical defense against hackers seeking to capture and exploit valuable organizational information and disrupt business operations. Our Mimecast Email Security services block spam, malware, malicious URLs, spear-phishing, and defined content from entering or exiting the organization. Further, these services provide administrators granular security and content policy control for inbound and outbound email traffic to help protect against cyber threats and data leaks. Integration into Microsoft Outlook® and via mobile apps provides employees the freedom to be self-sufficient and to manage their quarantines, personal blacklists, and many other aspects of their email security and management. Through our advanced data leak protection and content controls, organizations can prevent the inadvertent or malicious loss of sensitive corporate data. Policies using keywords, pattern matching, file hashes, and dictionaries actively scan all email communications, including file attachments, to stop data leakage and support compliance. Suspect emails can be blocked, quarantined for review by administrators, or sent securely.
We protect inbound and outbound email from malware, spam, advanced persistent threats, email denial of service and distributed denial of service, or DDoS, data leaks, and other security threats.
Inbound email is directed through Mimecast Email Security, which performs comprehensive security checks before the email is delivered to the customer’s email infrastructure. This prevents unwanted email from reaching the customer in the first place and cluttering their infrastructure, unlike on-premises services from competitors. Each day, we monitor approximately 1.2 billion messages and deliver, on average, less than 31% of those messages to the customer.
Outbound email sent from the customer also passes through our service and is checked before being sent on to prevent it from presenting a security threat to the recipient. Outbound email can also be encrypted and scanned by our comprehensive content controls to prevent confidential documents or data leaving the business. Data leak prevention is a key consideration for all organizations.
Customers can benefit from the following Mimecast Email Security services:
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Targeted Threat Protection: Highly sophisticated targeted attacks, including spear-phishing, are using email to successfully infiltrate organizations, exploit users, and steal valuable intellectual property, customer data, and money. |
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URL Protect addresses the threat from emails containing malicious links. It automatically checks hyperlinks each time they are clicked, preventing employees from visiting malicious websites regardless of what email client or device they are using. It also includes innovative user awareness capabilities so IT teams can raise the security awareness of employees as part of their daily email activities. |
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Attachment Protect reduces the threat from weaponized or malware-laden attachments used in spear-phishing and other advanced attacks. It includes pre-emptive sandboxing to automatically security check email attachments before they are delivered to employees. It also includes the option of an innovative safe file conversion capability that automatically converts attachments into a safe file format, neutralizing any chance of malware. |
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Impersonation Protect gives instant and comprehensive protection from malware-less social engineering attacks, often called CEO fraud, whaling, impersonation, or business email compromise. Impersonation Protect detects and prevents these types of attacks by identifying combinations of key indicators in an email to determine if the content is likely to be suspicious, even in the absence of a URL or attachment. Impersonation Protect blocks or flags suspicious email by using advanced scanning techniques to identify elements commonly used by criminals, including employee, domain, or reply-to names, and other keywords such as ‘wire transfer,’ ‘tax form’, or ‘urgent.’ |
Zone 2: Inside the Perimeter
Internal Email Protect, or IEP, allows customers to monitor, detect, and remediate security threats that originate from within their internal email systems. This capability provides for the scanning of attachments, URLs, and content in internally generated email. In addition, IEP includes the ability to automatically remediate infected email from a user’s inbox.
Mimecast Awareness Training allows our customers to address security risks associated with the activities of their employees. Mimecast Awareness Training addresses a customer’s vulnerability to human error by combining effective, modern, and engaging training techniques with predictive analytics. By leveraging advanced risk scoring, customers can deliver personalized training regimens or tailor system permissions and access for individual employees based on risky behavior and the likelihood of being targeted for attack.
Zone 3: Beyond the Perimeter
DMARC Analyzer allows our customers to more effectively implement and manage complex DMARC deployments, providing greater visibility and improved governance across all email channels.
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Brand Exploit Protect provides customers with an integrated brand exploitation protection solution that helps prevent attackers from tricking customers and partners with fake websites by detecting brand attacks in their early stages, blocking them before they can launch, and quickly remediating them if they have gone live.
Cyber Resilience Extensions
Mimecast Enterprise Information Archiving
Our cloud archive consolidates into one store all inbound, outbound, and internal email, including attachments in a perpetual, indexed, and secure archive. Using our Mimecast Enterprise Information Archiving service, customers can also incorporate legacy data from additional archives into the same searchable store.
All data is encrypted and preserved within a Write Once Read Many, or WORM, state. Proprietary indexing and retrieval solutions allow customers to search individual mailboxes or the entire corporate archive. Our mobile, tablet, desktop, and web applications ensure that employees can search and make the best use of their entire corporate archive in a fast, reliable, and informative way. Intensive logging services cover the use of the archive, and roles and permissions govern what employees can see in the archive based on their role. Our purpose-built ingestion and export services support rapid high-volume extraction, scrubbing, and loading of significant quantities of data. Our archive solution retains metadata that arises from gateway and continuity operations and we preserve both received and altered variants of emails that pass through our secure email gateway. Retention options for customers range from individual retentions to data retained for an entire customer on a perpetual basis.
Customers can also purchase the following additional services as part of our Mimecast Enterprise Information Archiving offering:
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Recoverability: Mimecast Sync & Recover, which works with Microsoft Exchange® and Microsoft Office® 365®, offers three key capabilities on top of the built-in tools provided by Mimecast Archiving, including Sync & Recover, Granular Retention Management, and Mailbox Storage, or Stubbing, Management. Sync & Recover delivers rapid and granular recovery of mailboxes, calendar items, and contacts lost through inadvertent or malicious deletion or corruption. |
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Archive Power Tools: This is a series of advanced archiving tools including: |
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Mimecast Storage Management for Exchange: This enables active mailbox size management, so administrators can optimize email system performance, control costs, and support archive policy enforcement. |
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Mailbox and Folder Tools for Exchange: In an email continuity event or when searching for archived content, access to folder structures and shared mailbox content is key to productivity. This tool makes it easy to replicate individual and shared mailbox folders. |
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Granular Retention Management: Mimecast Granular Retention Management enables IT teams to centrally apply policies to manage the retention of email content and related metadata. |
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Mimecast Compliance Protect: This feature helps customers in highly regulated industries comply with the significant record retention requirements of various regulatory agencies, such as the Securities and Exchange Commission, or the SEC, and the Financial Industry Regulatory Authority, Inc. |
Our Mimecast Enterprise Information Archiving service also empowers IT and legal teams with self-service search, case review and legal hold tools to quickly and defensibly perform early case assessments and set case strategy earlier in the litigation process.
As email, file attachments, and associated critical metadata that identifies activity are sent or received, they can be saved in a secure, tamper-proof archive in the Mimecast cloud automatically and indefinitely. Our employee mobile and desktop search tools and administration console then allow for detailed investigation of the archive. Our Mimecast Enterprise Information Archiving service offers secure lifetime storage of email, files, and instant messaging conversations paid for on a per-employee basis and not on a data usage basis. Our search tools make it easy for legal and compliance staff and employees to quickly find data without the need to turn to the IT team. Finally, our archive can also include legacy data that would otherwise be held in additional storage. Using our Legacy Data Migration service, this data can be ingested over-the-wire or via encrypted physical drives sent from the customer to us.
Mimecast Business Continuity
Email continuity protects email and data against the threat of downtime as a result of system failure, natural disasters, planned maintenance, system upgrades, and migrations. Mimecast Mailbox Continuity significantly reduces the cost and complexity of mitigating these risks and provides uninterrupted access to live and historic email and calendar information. During an outage, our service provides real-time inbound, outbound, and internal email delivery. The continuity service can be activated and deactivated directly and instantly from the Mimecast console by administrators for the complete organization or for specific groups affected by
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limited outages. All outage events are fully logged. We also support email top-up services for customers who have to recover their Microsoft Exchange® environments from backups. The continuity service is capable of reliably and securely supporting customers during short or long-term continuity events. Integration with Microsoft Outlook®, a native app for Mac® users, and a full suite of mobile apps means employees have seamless access to their email in the event of a disruption or outage.
As all customer outbound and inbound email is directed to our servers, if a customer’s primary email service fails, Mimecast Mailbox Continuity takes over the delivery and sending of email in real time or at the request of the administrator, offering immediate fail-over and fail-back. When the primary service is re-established, the customer is reassured that there has been no loss of data and that the archive is maintained.
Mimecast Web Security
As the workplace has changed and the how, when, and where of the way employees work has become increasingly flexible, users want to work anytime, anywhere, and on any device. The global COVID-19 pandemic has only increased the requirement that organizations accommodate a remote work force. As a result, the landscape for how our customers manage risk, from cloud applications and the use of unsanctioned IT systems to guest or public Wi-Fi networks, has become increasingly challenging. Email and the web are the sources of nearly all data security incidents and breaches that occur. Most organizations do not monitor domain name system, or DNS, activity, leaving them vulnerable to this communications path. The Mimecast Web Security service protects against malicious web activity initiated by user action or malware, ransomware and other malicious software, and blocks access to inappropriate websites, based on business polices. Our Mimecast Web Security Service adds strong security at the DNS layer of the web and is easy to implement and manage. When combined with the Mimecast Secure Email Gateway, organizations can use a single, cloud-based service that protects against the two dominant cyberattack vectors: email and the web. The combined solution is also built to leverage each customer’s existing configurations for directory synchronization, branding, role-based access control, and other core platform features to help reduce both set-up time and maintenance.
When a user makes a request for a web-based resource (typically in a browser) by clicking a link or typing in an address, that request is then forwarded to the service for resolution and inspection or filtering. The service applies the customer’s acceptable use controls, as well as any bypass exceptions, and evaluates the site’s classification to determine if the site is safe or unsafe. Access to unsafe web resources is blocked, and the user is notified via a block page. Access to safe web resources is immediately allowed, with the IP address of the requested site being returned to the user’s browser so the content can be accessed. Access logs and associated reports generated by the service are available for review by a system administrator with the appropriate privileges.
Mimecast Secure Messaging
Email containing sensitive or confidential information requires appropriate security and control to prevent inadvertent or deliberate data leaks and to protect the information while in transit. Mimecast Secure Messaging is a secure and private channel to share sensitive information with external contacts via email without the need for additional client or desktop software. Sensitive information is kept within our cloud service, strengthening information security, data governance, and compliance without the added IT overhead and complexity of traditional email secure messaging or encryption solutions.
Mimecast Privacy Pack
Mimecast’s Privacy Pack and Data Loss Prevention, or DLP, capabilities allow customers to set DLP policies at the gateway to help prevent breaches and protect against data exfiltration transmissions, while also applying policies inside an organization to help prevent careless, compromised, or malicious employees from sending information to people who should not receive it. Customers can also better support compliance efforts and enforce policies with our managed DLP dictionaries that identify key words related to such topics as protected health information under the Health Insurance Portability and Accountability Act of 1996, personally identifiable information, Payment Card Industry data security standards, and profanity.
Mimecast Large File Send
Employees can create security and compliance risks when they turn to file sharing services to overcome email size limits imposed by their email infrastructure. Mimecast Large File Send enables PC and Mac® users to send and receive large files directly from Microsoft Outlook® or a native Mac® app. It protects attachments in line with customer security and content policies by (i) using encryption, optional access keys, and custom expiration dates; (ii) supporting audit, e-discovery, and compliance by archiving all files and notifications according to email retention policies; and (iii) protecting email system performance from the burden of large file traffic.
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Threat Intelligence and APIs
Our Threat Intelligence Dashboard displays cyber threat data specific to an organization by identifying users who pose the greatest cyber risk, providing recently observed indicators of exploitation, and showing detailed information about detected malware, including origins by region. This threat intelligence data is used to enhance our Email Security 3.0 protections across all three zones. Our library of application programming interfaces, or APIs, enables integrations with third-party tools to further enhance the cyber threat information available through the dashboard.
Service Bundles
Many of our customers take advantage of the ability to combine our services and capabilities into a unified service managed from a single administration console. Most customers purchase bundles from the outset, but some prefer to start with specific packages, then upgrade to additional products over time. Our service range continues to respond to the changing threat landscape and reflect customers’ requests for combinations of services across advanced security. Service bundles offer different combinations of core email and web security, continuity, archiving, awareness training and brand protection beyond the traditional security perimeter.
Mimecast Mobile and Desktop Apps
Mobile, PC and Mac® users get self-service access to security features, including spam reporting and managed sender lists, the ability to send and receive email during a primary email system outage, and access to their personal email archive to run searches on its content. Administrators can use granular permissions to activate functions for individual employees or groups of users, while centralized security and policy management means IT teams can retain control over default settings.
Sales and Marketing
Our sales and marketing teams work together to build a strong sales pipeline, cultivate and retain customers, and drive market awareness of our current and future products and services.
Sales
We sell our services through direct sales efforts and through our channel partners. Our sales model is designed to meet the needs of organizations of all sizes across a wide range of industries and in over 140 countries. Our sales team is based in offices in Boston, Chicago, Dallas, and San Francisco, United States; London, United Kingdom; Johannesburg and Cape Town, South Africa; Melbourne and Sydney, Australia; Amsterdam, the Netherlands; Dubai, UAE; and Munich, Germany. We maintain a highly-trained sales force of approximately 510 employees as of March 31, 2020, which is responsible for acquiring and developing new business.
We also have an experienced sales team focused on developing and strengthening our channel partner relationships. Many organizations work with third-party IT channel partners to meet their security, IT, and cloud service needs, so we have formed relationships with a variety of the leading partners to target large enterprises, mid-market, and small organizations. For large enterprises, we work with international partners including CDW and Dimension Data. In the mid-market, we work with leading national partners, including Softchoice, SHI, CDW, and Softcat. The small business market is primarily served by the reseller community and by managed service providers, who typically provide or host email services.
Sales to our channel partners are generally subject to our standard, non-exclusive channel partner agreement, meaning our channel partners may offer customers the products of several different companies. These agreements are generally for a term of one year with a one-year renewal term and can be terminated by us or the channel partner. Payment to us from the channel partner is typically due within 30 calendar days of the date we issue an invoice for such sales. In our fiscal year ended March 31, 2020, while no individual channel partner accounted for 10% or more of our revenue, in the aggregate, our channel partners accounted for 75% of our revenue. We expect that sales to channel partners will continue to account for a substantial portion of our revenue for the foreseeable future.
Our sales cycle varies by size and sophistication of customer, the number of products purchased and the complexity of the project, ranging from several days for incremental sales to existing customers, to many months for sales to new customers or for large deployments with enterprise customers.
We plan to continue to invest in our sales organization to take advantage of a large market opportunity through both the growth of our direct sales organization and investment in our channel partners.
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Marketing
Our marketing strategy is designed to meet the specific needs of each of our customer segments. We are focused on building the Mimecast brand and product awareness, increasing customer adoption of our products, communicating the advantages of our solution and its benefit to organizations, and generating leads for our channel partners and direct sales force. We also invest in public relations and thought leadership content to build our overall brand and visibility. We execute our marketing strategy by using a combination of internal marketing professionals and a network of global channel partners. We invest in field, channel, product and brand marketing, digital marketing, virtual conferences, and web-based seminar campaigns targeting key decision makers within our target customers. We additionally offer free trials and email security risk assessments, known as Email Security Risk Assessments, which provides prospective customers the ability to identify and understand the gaps in their existing email security strategy.
Customer Service and Support
We maintain our strong customer retention rate through the strength and quality of our products, our commitment to our customers’ success, and our award-winning global Customer Success and Support teams, which consist of approximately 380 employees dedicated to ensuring a superior experience for our customers. For each of the fiscal years ended March 31, 2020, 2019 and 2018, our customer retention rate has been consistently greater than 90%. We calculate our annual customer retention rate as the percentage of paying customers on the last day of the prior year who remain paying customers on the last day of the current year. We have designed a comprehensive monitoring methodology that measures and evaluates the interactions we have with our customers, from sales and on-boarding to support and renewal.
Our Legacy Data Migration service helps solve the problems customers face when extracting data and getting it into the right format for importing to the cloud, which can be expensive, time-consuming, and require interactions with multiple vendors. In addition, we offer a full range of support services to our global customer base, including comprehensive online resources and email support with no outsourcing of support or account management to third parties. Our comprehensive education and consultancy offerings include administrator training and certification, end-user training, and e-discovery training for compliance teams, all of which are available in-person and online. Beyond customer support and training, we also provide a range of services that are designed to provide additional enablement to customers who require it, especially larger enterprises with more complex email infrastructure and legacy data.
We offer a service level agreement as part of our standard contract that contains commitments regarding the delivery of email messages to and from our servers, the speed at which our archive can produce search results, and our ability to correctly identify and isolate spam and viruses. If we do not achieve these levels, the customer can request a credit. Payment of the credit will be made subject to verification of the problem. These credits are tiered according to the extent of the service issued. The amount of credits provided to customers to date has been immaterial in all historical periods.
Customers
As of March 31, 2020, we had approximately 38,100 customers and protected millions of their employees in over 140 countries. Our diverse global footprint is evidenced by the fact that in the fiscal year ended March 31, 2020, we generated 51% of our revenue from the United States, 29% from the United Kingdom, 12% from South Africa, and 8% from the rest of the world. Our customers range from large enterprises with over 500,000 employees to small organizations with less than 50 employees and represent a diverse set of industries. For example, in the fiscal year ended March 31, 2020, we generated 14% of our revenue from customers in the professional, scientific and technical services industry, 13% from customers in the finance and insurance industry, 9% from customers in the legal services industry, and 9% from customers in the manufacturing industry. Our business is not dependent on any single customer. No single customer represented more than 1% of our annual revenue in the fiscal years ended March 31, 2020, 2019 or 2018. See Item 6, “Selected Financial Data” in this Annual Report on Form 10-K for our definition of “customer.”
Research and Development
Our engineering, operations, product, and development teams work together to enhance our existing products, technology infrastructure, and the underlying Mime | OS™ cloud architecture, as well as develop our new product pipeline. Our research and development and product management teams interact with our customers and partners to address emerging market needs, counter developing threats, and drive innovation in risk management and data protection. We operate a continuous delivery model for improvements to our infrastructure and products to ensure customers benefit from regular updates in protection and functionality without the need for significant intervention on their part. Our research and development and product management efforts give prominence to services that enhance our unification commitment and allow customers to displace point solutions or on-premises products.
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Intellectual Property
Our success is dependent, in part, on our ability to protect our proprietary technologies and other intellectual property rights. We primarily rely on a combination of trade secrets, copyrights, and trademarks, as well as contractual protections, to establish and protect our intellectual property rights. As of March 31, 2020, we had 18 patents issued and 13 patent applications pending in the United States. We also have 5 patents issued in non-U.S. jurisdictions. We intend to pursue additional patent protection to the extent that we believe it would be beneficial and cost effective.
We have registered “Mimecast” and certain other marks as trademarks in the United States and several other jurisdictions. We also have a number of registered and unregistered trademarks in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective. We are the registered holder of a variety of domestic and international domain names that include “mimecast.com,” “mimecast.co.uk,” “mimecast.co.za,” and similar variations.
In addition to the protection provided by our intellectual property rights, as part of our confidentiality procedures, all of our employees and independent contractors are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments, and other processes generated by them on our behalf are our property, and they assign to us any ownership that they may claim in those works. We also generally enter into confidentiality agreements with our employees, consultants, partners, vendors, and customers, and generally limit access to and distribution of our proprietary information.
Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some contractual restrictions protecting against unauthorized use, copying, transfer, and disclosures of our products may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some countries do not protect proprietary rights to as great of an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States. Our exposure to unauthorized copying and use of our products and misappropriation of our proprietary information may increase as a result of our foreign operations.
We expect that software and other solutions in our industry may be increasingly subject to third-party infringement claims as the number of competitors grow and the functionality of products in different industry segments overlaps. Moreover, many of our competitors and other industry participants have been issued patents, or filed patent applications, and have asserted claims and related litigation regarding patent and other intellectual property rights. Third parties, including non-practicing patent entities, have from time to time claimed, are claiming, and could claim in the future, that our technologies infringe patents they now hold or might obtain or be issued in the future. See Part I, Item 1A, “Risk Factors — We are currently being sued, have been sued in the past and may in the future be sued by third parties for alleged infringement of their proprietary rights” and Part I, Item 3, “Legal Proceedings” in this Annual Report on Form 10-K.
Competition
Our market is large, highly competitive, fragmented, and subject to rapidly evolving technology and security threats, shifting customer needs, and frequent introductions of new products and services. We do not believe that any specific competitor offers the fully unified service and integrated technology that we do. However, we do compete with companies that offer products that target email, web and data security, awareness training, continuity, archiving, DMARC reporting, and digital brand protection, as well as large providers such as Google Inc. and Microsoft Corporation, who offer functions and tools as part of their core mailbox services that may be, or be perceived to be, similar to our offerings.
Our current and potential future competitors include:
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Security: Barracuda Networks, Inc., Google, Microsoft Exchange Online Protection, Proofpoint, Inc., Symantec Corporation, Agari Data, Inc., and Cisco Systems Inc.; |
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Archiving: Dell EMC, Microsoft Office® 365®, Proofpoint, Inc., Veritas Technologies LLC, Smarsh Inc., and Barracuda; |
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Awareness Training: KnowBe4, Inc., Cofense Inc., and Wombat Security, a division of Proofpoint, Inc.; |
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Web security: Cisco, Webroot Inc., TitanHQ’s Webtitan, SafeDNS, Inc., Akamai Technologies, Inc, Infoblox Inc., Forcepoint LLC, Trustwave Holdings, Inc., and Zscaler, Inc.; |
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DMARC reporting: Agari, Valimail Inc., dmarcian, Inc., Ondemarc by Redsift Limited, and ReturnPath’s email fraud protection, a division of Proofpoint, Inc.; and |
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Digital brand protection: RSA Security LLC, a division of Dell EMC, RiskIQ, Inc., and MarkMonitor Inc. |
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Some of our current and future competitors may have certain competitive advantages such as greater name recognition, longer operating history, larger market share, larger existing user base, and greater financial, technical, and other resources. Some competitors may be able to devote greater resources to the development, promotion, and sale of their products than we can to ours, which could allow them to respond more quickly than we can to new technologies, threats, and changes in customer needs. We cannot provide any assurance that our competitors will not offer or develop products or services that are superior to ours or achieve greater market acceptance.
The principal competitive factors in our market include, but are not limited to:
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reliability and effectiveness in protecting, detecting, and responding to cyberattacks; |
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scalability and multi-tenancy of our system; |
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breadth and unification of our services; |
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cloud-only delivery; |
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total cost of ownership; |
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speed, availability, and reliability; |
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integration into office productivity, desktop, and mobile tools; |
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speed at which our services can be deployed; |
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ease of user experience for IT administrators and employees; and |
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superior customer service and commitment to customer success. |
We believe that we compete favorably based on these factors. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product and cloud architecture development, core technical innovation, channel management, and customer support.
Employees
As of March 31, 2020, we had 1,800 employees and subcontractors, including 718 in sales and marketing, 408 in research and development, 384 in services and support and 290 in general and administrative. While we have operations in the United Kingdom, the United States, South Africa, Australia, Germany, and Israel, most of our employees are based in the United Kingdom and the United States. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced a strike or similar work stoppage, and we consider our relations with our employees to be good.
Corporate Information
Mimecast Limited was incorporated under the laws of the Bailiwick of Jersey with company number 119119 on July 28, 2015 as a public company limited by shares. On November 4, 2015, Mimecast Limited became the holding company of Mimecast UK Limited, a private limited company incorporated in 2003 under the laws of England and Wales and its subsidiaries by way of a share-for-share exchange in which the shareholders of Mimecast UK Limited exchanged their shares in Mimecast UK Limited for an identical number of shares of the same class in Mimecast Limited. Following the exchange, the historical consolidated financial statements of Mimecast UK Limited became the historical consolidated financial statements of Mimecast Limited. Mimecast Limited has 13 subsidiaries. Our principal operating companies are Mimecast UK Limited, a company organized under the laws of England and Wales; Mimecast Services Ltd., a company organized under the laws of England and Wales; Mimecast North America, Inc., a Delaware, United States corporation; Mimecast South Africa (Pty) Ltd., a South African corporation; Mimecast Australia Pty. Ltd., an Australian corporation; and Mimecast Germany GmbH, a German corporation, each of which is a wholly-owned subsidiary of Mimecast Limited. Our principal executive office is located at 1 Finsbury Avenue, London, EC2M 2PF, United Kingdom.
Our ordinary shares are traded on The Nasdaq Global Select Market under the symbol “MIME.”
Geographic Information
For financial reporting purposes, total revenue, and property and equipment, net attributable to geographic areas are presented in Note 16, “Segment and Geographic Information”, to the consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.
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Available Information
We maintain an Internet website at www.mimecast.com. The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our website address is included in this Annual Report on Form 10-K as inactive textual reference only. Our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and amendments to those reports, are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with, or otherwise furnished to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, at http://www.sec.gov. We also make available on our website the charters of our audit committee, compensation committee and nominating and corporate governance committee, as well as our corporate governance guidelines and our code of business conduct and ethics. You may request copies of our reports and the other documents referenced above, at no cost, by writing to or telephoning us as follows:
Mimecast Limited
Attention: Investor Relations
191 Spring Street
Lexington, Massachusetts 02421
Telephone: 617-393-7050
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Item 1A. Risk Factors.
Our business, financial condition, results of operations and future growth prospects could be materially and adversely affected by the following risks or uncertainties. The risks and uncertainties described below are those that we have identified as material, but they are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions, as well as other risks not currently known to us or that we currently consider immaterial. If any of such risks and uncertainties actually occurs, our business, financial condition, results of operations and prospects could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our other public filings.
Risks Related to Our Business and Our Industry
The global COVID-19 pandemic, including the related containment efforts, has had, and we expect will continue to have, certain negative impacts on our business and operations, and we are unable to predict with certainty the extent to which it may continue to adversely affect our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus, or COVID-19, was reported to have surfaced in Wuhan, China. As of May 2020, COVID-19 has spread to Europe, the United States and most other countries, and has been declared a pandemic by the World Health Organization. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including global government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures. Such containment efforts have caused significant societal and economic disruption worldwide, including in all of the regions in which we operate our business and sell our products and services. To date, we have taken a number of actions as a result of the COVID-19 pandemic. Our actions include, among others: (i) a decision to close all of our global offices, including our global headquarters in London, United Kingdom, and the resulting shift to a virtual work environment where all of our employees, including our global sales and customer support staff, are working remotely; (ii) a decision to limit and then ultimately ban all non-essential travel, including international travel; (iii) a decision to cancel or shift to virtual-only certain customer, industry and employee events; and (iv) the establishment of an employee support fund, funded in part by executive and employee donations, to offset the impact of the pandemic on our more vulnerable employees. The expected duration of these actions is uncertain, and we expect that the transition back to normal operations will take time, perhaps several months. We believe that the COVID-19 pandemic has negatively impacted and will continue to negatively impact our business and results of operations in a number of ways, including (i) an impact on the demand for our products and services caused by a decline in the rate of IT spending and a delay in purchasing decisions as IT and security staff focus on addressing the disruption to their businesses, which will impact sales to prospects and existing customers and increase customer attrition, (ii) restrictions on our global sales and marketing operations, including eliminating in-person sales activities, (iii) our employees’ ability to perform necessary business functions, including as a result of illness, family illness and general economic hardship, or as a result of restrictions on movement, including the necessity of working from home for an extended period, (iv) customers seeking extended payment terms or declaring bankruptcy or seeking to liquidate making collectability of accounts receivables difficult or impossible, (v) a disruption to our supply chain, particularly as it relates to hardware needed to expand existing data centers and planned data centers, (vi) continued currency volatility, and (vii) an increased risk of information or cybersecurity incidents and a failure to maintain the uninterrupted operation of our information systems due to, among other things, an increase in remote work. In addition, governmental authorities both in the United States and in Europe have adopted or proposed measures to provide economic assistance to businesses, to stabilize the markets and to support economic stability. The future success of these measures is unknown, and they may not be sufficient to mitigate the negative impact of the global COVID-19 pandemic. We have been closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our operations and the operations of our customers, suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by government authorities.
Any of the negative impacts of the global COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our results of operations and financial condition. The extent to which the global COVID-19 pandemic will continue to adversely affect our business and results of operations will depend on numerous evolving factors and future developments that we are not able to predict, including the duration, spread and severity of the outbreak, including the potential that there could be recurring outbreaks in the future, the nature and effectiveness of containment measures, the effect on the economy, unemployment, and IT and security spending in particular, and how quickly and to what extent normal economic and business operations can resume. Because our services are offered on a subscription basis, the effect of the pandemic may not be fully reflected in our operating results until future periods. If the global COVID-19 pandemic is prolonged, it could amplify the negative impacts on our business and results of operations, and may also heighten many of the other risks, including risk factors, described in this section and elsewhere in this Annual Report on Form 10-K. It is also possible that any adverse impacts of the pandemic and containment measures may continue once the pandemic is controlled and the containment measures are lifted.
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If we are unable to attract new customers and retain existing customers, our business and results of operations will be affected adversely.
To succeed, we must continue to attract new customers and retain existing customers who desire to use our existing security, continuity and archiving offerings and new products we introduce from time to time. Acquiring new customers is a key element of our continued success, growth opportunity and future revenue. We will continue to invest in a direct sales force combined with a focused channel strategy designed to serve the various requirements of small, mid-market and large enterprises and to bring new customers onto our cloud architecture. Any failures by us to execute in these areas will negatively impact our business. The rate at which new and existing customers purchase our products depends on a number of factors, including those outside of our control. For example, a deterioration in macroeconomic conditions in the markets we operate in as a result of the global COVID-19 pandemic or for other reasons could have a negative impact on our customers, which could adversely impact our ability to attract new customers and retain existing customers. In the past, negative macroeconomic conditions resulted in reductions in demand for IT-related capital spending generally and security solutions specifically, particularly in the financial services, legal and other industries that we target. Also, in the fiscal year ended March 31, 2017, we benefited from the decision by Intel Corporation to end-of-life its McAfee MX Logic email protection product. Our future success also depends on retaining our current customers at acceptable retention levels. Our retention rates may decline or fluctuate as a result of a number of factors, some of which may be outside our control, including competition, customers’ budgeting and spending priorities, and overall general economic conditions in the geographic regions in which we operate. For example, the impact of the COVID-19 pandemic on the current economic environment has caused, and may in the future cause, such customers to request concessions including extended payment terms or better pricing. Customers may delay or cancel information technology projects or seek to lower their costs by renegotiating existing vendor contracts. If our customers do not renew their subscriptions for our products and services, our revenue would decline and our business would suffer. In future periods, our total customers and revenue could decline or grow more slowly than we expect.
If we are unable to sell additional services, features and products to our existing customers, our future revenue and operating results will be harmed.
A significant portion of our revenue growth is generated from sales of additional services, features and products to existing customers. Our future success depends, in part, on our ability to continue to sell such additional services, features and products to our existing customers. We devote significant efforts to developing, marketing and selling additional services, features and products and associated support services to existing customers and rely on these efforts for a portion of our revenue. These efforts require a significant investment in building and maintaining customer relationships, as well as significant research and development efforts in order to provide upgrades and launch new services, features and products. The rate at which our existing customers purchase additional services, features and products depends on a number of factors, including the perceived need for additional security, continuity and archiving services, the efficacy of our current services, the perceived utility and efficacy of our new offerings, our customers’ IT budgets and general economic conditions in the geographic regions in which we operate, which may be impacted by the economic uncertainty resulting from the global COVID-19 pandemic. If our efforts to sell additional services, features and products to our customers are not successful, our future revenues and operating results will be harmed.
Our business depends substantially on customers renewing their subscriptions with us and a decline in our customer renewals would harm our future operating results.
In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions with us when the existing subscription term expires. Although the majority of our customer contracts include auto-renew provisions, our customers have no obligation to renew their subscriptions upon expiration, and we cannot provide assurance that customers will renew subscriptions at the same or higher level of service, if at all, particularly given the economic uncertainty resulting from the global COVID-19 pandemic. For each of the fiscal years ended March 31, 2020, 2019 and 2018, our customer retention rate has been consistently greater than 90%. We calculate customer retention rate as the percentage of paying customers on the last day of the relevant period in the prior year who remain paying customers on the last day of the relevant period in the current year. The rate of customer renewals may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction or dissatisfaction with our solutions, outages impacting our service, the effectiveness of our customer support services, our pricing, the prices of competing products or services, mergers and acquisitions affecting our customer base, or reductions in our customers’ spending levels or general economic conditions in the geographic regions in which we operate. If our customers do not renew their subscriptions, or renew on less favorable terms, our revenue may decline, and we may not realize improved operating results from our customer base.
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The markets in which we participate are highly competitive, with several large established competitors, 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.
Our market is large, highly competitive, fragmented and subject to rapidly evolving technology, shifting customer needs and frequent introductions of new products and services. We currently compete with companies that offer products that target email, web and data security, awareness training, continuity, archiving, DMARC reporting, and digital brand protection, as well as large providers such as Google Inc. and Microsoft Corporation, which offer functions and tools as part of their core mailbox services that may be, or be perceived to be, similar to ours.
Our current and potential future competitors include:
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Security: Barracuda Networks, Inc., Google, Microsoft Exchange Online Protection, Proofpoint, Inc., Symantec Corporation, Agari Data, Inc., and Cisco Systems Inc.; |
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Archiving: Dell EMC, Microsoft Office® 365®, Proofpoint, Inc., Veritas Technologies LLC, Smarsh Inc., and Barracuda; |
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Awareness training: KnowBe4, Inc., Cofense Inc., and Wombat Security, a division of Proofpoint, Inc.; |
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Web security: Cisco, Webroot Inc., TitanHQ’s Webtitan, SafeDNS, Inc., Akamai Technologies, Inc, Infoblox Inc., Forcepoint LLC, Trustwave Holdings, Inc., and Zscaler, Inc.; |
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DMARC reporting: Agari, Valimail Inc., dmarcian, Inc., Ondemarc by Redsift Limited, and ReturnPath’s email fraud protection, a division of Proofpoint, Inc.; and |
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Digital brand protection: RSA Security LLC, a division of Dell EMC, RiskIQ, Inc., and MarkMonitor Inc. |
In addition, as we launch new products and services, we will face competition from new and existing competitors. We expect competition to increase in the future from both existing competitors and new companies that may enter our markets. Additionally, some potential customers, particularly large enterprises, may elect to develop their own internal products. If two or more of our competitors were to merge or partner with one another, the change in the competitive landscape could reduce our ability to compete effectively. Our continued success and growth depends on our ability to out-perform our competitors at the individual service level as well as increasing demand for a unified service infrastructure. We cannot guarantee that we will out-perform our competitors at the product level or that the demand for a unified service technology will increase.
Some of our current competitors have, and our future competitors may have, certain competitive advantages such as greater brand and name recognition, longer operating history, larger market share, larger existing user base and greater financial, technical and other resources. Some competitors may be able to devote greater resources to the development, promotion and sale of their products and services than we can to ours, which could allow them to respond more quickly than we can to new technologies and changes in customer needs. We cannot assure you that our competitors will not offer or develop products or services that are superior to ours or achieve greater market acceptance.
Failure to effectively expand our sales and marketing capabilities could harm our ability to acquire new customers and achieve broader market acceptance of our services.
Acquiring new customers and expanding sales to existing customers will depend to a significant extent on our ability to expand our sales and marketing operations. We generate approximately one-fourth of our revenue from direct sales and we expect to continue to rely on our sales force to obtain new customers and grow revenue from our existing customer base. We expect to expand our global sales force, and we face a number of challenges in achieving our hiring goals. For instance, there is significant competition for sales personnel, including sales engineers, with the sales skills and technical knowledge that we require. In addition, training and integrating a large number of sales and marketing personnel in a short period of time requires the allocation of significant internal resources. Our ability to achieve projected growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel, all of which may be negatively impacted by the global COVID-19 pandemic. We invest significant time and resources in training new sales personnel to understand our solutions. In general, new hires require significant training and substantial experience before becoming productive. Our recent hires and planned hires may not become as productive as we require, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we currently operate or where we seek to conduct business. Our growth may be materially and adversely impacted if the efforts to expand our sales and marketing capabilities are not successful or if they do not generate a sufficient increase in revenue.
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.
We have experienced, and will continue to experience, cyberattacks and other malicious internet-based activity, which continue to increase in sophistication, frequency and magnitude. Because our services involve the storage of large amounts of our customers’ sensitive and proprietary information, solutions to protect that information from cyberattacks and other threats, data security and integrity are critically important to our business. Also, as more of our customers move to working remotely for extended periods of time during the global COVID-19 pandemic we expect there will be an increased amount of sensitive and proprietary information that
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is stored in our solutions, which increases the exposure and risk of cyberattacks and other malicious internet-based activity. Despite all of our efforts to protect this information, we cannot provide assurance that systems that access our services and databases will not be compromised or disrupted, whether as a result of criminal conduct, DDoS, attacks, such as the significant attack we experienced in September 2015, or other advanced persistent attacks by malicious actors, including hackers, state-backed hackers and cybercriminals, breaches due to employee error or malfeasance, or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, hardware and software errors by the vendors we rely upon, telecommunication or utility failures or natural disasters or other catastrophic events. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. Though it is difficult to determine what harm may directly result from any specific interruption or breach, unauthorized access to or disclosure of confidential information, disruption, including DDoS attacks, or the perception that the confidential information of our customers is not secure, any of these events could result in (i) a material loss of business and revenue, (ii) significant remediation costs such as liability for stolen assets or information and repairs of system damage, (iii) substantial legal liability and legal risks, including regulatory actions by state and federal governmental authorities and non-U.S. authorities, (iv) significant harm to our reputation, (v) increased cybersecurity protection costs and insurance premiums and (vi) damage to our competitiveness. Further, any mandatory regulatory disclosures regarding a security breach, unauthorized access to or disclosure of confidential information often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures.
We must continually monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access and expend significant resources to respond to threats to security. However, despite our efforts, we may fail to identify these new and complex methods of attack or fail to invest sufficient resources in security measures. In addition, as we increase our customer base and our brand becomes more widely known and recognized, we may become a more attractive target for malicious third parties. Any breach of our security measures as a result of third-party action, employee negligence and/or error, malfeasance, defects or otherwise that compromises the confidentiality, integrity or availability of our data or our customers’ data could result in:
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severe harm to our reputation or brand, or materially and adversely affect the overall market perception of the security and reliability of our services; |
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individual customer and/or class action lawsuits, which could result in financial judgments against us and which would cause us to incur legal fees and costs; |
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legal or regulatory enforcement action, which could result in fines and/or penalties and which would cause us to incur legal fees and costs; and/or |
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additional costs associated with responding to the interruption or security breach, such as investigative and remediation costs, the costs of providing individuals and/or data owners with notice of the breach, legal fees, the costs of any additional fraud detection activities, or the costs of prolonged system disruptions or shutdowns. |
Any of these events could materially adversely impact our business and results of operations.
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, which could limit our ability to attract new customers or support existing customers thus reducing our revenues, harming our operating results and adversely affecting our business.
Laws and regulations related to the provision of services on the internet are increasing, as federal, state and foreign governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information. For example, in the United States, these include laws and regulations promulgated under the authority of the Federal Trade Commission, the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Graham-Leach-Bliley Act of 1999, and state breach notification and data privacy laws, as well as regulator enforcement positions and expectations reflected in federal and state regulatory actions, settlements, consent decrees and guidance documents. On June 28, 2018, the State of California enacted the California Consumer Privacy Act of 2018, or CCPA, which became effective on January 1, 2020. The CCPA governs the collection, sale and use of California consumers’ (i.e., California residents’) personal information (as that term is broadly defined by the CCPA), and it has significant impacts on businesses’ handling of personal information and existing privacy policies and procedures. The CCPA gives California consumers expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA, as well as data privacy laws that have been proposed in other U.S. states, may limit our ability to use, process
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and store certain data, which may decrease adoption of our services, increase our costs for compliance, and harm our business, financial condition, cash flows and results of operations. In addition, the CCPA may subject us to regulatory fines by the State of California, individual claims, and increased commercial liabilities. Internationally, virtually every jurisdiction in which we operate has established its own data security, data protection and privacy legal frameworks with which we, or our customers, must comply, including the European Union General Data Protection Regulation, or GDPR. The GDPR applies to any company established in the European Union as well as to those outside the European Union if they collect and use personal data in connection with the offering of goods or services to individuals in the European Union or the monitoring of their behavior. The GDPR has enhanced data protection obligations for controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and has created onerous new obligations and liabilities on service providers or data processors. Under GDPR, fines of up to 20,000,000 Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be imposed. Moreover, data subjects can claim damages resulting from violations of the GDPR. The GDPR further grants non-profit organizations the right to bring claims on behalf of data subjects. In addition, further to the United Kingdom’s exit from the European Union on January 31, 2020, the GDPR will continue to apply in the United Kingdom until the end of the transition period on December 31, 2020. Unless the transition period is extended, as of January 1, 2021, the GDPR will be brought into UK law as the ‘UK GDPR’, but there may be further developments about the regulation that may impact certain issues such as data transfers between the United Kingdom and the European Union. We may be required to take steps to ensure the lawfulness of our data transfers, particularly if by the end of the transition period the European Union Commission has not made an adequacy decision regarding the United Kingdom’s data protection regime.
Given the breadth and depth of changes in data protection obligations, complying with its requirements has caused us to expend significant resources and such expenditures are likely to continue into the future as we respond to new interpretations and enforcement actions and as we continue to negotiate data processing agreements with our customers and business partners.
To facilitate and legitimize the transfer of both customer and personnel data from the European Union and the United Kingdom to the United States, in the past we have relied on the EU-U.S. Safe Harbor Framework, which required U.S.-based companies to provide assurance that they were adhering to relevant European standards for data protection. In October 2015, the Court of Justice of the European Union invalidated the EU-U.S. Safe Harbor Framework. In February 2016, the U.S. and European Union announced agreement on a new framework for transatlantic data flows entitled the EU-U.S. Privacy Shield and on July 12, 2016, the European Commission deemed the EU-U.S. Privacy Shield Framework adequate to enable data transfers under European Union law. On January 12, 2017, the Swiss Government approved the Swiss-U.S. Privacy Shield Framework as a valid legal mechanism to comply with Swiss data protection requirements when transferring personal data from Switzerland to the United States. We are currently certified under the EU-US and the Swiss-US Privacy Shield frameworks. However, the Privacy Shield continues to be subject to legal challenges and, as a result, there is some uncertainty regarding its future validity and our ability to rely on it for European to US data transfers. If the Privacy Shield is ultimately invalidated, we will be required to identify and implement alternative solutions to ensure that we are in compliance with European data transfer requirements. If we fail to comply fully with European privacy laws, European Union data protection authorities might impose upon us a number of different sanctions, including fines and restrictions on transfers.
Given the nature of our business and the types of information our customers store on our systems and the global reach of our business, including our operations in the U.S., our corporate headquarters in London, United Kingdom, our German operations and our customers throughout the rest of Europe, evolving data privacy and data protection laws and regulations in the U.S., the United Kingdom and the European Union and elsewhere may significantly impact our business.
Privacy and data protections laws and regulations are subject to new and differing interpretations and there may be significant inconsistency in laws and regulations among the jurisdictions in which we operate or offer our SaaS solutions. Legal and other regulatory requirements could restrict our ability to store and process data as part of our SaaS solutions, or, in some cases, impact our ability to offer our SaaS products in certain jurisdictions. Such laws may also impact our customers' ability to deploy certain of our solutions globally, to the extent they utilize our products for storing personal information that they store and process. In addition, in many cases these privacy laws apply not only to transfers of information to third parties, but also within an enterprise, including our company or our customers. Additionally, if third parties that we work with violate applicable laws or our policies, such violations may also put our customers’ information at risk and could in turn have an adverse effect on our business. The costs of compliance with, and other burdens imposed by, data privacy laws, regulations and standards may require resources to create new products or modify existing products, could lead to us being subject to significant fines, penalties or liabilities for noncompliance, and may slow the pace at which we close sales transactions, any of which could harm our business.
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Our business and results of operations may be negatively impacted by the United Kingdom’s withdrawal from the European Union
In June 2016, the United Kingdom held a referendum in which a majority of voters approved an exit from the European Union, or Brexit. After nearly three years of negotiation and political and economic uncertainty, the United Kingdom’s withdrawal from the European Union became effective on January 31, 2020. Under the terms of the withdrawal agreement, the United Kingdom and the European Union will continue to negotiate the terms of trade and other matters during a transition period that will end on December 31, 2020. Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiration of the Brexit transition period. During the Brexit transition period, the United Kingdom will continue to be subject to the laws and obligations applicable to all European Union members, including laws related to trade and data privacy. As a result, there still remains considerable uncertainty regarding the ultimate terms of the withdrawal. Brexit, including developments that occur during the Brexit transition period, may affect our results of operations in a number of ways, including increasing currency exchange risk and disruptions in trade and the free movement of goods and services to and from the United Kingdom, generating instability in the global financial markets or negatively impacting the economies of the United Kingdom and Europe. In addition, because of our significant presence in the United Kingdom, it is possible that Brexit may impact some or all of our current operations. For example, some of our European customers that are not based in the United Kingdom may require that we move their data from our United Kingdom data centers to our data centers based in Germany. Brexit may also impact our ability to freely move employees from our London headquarters to our other locations in Europe. The long-term effects of Brexit will depend in part on any agreements the United Kingdom makes to retain access to markets in the European Union during the Brexit transition period. We expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace, including those related to data privacy as described above. Any of these effects of Brexit, and others we cannot anticipate, could negatively impact our business and results of operations.
Any serious disruptions in our services caused by defects in our software or otherwise may cause us to lose revenue and market acceptance.
Our customers use our services for the most critical aspects of their business, and any disruptions to our services or other performance problems with our services, however caused, could hurt our brand and reputation and may damage our customers’ businesses. We provide regular updates, which may contain undetected errors when first introduced or released. In the past, we have discovered software errors, failures, vulnerabilities and bugs in our services after they have been released and new errors in our existing services may be detected in the future. Real or perceived errors, failures, system delays, interruptions, disruptions or bugs could result in negative publicity, loss of or delay in market acceptance of our services, loss of competitive position, delay of payment to us, lower renewal rates, or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to mitigate or correct the problem. We seek to cap the liability to which we are exposed in the event of losses or harm to our customers, but we cannot be certain that we will obtain these caps or that these caps, if obtained, will be enforced in all instances. We carry insurance; however, the amount of such insurance may be insufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our services. As a result, we could lose future sales and our reputation and our brand could be harmed.
If we are unable to effectively increase sales of our services to large enterprises while mitigating the risks associated with serving such customers, our business, financial position and results of operations may suffer.
As we seek to increase our sales to large enterprise customers, we may face longer sales cycles, more complex customer requirements, unfavorable contractual terms, substantial upfront sales costs and less predictability in completing some of our sales than we do with smaller customers. In addition, our ability to successfully sell our services to large enterprises is dependent on us attracting and retaining sales personnel with experience in selling to large organizations. Also, because security breaches and disruptions of larger, more high-profile enterprises are likely to be heavily publicized, there is increased reputational risk associated with serving such customers. If we are unable to increase sales of our services to large enterprise customers while mitigating the risks associated with serving such customers, our business, financial position and results of operations may suffer.
If we are unable to maintain successful relationships with our channel partners, our ability to acquire new customers could be adversely affected.
In order to grow our business, we anticipate that we will continue to depend on our relationships with our channel partners who we rely on, in addition to our direct sales force, to sell and support our services. In our fiscal year ended March 31, 2020, while no individual channel partner accounted for 10% or more of our revenue, in the aggregate, our channel partners accounted for 75% of our revenue. We expect that sales to channel partners will continue to account for a substantial portion of our revenue for the foreseeable future. We utilize channel partners to efficiently increase the scale of our marketing and sales efforts, increasing our market penetration to customers which we otherwise might not reach on our own. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our channel partners.
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Our agreements with our channel partners are generally non-exclusive, meaning our channel partners may offer customers competitive services from different companies. If our channel partners do not effectively market and sell our services, choose to use greater efforts to market and sell their own products or services or those of others, or fail to meet the needs of our customers, our ability to grow our business, sell our services and maintain our reputation may be adversely affected. Our agreements with our channel partners generally allow them to terminate their agreements for any reason upon 90 days’ notice. The loss of key channel partners, our possible inability to replace them, or the failure to recruit additional channel partners could materially adversely affect our results of operations. If we are unable to maintain our relationships with these channel partners, our business, results of operations, financial condition or cash flows could be adversely affected.
We provide service level commitments under our subscription agreements and service disruptions could obligate us to provide refunds and we could face subscription terminations, which could adversely affect our revenue.
Our subscription agreements with customers provide certain service level commitments. If we are unable to meet the stated service level commitments or suffer extended periods of downtime that exceed the periods allowed under our customer agreements, we could be required to pay refunds or face subscription terminations, either of which could significantly impact our revenue.
To date, we have suffered two significant service disruptions. The first occurred in 2013 and was a result of an equipment failure. Many of our customers in the United Kingdom experienced service disruptions for several hours. We also experienced a service disruption in September 2015 as a result of an external network DDoS attack. Customers using our Secure Email Gateway service in the United States experienced downtime related to the delivery and receipt of external emails for several hours. The scope of the incident was limited to network traffic and no customer data was lost or compromised. As a result of the service disruption, we voluntarily provided service credits to affected customers in the fiscal year ended March 31, 2016, totaling approximately $0.4 million. While we have undertaken substantial remedial efforts to prevent future incidents like these, we cannot guarantee that future attacks or service disruptions will not occur. Any future attacks or service disruptions could adversely affect our reputation, our relationships with our existing customers and our ability to attract new customers, all of which would impact our future revenue and operating results.
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.
As part of our business growth strategy and in order to remain competitive, we may acquire, or make investments in, complementary companies, products or technologies. Since fiscal 2017, we have completed several acquisitions. Notwithstanding these acquisitions, our acquisition experience to date remains relatively limited, and as a result, our ability as an organization to acquire and integrate other companies, products or technologies, particularly when the acquired entities are located in geographies where we have not previously done business, in a successful manner is unproven. We may not be able to find suitable acquisition targets, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by our customers, analysts and investors. In addition, if we are unsuccessful at integrating such acquisitions or the technologies associated with such acquisitions, our revenue and results of operations could be adversely affected. We may only be able to conduct limited due diligence on an acquired company’s technology, products and operations. Following an acquisition, we may be subject to liabilities arising from an acquired company’s past or present technology, product and operations, including liabilities related to data security and privacy of customer data and infringement of the intellectual property rights of others, and these liabilities may be greater than the warranty and indemnity limitations that we negotiate. Any liability that is greater than these warranty and indemnity limitations could have a negative impact on our financial condition. Any integration process may require significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquired business, including accounting charges. We may have to pay cash, incur additional debt, or issue equity securities to pay for any such acquisitions, each of which could adversely affect our financial condition or the value of our ordinary shares. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our shareholders. The incurrence of additional indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. See risk factors – “The terms of our Credit Agreement require us to comply with certain financial covenants and impose restrictions on our business and operations, which creates default risks and reduces our flexibility” below.
In addition, as of March 31, 2020, we had $188.9 million in goodwill and intangible assets, net of accumulated amortization, recorded on our balance sheet as a result of our recent acquisitions. We will incur expenses related to the amortization of intangible assets and we may in the future need to incur charges with respect to the impairment of goodwill or intangible assets, which could adversely affect our operating results.
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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.
Our industry is marked by rapid technological developments and demand for new and enhanced services and features to meet the evolving IT needs of organizations. In particular, cyber threats are becoming increasingly sophisticated and responsive to the new security measures designed to thwart them. If we fail to identify and respond to new and increasingly complex methods of attack and update our products to detect or prevent such threats, our business and reputation will suffer. The success of any new enhancements, features or services that we introduce depends on several factors, including the timely completion, introduction and market acceptance of such enhancements, features or services. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. Furthermore, modifications to existing technologies will increase our research and development expenses. If we are unable to successfully enhance our existing services to meet customer requirements, increase adoption and usage of our services, or develop new services, enhancements, features and products, our business and operating results will be harmed.
Because we recognize revenue from subscriptions for our services over the term of the agreement, downturns or upturns in new business may not be immediately reflected in our operating results and may be difficult to discern.
We generally recognize subscription revenue from customers ratably on a straight-line basis over the terms of their subscription agreements, which are typically one year in duration. As a result, most of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscription agreements entered into during the previous fiscal year or quarter. Consequently, a decline in new or renewed subscriptions with yearly terms in any one quarter may have a small impact on our operating revenue results for that quarter. However, such decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our services, resulting from the impact of the global COVID-19 pandemic or otherwise, and potential changes in our pricing policies, rate of expansion or retention rate may not be fully reflected in our operating results until future periods. Shifts in the mix of annual versus monthly subscription billings may also make it difficult to assess our business. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a significant majority of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers is recognized over the applicable subscription term.
We have incurred net losses in the past, and we may not be able to achieve or sustain profitability for the foreseeable future.
We have incurred net losses in each of our fiscal years since our inception in 2003 up through our fiscal year ended March 31, 2020, with the exception of our fiscal year ended March 31, 2015, in which we generated net income of $0.3 million. In our fiscal years ended March 31, 2020, 2019 and 2018, we incurred a net loss of $2.2 million, $7.0 million and $12.4 million, respectively. As of March 31, 2020, we had an accumulated deficit of $83.7 million. We have been growing rapidly, and, as we do so, we incur significant sales and marketing, support and other related expenses. Our ability to achieve and sustain profitability will depend in significant part on our obtaining new customers, expanding our existing customer relationships and ensuring that our expenses, including our sales and marketing expenses and the cost of supporting new customers, does not exceed our revenue. We also expect to make significant expenditures and investments in research and development to expand and improve our services and technical infrastructure. In addition, as a public company, we expect to continue to incur significant legal, accounting and other expenses. These increased expenditures may make it harder for us to achieve and maintain profitability and we cannot predict when we will achieve sustained profitability, if at all. We also may incur net losses in the future for a number of other unforeseen reasons. Accordingly, we may not be able to maintain profitability, once achieved, and we may incur losses in the foreseeable future.
We are subject to a number of risks associated with global sales and operations.
We operate a global business with offices located in the United States, the United Kingdom, South Africa, Australia and Germany, as well as several other locations. In the fiscal year ended March 31, 2020, we generated 51% of our revenue from the United States, 29% from the United Kingdom, 12% from South Africa and 8% from the rest of the world. As a result, our sales and operations are subject to a number of risks and additional costs, including the following:
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fluctuations in exchange rates between currencies in the markets where we do business, which impacts our reportable revenue and expenses; |
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the disparate impact that the global COVID-19 pandemic is having on different countries and their economies; |
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risks associated with trade restrictions and additional legal requirements, including the exportation of our technology that is required in some of the countries in which we operate; |
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the need to adapt our solutions for specific countries; |
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greater risk of unexpected changes in regulatory rules, regulations and practices, tariffs and tax laws and treaties; |
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compliance with multiple anti-bribery laws, including the United States Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act; |
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heightened risk of unfair or corrupt business practices in certain geographies, and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements; |
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limited or uncertain protection of intellectual property rights in some countries and the risks and costs associated with monitoring and enforcing intellectual property rights abroad; |
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greater difficulty in enforcing contracts and managing collections in certain jurisdictions, as well as longer collection periods; |
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potential changes in trade relations arising from policy initiatives or other political factors that could negatively impact our purchases of technology among other things; |
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management communication and integration problems resulting from cultural and geographic dispersion; |
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social, economic and political instability, particularly in South Africa following the recent elections; |
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terrorist attacks and security concerns in general; and |
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potentially adverse tax consequences. |
All of the factors described above, including the previously described risks related to Brexit, and other factors could harm our ability to generate future global revenue and, consequently, materially impact our business, results of operations and financial condition.
Fluctuations in currency exchange rates could adversely affect our business.
The functional currency of our operating subsidiaries is generally the local currency of each entity and our reporting currency is the U.S. dollar. In our fiscal year ended March 31, 2020, 54% of our revenue was denominated in U.S. dollars, 27% in British pounds, 12% in South African rand and 7% in other currencies. Given that the functional currency of our subsidiaries is generally the local currency of each entity, but our reporting currency is the U.S. dollar, fluctuations in currency exchange rates between the U.S. dollar, the British pound, the South African rand and the Australian dollar could materially and adversely affect our business. There may be instances in which costs and revenue will not be matched with respect to currency denomination. We estimate that a 10% increase or decrease in the value of the British pound against the U.S. dollar would have decreased or increased our income from operations by approximately $2.7 million in our fiscal year ended March 31, 2020 and that a 10% increase or decrease in the value of the South African rand against the U.S. dollar would have increased or decreased our income from operations by approximately $3.1 million in our fiscal year ended March 31, 2020. To date, we have not entered into any currency hedging contracts. As a result, to the extent we continue our expansion on a global basis, we expect that increasing portions of our revenue, cost of revenue, assets and liabilities will be subject to fluctuations in currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a result of currency exchange rate fluctuations.
The global COVID-19 pandemic has had and may continue to have an impact on currency exchange rate volatility, which could impact our results of operations and make financial forecasting difficult. In addition, Brexit may continue to have a significant impact on currency exchange rates and the global and European economy generally. The outcome of the referendum and the resulting uncertainty regarding the status of the United Kingdom’s withdrawal from the European Union caused volatility in global stock markets and foreign currency exchange rate fluctuations, including the strengthening of the U.S. dollar against the British pound and the Euro, which may continue or worsen now that the withdrawal has occurred and trade and other agreements are negotiated between the United Kingdom and the European Union during the Brexit transition period, which will end on December 31, 2020. Finally, the South African economy faces a number of challenges, including slow economic growth and high unemployment. These challenges combined with the impact of the global COVID-19 pandemic have made the South African rand highly volatile over the past year. As described above, significant fluctuations in currency exchange rates between the South African rand and the U.S. dollar will impact our results of operations.
We are dependent on the continued services and performance of our key employees, including our co-founder, the loss of whom could adversely affect our business.
Our future performance depends upon contributions from our senior management team and, in particular, our co-founder, Peter Bauer, our Chairman and Chief Executive Officer. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute on our plans and strategies on a timely basis, our business could be harmed. The loss of one
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or more of our executive officers or key employees could have an adverse effect on our business. The loss of services of Mr. Bauer could significantly delay or prevent the achievement of our development and strategic objectives.
We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain and motivate qualified personnel, our business may be adversely impacted.
Our success depends largely upon our continued ability to identify, hire, develop, motivate and retain highly skilled personnel, including senior management, engineers, software developers, sales representatives and customer support representatives. Our growth strategy also depends, in part, on our ability to continue to attract and retain highly skilled personnel. Identifying, recruiting, training and integrating qualified individuals requires significant time, expense and attention of management. Competition for these personnel is intense, especially for engineers experienced in designing and developing software and SaaS applications, and for experienced sales professionals. In addition, the global COVID-19 pandemic may make the hiring more difficult, particularly when the hiring process, from sourcing to interviewing to onboarding, must be done remotely. We have, from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the actual or perceived value of our equity awards declines, or experiences significant volatility, it may adversely affect our ability to recruit and retain key employees. If we are not able to effectively recruit and retain qualified employees, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.
If the prices we charge for our services are unacceptable to our customers, our operating results will be harmed.
As the market for our services matures, or as new or existing competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new customers at prices that are consistent with our pricing model and operating budget. If this were to occur, it is possible that we would have to change our pricing model or reduce our prices, which could harm our revenue, gross margin and operating results. Pricing decisions may also impact the mix of adoption among our subscription plans and negatively impact our overall revenue. Moreover, large enterprises, which may account for a larger portion of our business in the future, may demand substantial price concessions. Finally, the economic impact of the global COVID-19 pandemic may cause our prospects and existing customers to request price concessions to enable them to purchase our services or renew existing services. If we are, for any reason, required to reduce our prices, our revenue, gross margin, profitability, financial position and cash flow may be adversely affected.
Our research and development efforts may not produce new services or enhancements to existing services that result in significant revenue or other benefits in the near future, if at all.
We invested 19%, 17% and 15% of our revenue in research and development in our fiscal years ended March 31, 2020, 2019 and 2018, respectively. We expect to continue to dedicate significant financial and other resources to our research and development efforts in order to maintain our competitive position. However, investing in research and development personnel, developing new services and enhancing existing services is expensive and time-consuming, and there is no assurance that such activities will result in significant new marketable services, enhancements to existing services, design improvements, cost savings, revenue or other expected benefits. If we spend significant time and effort on research and development and are unable to generate an adequate return on our investment, our business and results of operations may be materially and adversely affected.
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.
Our services incorporate and rely on certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our services with new third-party software may require significant work and require substantial investment of our time and resources and delays in the release of our services until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. A licensor may have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property that it licensed to us. Also, to the extent that our services depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our services, delay new services introductions, result in a failure of our services, and injure our reputation. Our use of additional or alternative third-party software would require us to enter into additional license agreements with third parties on terms that may not be favorable to us.
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Natural disasters, power loss, telecommunications failures and similar events could cause interruptions or performance problems associated with our information and technology infrastructure that could impair the delivery of our services and harm our business.
We currently store our customers’ information within third-party data center hosting facilities. As part of our current disaster recovery plans and arrangements, our production environment and all of our customers’ data is currently replicated in near real-time to a facility located in a different location. We cannot provide assurance that the measures we have taken to eliminate single points of failure will be effective to prevent or minimize interruptions to our operations. Our facilities are vulnerable to interruption or damage from a number of sources, many of which are beyond our control, including floods, fires, power loss, telecommunications failures, global pandemics such as COVID-19, the effects of climate change (such as drought, wildfires, increased storm severity and sea level rise), and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Any damage to, or failure of, our systems generally could result in interruptions to our service, which may reduce our revenue, cause customers to terminate their subscriptions and adversely affect our renewal rate and our ability to attract new customers. Our business and reputation will also be harmed if our existing and potential customers believe our service is unreliable. The occurrence of a natural disaster, an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our service. Even with the disaster recovery arrangements, our service could be interrupted. As we continue to add data centers and add capacity in our existing data centers, we may move or transfer our data and our customers’ data. Any unsuccessful data transfers may impair the delivery of our service. Further, as we continue to grow and scale our business to meet the needs of our customers, additional burdens may be placed on our hosting facilities.
We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and results of operations. In addition, the authorities in these jurisdictions could review or audit our tax returns and general tax compliance and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries. Furthermore, one or more jurisdictions in which we do not believe we are currently subject to tax payment, withholding, or filing requirements, could assert that we are subject to such requirements. Any of these claims or assertions could have a material impact on us and the results of our operations, including our cash flow.
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.
Our software and services may be subject to export controls and we may also be subject to restrictions or prohibitions on transactions with, or on dealing in funds transfers to/from, certain embargoed jurisdictions and sanctioned persons and entities, pursuant to the U.K. Export Control Organisation’s restrictions, the U.K. Treasury’s restrictions, the European Union Council Regulations, the United States Department of Commerce’s Export Administration Regulations, the economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets Controls and United States Department of State, and similar laws that may apply in other jurisdictions in which we operate or sell or distribute our services. Export control and economic sanctions laws include prohibitions on the sale or supply of certain products and services to certain embargoed or sanctioned countries, regions, governments, persons and entities, as well as restrictions or prohibitions on dealing in funds to/from those countries, regions, governments, persons and entities. In addition, various countries regulate the import of certain encryption items and technology through import permitting and licensing requirements and have enacted laws that could limit our ability to distribute our services or could limit our customers’ ability to implement our services in those countries.
The exportation, re-exportation, and importation of our software and services, including by our channel partners, must comply with applicable laws or else we may be adversely affected, through reputational harm, government investigations, penalties, and/or a denial or curtailment of our ability to export our services. Although we take precautions to prevent our services from being provided in violation of such laws, our services may have been in the past, and could in the future be, provided in violation of such laws.
If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us, including civil penalties of up to $250,000 or twice the value of the transaction, whichever is greater, per violation, and in the event of conviction for a criminal violation, fines of up to $1 million and possible incarceration for responsible employees and managers for willful and knowing violations. Under the terms of applicable regulations, each instance in which a company provides goods or services may be considered a separate violation. If we are found to be in violation of U.K.
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sanctions or export controls, it could also result in unlimited fines for us and responsible employees and managers, as well as imprisonment of up to two years for responsible employees and managers.
Changes in our software or services, or changes in export, sanctions or import laws, may delay the introduction and sale of our services in international markets, prevent our customers with international operations from deploying our software or services or, in some cases, prevent the export or import of our software or services to certain countries, regions, governments, persons or entities altogether, which could adversely affect our business, financial condition and operating results.
Our quarterly results may fluctuate for a variety of reasons and may not fully reflect the underlying performance of our business.
Our quarterly operating results, including the levels of our revenue, gross margin, profitability, cash flow and deferred revenue, may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our ordinary shares. Factors that may cause fluctuations in our quarterly financial results include, but are not limited to:
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foreign currency exchange rates; |
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our ability to attract new customers; |
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our revenue retention rate; |
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the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; |
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network outages or security breaches; |
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general economic, industry and market conditions, including the impact of the global COVID-19 pandemic, Brexit and economic conditions in South Africa; |
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expenses related to litigation matters; |
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increases or decreases in the number of features in our services or pricing changes upon any renewals of customer agreements; |
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changes in our pricing policies or those of our competitors; |
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new variations in sales of our services, which has historically been highest in the fourth quarter of a given fiscal year; |
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the timing and success of new services and service introductions by us and our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners; and |
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the impact of acquisitions. |
The terms of our Credit Agreement require us to comply with certain financial covenants and impose restrictions on our business and operations, which creates default risks and reduces our flexibility.
In July 2018, we entered into a Credit Agreement, or the Credit Agreement, by and among us, certain of our subsidiaries party thereto, as guarantors, certain financial institutions party thereto from time to time, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, or the Administrative Agent. The Credit Agreement provided us with a $100.0 million senior secured term loan, or the Term Loan, and a $50.0 million senior secured revolving credit facility, or the Revolving Facility, and together with the Term Loan, the Credit Facility. The Credit Agreement requires compliance with significant financial and non-financial covenants, including affirmative covenants relating to the provision of annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters and negative covenants, including, among others, restrictions on the incurrence of certain indebtedness, granting of liens, making investments and acquisitions, mergers and consolidations, paying dividends, entering into affiliate transactions and asset sales. The Credit Agreement also provides for a number of events of default, including, among others, payment, bankruptcy, covenant, representation and warranty, default under material indebtedness (other than the Credit Agreement), change of control and judgment defaults.
As a result of the negative covenants, we may be restricted from engaging in business or operating activities that may otherwise improve our business or from financing future operations or capital needs. Failure to comply with the covenants, including the financial covenants, if not cured or waived, will result in an event of default that could trigger acceleration of our indebtedness, which would require us to repay all amounts owing under our Credit Agreement and could have a material adverse impact on our business.
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Overdue amounts under the Credit Agreement accrue interest at a default rate. We cannot be certain that our future operating results will be sufficient to ensure compliance with the financial covenants in our Credit Agreement or to remedy any defaults. In addition, in the event of any event of default and related acceleration, we may not have or be able to obtain sufficient funds to make the accelerated payments required under the Credit Agreement.
If we need to raise additional capital to expand our operations and invest in new technologies in the future and cannot raise it on acceptable terms or at all, our ability to compete successfully may be harmed.
We believe that our existing cash and cash equivalents together with available capacity under our Credit Facility will be sufficient to meet our anticipated cash requirements for at least the next twelve months. However, unforeseen circumstances may arise which may mean that we may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all, or because of restrictions in our Credit Agreement. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests and the value of our ordinary shares could decline. If we engage in additional debt financing, we may be required to obtain the Administrative Agent’s consent and/or accept terms that are more restrictive than the terms currently applicable to us under the Credit Agreement. If we need additional capital and cannot raise it on acceptable terms, if at all, we may not be able to, among other things:
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develop and enhance our services; |
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continue to expand our research and development, and sales and marketing organizations; |
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hire, train and retain key employees; |
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respond to competitive pressures or unanticipated working capital requirements; or |
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pursue acquisition opportunities. |
Our inability to do any of the foregoing could reduce our ability to compete successfully and harm our results of operations.
Risks Related to Intellectual Property
We are currently being sued, have been sued in the past and may in the future be sued by third parties for alleged infringement of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our success depends, in part, on our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities, including non-practicing patent entities, or NPEs, which are entities that have no operating business but exist purely as collectors of patents, and individuals, may own or claim to own intellectual property relating to our industry. Patent and other intellectual property disputes are common and third parties are currently claiming, have claimed, and may in the future claim that we are infringing upon their intellectual property rights or send us letters proposing that we license certain of their patents. In particular, there are a number of NPEs in the security industry that are particularly aggressive about pursuing alleged infringement of their patents. Given this and the proliferation of lawsuits in our industry and other similar industries by both NPEs and operating entities, we have been sued for patent infringement and expect that we may be sued by others at some point in the future, regardless of the merits of any such lawsuits. See Part 1, Item 3, “Legal Proceedings” in this Annual Report on Form 10-K. We closely monitor all such claims and respond as appropriate. We may also be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. Under all of our sales contracts, we are obligated to indemnify our customers and channel partners against third-party infringement claims, and we may also be obligated to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify services or refund fees, any of which could be costly. Even if we were to prevail in any such dispute, litigation regarding intellectual property is very costly and time-consuming and diverts the attention of our management and key personnel from our business operations.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depend in part on our intellectual property. We primarily rely on copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. As of March 31, 2020, we had 18 patents issued and 13 patent applications pending in the United States. We also had 5 patents issued in non-U.S. jurisdictions. We may not be able to obtain any further patents, and our pending applications may not result in the issuance of patents. We have issued patents and pending patent applications outside the United States, and we may have to expend significant resources to obtain additional patents as we expand our international operations due to the cost of monitoring and protecting our rights across multiple jurisdictions.
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In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Failure to adequately enforce our intellectual property rights could also result in the impairment or loss of those rights. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Patent, copyright, trademark and trade secret laws offer us only limited protection and the laws of many of the countries in which we sell our services do not protect proprietary rights to the same extent as the United States and Europe. Accordingly, defense of our trademarks and proprietary technology may become an increasingly important issue as we continue to expand our operations and solution development into countries that provide a lower level of intellectual property protection than the United States or Europe. Policing unauthorized use of our intellectual property and technology is difficult and the steps we take may not prevent misappropriation of the intellectual property or technology on which we rely. For example, in the event of inadvertent or malicious disclosure of our proprietary technology, trade secret laws may no longer afford protection to our intellectual property rights in the areas not otherwise covered by patents or copyrights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could materially adversely affect our brand and our business.
We may elect to initiate litigation in the future to enforce or protect our proprietary rights or to determine the validity and scope of the rights of others. That litigation may not be ultimately successful and could result in substantial costs to us, the reduction or loss in intellectual property protection for our technology, the diversion of our management’s attention and harm to our reputation, any of which could materially and adversely affect our business and results of operations.
Confidentiality arrangements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We have devoted substantial resources to the development of our technology, business operations and business plans. In order to protect our trade secrets and proprietary information, we rely in significant part on confidentiality arrangements with our employees, licensees, independent contractors, advisers, channel partners, resellers and customers. These arrangements may not be effective to prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, if others independently discover trade secrets and proprietary information, we would not be able to assert trade secret rights against such parties. Effective trade secret protection may not be available in every country in which our services are available or where we have employees or independent contractors. The loss of trade secret protection could make it easier for third parties to compete with our solutions by copying functionality. In addition, any changes in, or unexpected interpretations of, the trade secret and employment laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may be subject to damages resulting from claims that our employees or contractors have wrongfully used or disclosed alleged trade secrets of their former employers or other parties.
We could in the future be subject to claims that employees or contractors, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our competitors or other parties. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our solutions, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of these parties. In addition, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to develop, market and support potential solutions or enhancements, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management.
The use of open source software in our offerings may expose us to additional risks and harm our intellectual property.
Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on unfavorable terms or at no cost. This can subject previously proprietary software to open source license terms.
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We monitor and control our use of open source software in an effort to avoid unanticipated conditions or restrictions on our ability to successfully commercialize our products and solutions and believe that our compliance with the obligations under the various applicable licenses has mitigated the risks that we have triggered any such conditions or restrictions. However, such use may have inadvertently occurred in the development and offering of our products and solutions, particularly in situations where we acquired technology from third parties through acquisitions. Additionally, if a third-party software provider has incorporated certain types of open source software into software that we have licensed from such third-party, we could be subject to the obligations and requirements of the applicable open source software licenses. This could harm our intellectual property position and have a material adverse effect on our business, results of operations and financial condition.
The terms of many open source software licenses have not been interpreted by U.S. or foreign courts, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to successfully commercialize our products and solutions. For example, certain open source software licenses may be interpreted to require that we offer our products or solutions that use the open source software for no cost; that we make available the source code for modifications or derivative works we create based upon, incorporating or using the open source software (or that we grant third parties the right to decompile, disassemble, reverse engineer, or otherwise derive such source code); that we license such modifications or derivative works under the terms of the particular open source license; or that otherwise impose limitations, restrictions or conditions on our ability to use, license, host, or distribute our products and solutions in a manner that limits our ability to successfully commercialize our products.
We could, therefore, be subject to claims alleging that we have not complied with the restrictions or limitations of the applicable open source software license terms or that our use of open source software infringes the intellectual property rights of a third party. In that event, we could incur significant legal expenses, be subject to significant damages, be enjoined from further sale and distribution of our products or solutions that use the open source software, be required to pay a license fee, be forced to reengineer our products and solutions, or be required to comply with the foregoing conditions of the open source software licenses (including the release of the source code to our proprietary software), any of which could adversely affect our business. Even if these claims do not result in litigation or are resolved in our favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, results of operations, financial condition and reputation.
Additionally, the use of open source software can lead to greater risks than the use of third-party commercial software, as open source software does not come with warranties or other contractual protections regarding indemnification, infringement claims or the quality of the code.
Risks Related to Our Ordinary Shares and Our Organization in Jersey, Channel Islands
Our share price has been and may continue to be volatile.
The market price of our ordinary shares may decline. In addition, the market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, many of which we cannot control, including:
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the ongoing global impact of the COVID-19 pandemic; |
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actual or anticipated fluctuations in our results of operations; |
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variance in our financial performance from the expectations of market analysts; |
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announcements by us or our competitors of significant business developments, changes in service provider relationships, acquisitions or expansion plans; |
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changes in the prices of our services or those of our competitors; |
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our involvement in litigation, including patent litigation; |
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our sale of ordinary shares or other securities in the future; |
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market conditions in our industry; |
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changes in key personnel; |
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the trading volume of our ordinary shares; |
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changes in the estimation of the future size and growth rate of our markets; and |
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general economic and market conditions, both in the U.S. and internationally. |
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In addition, the stock markets have recently experienced extreme price and volume fluctuations, both as a result of the global COVID-19 pandemic and for other reasons. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.
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.
The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our shares or publishes inaccurate or unfavorable research about our business, our share price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our share price and trading volume to decline.
We do not expect to pay dividends and investors should not buy our ordinary shares expecting to receive dividends.
We do not anticipate that we will declare or pay any dividends in the foreseeable future, and our ability to do so may be constrained by restrictions in our Credit Agreement or future debt arrangements, if any, and by Jersey law. Consequently, investors will only realize an economic gain on their investment in our ordinary shares if the price appreciates. Investors should not purchase our ordinary shares expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in sustaining an orderly trading market for our shares, then investors may not have any manner to liquidate or receive any payment on their investment. Therefore, our failure to pay dividends may cause investors to not see any return on your investment even if we are successful in our business operations.
We must maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our ordinary shares.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.
In addition, our independent registered public accounting firm must attest to the effectiveness of our internal control over financial reporting under Section 404. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. We may not be able to remediate any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. We are also required to disclose significant changes made in our internal control procedures on a quarterly basis. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to assert that our internal control over financial reporting is effective or our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls when it is required to issue such opinion, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our ordinary shares could decline, and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities.
A change in our tax residence could have a negative effect on our future profitability.
Although we are organized under the laws of the Bailiwick of Jersey, our affairs are, and are intended to continue to be, managed and controlled in the United Kingdom for tax purposes and therefore we are resident in the United Kingdom for U.K. and Jersey tax purposes. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom. If we cease to be a U.K. tax resident, we may be subject to a charge to U.K. corporation tax on chargeable gains on our assets and to unexpected tax charges in other jurisdictions on our income. Similarly, if the tax residency of any of our subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge to local capital gains tax on the assets.
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Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.
We conduct operations world-wide through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between us and our subsidiaries. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arm’s length and that appropriate documentation is maintained to support the transfer pricing. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it would increase our consolidated tax liability, which could adversely affect our financial condition, results of operations and cash flows. Double taxation should be mitigated in these circumstances where the affiliated parties that are subject to the transfer pricing adjustments are able to benefit from any applicable double taxation agreement.
Our ability to use our net operating loss or tax credit carry forwards may be subject to limitation.
As of March 31, 2020, we had net operating loss carryforwards in the U.K., U.S. federal and state, Australia, Germany, Israel, and the Netherlands. U.S. federal net operating losses generated through the fiscal year ending March 31, 2018 expire at various dates through 2038 while U.S. federal net operating losses generated after March 31, 2018 do not expire. Substantially all U.S. state net operating loss carryforwards expire at various dates through 2040. Net operating loss carryforwards in the Netherlands expire at various dates from 2026 through 2028. Net operating loss carryforwards in the U.K., Australia, Germany and Israel do not expire. As of March 31, 2020, we had U.K. income tax credit carryforwards that do not expire. As of March 31, 2020, we had Israel income tax credit carryforwards that expire at various dates from 2023 through 2025.
Each jurisdiction in which we operate may have its own limitations on our ability to utilize net operating loss or tax credit carryforwards generated in that jurisdiction that may increase our U.K. and/or foreign income tax liabilities.
Under Section 382 of the U.S. Internal Revenue Code, if a corporation undergoes an ownership change, the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change income and taxes may be limited. In general, an ownership change occurs if there is a 50 percent cumulative change in ownership of the company over a rolling three-year period. Similar rules may apply under U.S. state tax laws. We believe that we have experienced an ownership change in the past and may experience ownership changes in the future resulting from future transactions in our share capital, some of which may be outside our control. The most recent analysis of our historical ownership changes was completed through March 31, 2020. Based on the analysis, we do not anticipate a material limitation on the utilization of our tax attributes. However, our ability to utilize net operating loss carryforwards or other tax attributes to offset U.S. federal and state taxable income in the future may be subject to future limitations.
U.S. holders of our ordinary shares could be subject to material adverse tax consequences if we are considered a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes.
We do not believe that we were a PFIC for U.S. federal income tax purposes during the tax year ending March 31, 2020 and do not expect to be a PFIC for U.S. federal income tax purposes in the current tax year. We also do not expect to become a PFIC in the foreseeable future, but the possible status as a PFIC must be determined annually and therefore may be subject to change. If we are at any time treated as a PFIC, such treatment could result in a reduction in the after-tax return to U.S. holders of our ordinary shares and may cause a reduction in the value of such shares. Furthermore, if we are at any time treated as a PFIC, U.S. holders of our ordinary shares could be subject to greater U.S. income tax liability than might otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply and detailed tax filing requirements that would not otherwise apply. For U.S. federal income tax purposes, “U.S. holders” include individuals and various entities. A corporation is classified as a PFIC for any taxable year in which (i) at least 75% of its gross income is passive income or (ii) at least 50% of the average quarterly value of all its total gross assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income includes certain dividends, interest, royalties and rents that are not derived in the active conduct of a trade or business. The PFIC rules are complex and a U.S. holder of our ordinary shares is urged to consult its own tax advisors regarding the possible application of the PFIC rules to it in its particular circumstances.
31
U.S. shareholders may not be able to enforce civil liabilities against us.
Certain of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.
There is also a doubt as to the enforceability in England and Wales and Jersey, whether by original actions or by seeking to enforce judgments of U.S. courts, of claims based on the federal securities laws of the United States. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in England and Wales and Jersey.
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.
The rights afforded to shareholders will be governed by Jersey law and by our Articles of Association, and these rights differ in certain respects from the rights of shareholders in typical English companies and U.S. corporations. In particular, Jersey law significantly limits the circumstances under which shareholders of companies may bring derivative actions and, in most cases, only the corporation may be the proper claimant or plaintiff for the purposes of maintaining proceedings in respect of any wrongful act committed against it. Neither an individual nor any group of shareholders has any right of action in such circumstances. In addition, Jersey law does not afford appraisal rights to dissenting shareholders in the form typically available to shareholders of a U.S. corporation.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Principal Office Locations
The table below describes our existing principal office facilities, all of which are leased.
Location |
Purpose |
Square Footage |
Expiration |
London, United Kingdom |
Global Headquarters |
113,056 |
3/3/2029 |
Lexington, Massachusetts USA |
North American Headquarters |
99,993 |
1/31/2028 |
Watertown, Massachusetts USA |
Former North American Headquarters* |
44,170 |
10/31/2020 |
* This facility is 100% subleased through the expiration of the lease.
We maintain additional leased office facilities in Johannesburg, Cape Town and Durban, South Africa, Melbourne and Sydney, Australia, Munich, Germany, Amsterdam, the Netherlands, Torun, Poland, Dubai, UAE, Tel Aviv, Israel, as well as in Chicago, Dallas and San Francisco in the United States.
We believe that the total space available to us in the facilities under our current leases, or obtainable by us on commercially reasonable terms, will meet our needs for the foreseeable future.
Data Centers
We utilize two data centers in each of the United Kingdom, South Africa, Australia, Jersey, Channel Islands and Germany, and five data centers in the United States. Our data center leases expire between 2020 and 2025. We have capacity headroom built into our primary data center leases to accommodate infrastructure growth within the lease periods should we need to add more space or power to our existing footprint.
For more information about our lease and data center commitments, see also Note 9, Leases, of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K.
32
Item 3. Legal Proceedings.
On September 10, 2019, ZapFraud, Inc., or ZapFraud, filed a complaint in the U.S. District Court for the District of Delaware against our wholly owned subsidiaries, Mimecast North America, Inc., Mimecast Services Limited and Mimecast UK Limited. The complaint alleges that certain elements of our email security technology infringe a patent held by ZapFraud. ZapFraud seeks an award for damages in an unspecified amount, attorney’s fees and injunctive relief. On November 22, 2019, we filed a Motion to Dismiss for Failure to State a Claim. We have requested that a hearing be held on this motion, but no court date has been set. On April 24, 2020, ZapFraud amended its complaint by alleging that our email security technology infringes an additional patent that was recently issued to ZapFraud. We plan to amend our Motion to Dismiss for Failure to State a Claim to address this additional patent. This litigation is in its very early stages. As a result, neither the ultimate outcome of this litigation nor an estimate of a probable loss or any reasonably possible losses can be assessed at this time. We intend to defend the lawsuit vigorously. Regardless of the outcome, litigation can have an adverse impact on us because of defense and potential settlement costs, diversion of management resources and other factors.
From time to time, we may be involved in legal proceedings and subject to claims in the ordinary course of business. Although the results of these proceedings and claims cannot be predicted with certainty, and we do not believe the ultimate cost to resolve these matters would individually, or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition. Regardless of the outcome, such proceedings can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 4. Mine Safety Disclosures.
Not applicable.
33
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our ordinary shares are listed on The Nasdaq Global Select Market under the symbol “MIME.”
Shareholders
As of March 31, 2020, there were 57 holders of record of our ordinary shares, including Cede & Co., a nominee for The Depository Trust Company, or DTC, which holds our ordinary shares on behalf of an indeterminate number of beneficial owners. All of the ordinary shares held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are considered to be held of record by Cede & Co. as one shareholder. Because most of our shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
Dividends
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our ordinary shares. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws, including the laws of the Bailiwick of Jersey, and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, including restrictions in our Credit Agreement, capital requirements, business prospects and other factors our board of directors may deem relevant.
Recent Sales of Unregistered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plan is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.
Stock Performance Graph
The graph below compares the cumulative total return to shareholders on our ordinary shares for the period from November 19, 2015 (the first date that our ordinary shares were publicly traded) through March 31, 2020, against the cumulative total return of the Russell 2000® Index and the Nasdaq Computer Index. The comparison assumes $100 was invested in our ordinary shares and each of the indices and the reinvestment of dividends, if any.
34
The performance shown on the graph below is based on historical results and is not indicative of, nor intended to forecast, future performance of our ordinary shares.
|
11/19/15 |
|
3/31/16 |
|
3/31/17 |
|
3/31//18 |
|
3/31/19 |
|
3/31/20 |
|
|||||||
Mimecast Limited |
|
$ |
100.00 |
|
$ |
96.34 |
|
$ |
221.68 |
|
$ |
350.79 |
|
$ |
468.81 |
|
$ |
349.50 |
|
Russell 2000 Index |
|
$ |
100.00 |
|
$ |
96.58 |
|
$ |
121.90 |
|
$ |
136.28 |
|
$ |
139.07 |
|
$ |
105.71 |
|
Nasdaq Computer Index |
|
$ |
100.00 |
|
$ |
100.26 |
|
$ |
128.02 |
|
$ |
163.89 |
|
$ |
183.76 |
|
$ |
208.69 |
|
This performance graph and related information shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, nor shall such information be incorporated by reference into any filing of Mimecast Limited under the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act, except to the extent that we specifically incorporate it by reference in such filing.
Item 6. Selected Financial Data.
Our historical consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and presented in U.S. dollars. The selected historical consolidated financial information set forth below has been derived from our historical consolidated financial statements for the years presented. Historical information as of March 31, 2020 and 2019 and for the years ended March 31, 2020, 2019 and 2018 is derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Historical financial information as of March 31, 2018, 2017 and 2016 and for the years ended March 31, 2017 and 2016 is derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. You should read the information presented below in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes appearing in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K to fully understand the factors that may affect the comparability of the information presented below.
35
The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
|
|
Year Ended March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(in thousands, except per share data) |
|
|||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (1) |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
261,897 |
|
|
$ |
186,563 |
|
|
$ |
141,841 |
|
Cost of revenue (2) |
|
|
109,382 |
|
|
|
90,874 |
|
|
|
69,699 |
|
|
|
50,314 |
|
|
|
41,809 |
|
Gross profit |
|
|
317,581 |
|
|
|
249,503 |
|
|
|
192,198 |
|
|
|
136,249 |
|
|
|
100,032 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (2) |
|
|
80,790 |
|
|
|
57,939 |
|
|
|
38,373 |
|
|
|
22,593 |
|
|
|
17,663 |
|
Sales and marketing (1) (2) |
|
|
169,179 |
|
|
|
139,194 |
|
|
|
121,246 |
|
|
|
96,154 |
|
|
|
65,187 |
|
General and administrative (2) |
|
|
65,314 |
|
|
|
53,759 |
|
|
|
36,989 |
|
|
|
27,875 |
|
|
|
19,756 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,712 |
|
|
|
— |
|
|
|
— |
|
Restructuring |
|
|
— |
|
|
|
(170 |
) |
|
|
832 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
315,283 |
|
|
|
250,722 |
|
|
|
199,152 |
|
|
|
146,622 |
|
|
|
102,606 |
|
Income (loss) from operations |
|
|
2,298 |
|
|
|
(1,219 |
) |
|
|
(6,954 |
) |
|
|
(10,373 |
) |
|
|
(2,574 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,446 |
|
|
|
2,515 |
|
|
|
1,310 |
|
|
|
510 |
|
|
|
74 |
|
Interest expense |
|
|
(4,507 |
) |
|
|
(5,940 |
) |
|
|
(598 |
) |
|
|
(268 |
) |
|
|
(690 |
) |
Foreign exchange (expense) income and other, net |
|
|
(1,078 |
) |
|
|
(356 |
) |
|
|
(3,439 |
) |
|
|
6,892 |
|
|
|
811 |
|
Total other income (expense), net |
|
|
(2,139 |
) |
|
|
(3,781 |
) |
|
|
(2,727 |
) |
|
|
7,134 |
|
|
|
195 |
|
Income (loss) before income taxes |
|
|
159 |
|
|
|
(5,000 |
) |
|
|
(9,681 |
) |
|
|
(3,239 |
) |
|
|
(2,379 |
) |
Provision for income taxes |
|
|
2,359 |
|
|
|
2,001 |
|
|
|
2,705 |
|
|
|
2,202 |
|
|
|
865 |
|
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
|
$ |
(5,441 |
) |
|
$ |
(3,244 |
) |
Net loss per ordinary share: (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
Weighted-average number of ordinary shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
62,024 |
|
|
|
59,960 |
|
|
|
57,269 |
|
|
|
54,810 |
|
|
|
40,826 |
|
|
|
As of March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
$ |
173,958 |
|
|
$ |
173,517 |
|
|
$ |
137,210 |
|
|
$ |
111,666 |
|
|
$ |
106,140 |
|
Property and equipment, net (4) (5) |
|
|
85,178 |
|
|
|
94,202 |
|
|
|
123,822 |
|
|
|
32,009 |
|
|
|
24,806 |
|
Total assets (1) (5) |
|
|
729,834 |
|
|
|
554,287 |
|
|
|
358,398 |
|
|
|
205,352 |
|
|
|
175,127 |
|
Debt and finance lease obligations, current and long-term |
|
|
94,212 |
|
|
|
99,081 |
|
|
|
3,515 |
|
|
|
2,203 |
|
|
|
6,891 |
|
Deferred revenue, current and long-term (1) |
|
|
206,967 |
|
|
|
175,574 |
|
|
|
141,102 |
|
|
|
95,348 |
|
|
|
70,040 |
|
Total shareholders' equity (1) (5) |
|
|
232,055 |
|
|
|
173,635 |
|
|
|
101,692 |
|
|
|
81,992 |
|
|
|
78,074 |
|
|
|
Year Ended March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(dollars in thousands) |
|
|||||||||||||||||
Supplemental Financial and Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue constant currency growth rate (6) |
|
|
28 |
% |
|
|
32 |
% |
|
|
38 |
% |
|
|
39 |
% |
|
|
30 |
% |
Revenue retention rate (7) |
|
|
107 |
% |
|
|
111 |
% |
|
|
110 |
% |
|
|
111 |
% |
|
|
109 |
% |
Total customers (8) |
|
|
38,100 |
|
|
|
34,400 |
|
|
|
30,400 |
|
|
|
26,400 |
|
|
|
18,000 |
|
Adjusted EBITDA (9) |
|
$ |
78,088 |
|
|
$ |
54,008 |
|
|
$ |
25,752 |
|
|
$ |
12,457 |
|
|
$ |
15,839 |
|
(1) |
As of April 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers: Topic 606, or ASC 606, under the modified retrospective transition method and therefore fiscal years prior to 2019 have not been adjusted. See Note 2 of the notes to our consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 for an explanation of the impact of adoption of ASC 606. |
(2) |
Share-based compensation expense included in these line items was as follows: |
36
|
|
Year Ended March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Cost of revenue |
|
$ |
3,445 |
|
|
$ |
1,684 |
|
|
$ |
1,053 |
|
|
$ |
1,353 |
|
|
$ |
633 |
|
Research and development |
|
|
10,900 |
|
|
|
6,199 |
|
|
|
2,555 |
|
|
|
1,873 |
|
|
|
1,711 |
|
Sales and marketing |
|
|
13,141 |
|
|
|
7,856 |
|
|
|
4,477 |
|
|
|
4,719 |
|
|
|
3,180 |
|
General and administrative |
|
|
12,058 |
|
|
|
10,215 |
|
|
|
3,649 |
|
|
|
2,349 |
|
|
|
2,362 |
|
Total share-based compensation expense |
|
$ |
39,544 |
|
|
$ |
25,954 |
|
|
$ |
11,734 |
|
|
$ |
10,294 |
|
|
$ |
7,886 |
|
(3) |
Basic and diluted net loss per ordinary share is computed based on the weighted-average number of ordinary shares outstanding during each period. For additional information, see Note 2 of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
(4) |
Balances in fiscal 2019 and 2018 include amounts capitalized under build-to-suit accounting. See Note 9 of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for further details. |
(5) |
As of April 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), ASU 2016-02 or ASC 842, under the modified retrospective transition method and therefore fiscal years prior to 2020 have not been adjusted. See Note 9 of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an explanation of the impact of adoption of ASC 842. |
(6) |
In order to determine how our business performed exclusive of the effect of foreign currency fluctuations, we compare the percentage change in our revenue from one period to another using a constant currency. To determine the revenue constant currency growth rate for each period, revenue from entities reporting in foreign currencies was translated into U.S. dollars using the comparable prior period’s foreign currency exchange rates. For example, the average rates in effect for the fiscal year ended March 31, 2019 were used to convert revenue for the year ended March 31, 2020 and the revenue for the comparable prior period ended March 31, 2019, rather than the actual exchange rates in effect during the respective period. Revenue constant currency growth rate is a non-GAAP financial measure. A reconciliation of this non-GAAP measure to its most directly comparable GAAP measure for the respective periods can be found in the table below. |
|
|
Year Ended March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(dollars in thousands) |
|
|||||||||||||||||
Reconciliation of Revenue Constant Currency Growth Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, as reported |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
261,897 |
|
|
$ |
186,563 |
|
|
$ |
141,841 |
|
Revenue year-over-year growth rate, as reported |
|
|
25 |
% |
|
|
30 |
% |
|
|
40 |
% |
|
|
32 |
% |
|
|
22 |
% |
Estimated impact of foreign currency fluctuations |
|
|
3 |
% |
|
|
2 |
% |
|
|
(2 |
)% |
|
|
7 |
% |
|
|
8 |
% |
Revenue constant currency growth rate |
|
|
28 |
% |
|
|
32 |
% |
|
|
38 |
% |
|
|
39 |
% |
|
|
30 |
% |
The impact of foreign exchange rates is highly variable and difficult to predict. We use revenue constant currency growth rate to show the impact from foreign exchange rates on the current period revenue growth rate compared to the prior period revenue growth rate using the prior period’s foreign exchange rates. In order to properly understand the underlying business trends and performance of our ongoing operations, we believe that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our revenue growth rate.
We believe that presenting this non-GAAP financial measure in this Annual Report on Form 10-K provides investors greater transparency to the information used by our management for financial and operational decision-making and allows investors to see our results “through the eyes” of management. We also believe that providing this information better enables our investors to understand our operating performance and evaluate the methodology used by management to evaluate and measure such performance.
However, this non-GAAP measure should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. For example, revenue constant currency growth rates, by their nature, exclude the impact of foreign exchange, which may have a material impact on GAAP revenue. Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and therefore other companies may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
37
(7) |
We calculate our revenue retention rate by annualizing revenue on a constant currency basis recorded on the last day of the measurement period for only those customers in place throughout the entire measurement period. We include add-on, or upsell, revenue from additional employees and services purchased by existing customers. We divide the result by revenue on a constant currency basis on the first day of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months. The revenue on a constant currency basis is based on the average exchange rates in effect during the respective period. |
(8) |
Reflects the customer count on the last day of the period rounded to the nearest hundred customers. We define a customer as an entity with an active subscription contract as of the measurement date. A customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. In determining the number of customers, we do not include customers we acquired from DMARC Analyzer that transact with us on a credit card basis. |
(9) |
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss, adjusted to exclude: depreciation, amortization, disposals and impairment of long-lived assets, acquisition-related gains and expenses, litigation-related expenses, share-based compensation expense, restructuring expense, interest income and interest expense, the provision for income taxes and foreign exchange (expense) income. Prior to the adoption of ASC 842 on April 1, 2019, Adjusted EBITDA also included rent paid in the period related to locations which had been accounted for as build-to-suit facilities. |
We believe that Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and facilitates comparisons with our peer companies, many of which use a similar non-GAAP financial measure to supplement their GAAP results.
We use Adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the effectiveness of our business strategies, to communicate with our board of directors concerning our financial performance, and for establishing incentive compensation metrics for executives and other senior employees.
We do not place undue reliance on Adjusted EBITDA as a measure of operating performance. This non-GAAP measure should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using a non-GAAP financial measure, including that other companies may calculate this measure differently than we do, that it does not reflect our capital expenditures or future requirements for capital expenditures and that it does not reflect changes in, or cash requirements for, our working capital.
38
The following table presents a reconciliation of net loss to Adjusted EBITDA:
|
|
Year Ended March 31, |
|
|||||||||||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
|
$ |
(5,441 |
) |
|
$ |
(3,244 |
) |
Depreciation, amortization and disposals of long-lived assets |
|
|
32,278 |
|
|
|
29,960 |
|
|
|
19,141 |
|
|
|
11,881 |
|
|
|
10,527 |
|
Rent expense related to build-to-suit facilities |
|
|
— |
|
|
|
(4,482 |
) |
|
|
(785 |
) |
|
|
— |
|
|
|
— |
|
Interest expense (income), net |
|
|
1,061 |
|
|
|
3,425 |
|
|
|
(712 |
) |
|
|
(242 |
) |
|
|
616 |
|
Provision for income taxes |
|
|
2,359 |
|
|
|
2,001 |
|
|
|
2,705 |
|
|
|
2,202 |
|
|
|
865 |
|
Share-based compensation expense |
|
|
39,544 |
|
|
|
25,954 |
|
|
|
11,734 |
|
|
|
10,294 |
|
|
|
7,886 |
|
Impairments of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,712 |
|
|
|
— |
|
|
|
— |
|
Restructuring |
|
|
— |
|
|
|
(170 |
) |
|
|
832 |
|
|
|
— |
|
|
|
— |
|
Foreign exchange expense (income) |
|
|
1,577 |
|
|
|
1,647 |
|
|
|
3,511 |
|
|
|
(6,892 |
) |
|
|
(811 |
) |
Acquisition-related expenses (1) |
|
|
769 |
|
|
|
2,012 |
|
|
|
— |
|
|
|
655 |
|
|
|
— |
|
Litigation-related expenses (2) |
|
|
2,700 |
|
|
|
1,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gain on previously held asset (3) |
|
|
— |
|
|
|
(338 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
78,088 |
|
|
$ |
54,008 |
|
|
$ |
25,752 |
|
|
$ |
12,457 |
|
|
$ |
15,839 |
|
(1) |
Acquisition-related expenses relate primarily to legal and other professional fees incurred for acquisition activity in each respective year. See Note 6 of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for further information. |
(2) |
Litigation-related expenses relate to amounts incurred for litigation settlement. See Note 14 of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for further details. |
(3) |
Gain on previously held asset relates to the Solebit acquisition. See Note 6 of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for further information. |
39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with Item 6, “Selected Financial Data,” our audited consolidated financial statements and related notes and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of numerous factors, including, but not limited to, the risks discussed in Item 1A, “Risk Factors.” Our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K are prepared in accordance with accounting principles generally accepted in the United States.
Overview
We are a leading global provider of next generation cloud security and risk management services for email and corporate information. Our integrated suite of proprietary cloud services protects customers of all sizes from the significant business and data security risks to which their email and other corporate systems expose them. Our Email Security 3.0 and Cyber Resilience Extension offerings are designed to protect customers from today’s rapidly changing security environment.
We developed our proprietary cloud architecture to offer customers a comprehensive cyber resilience strategy. Our 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). Our Cyber Resilience Extensions expand resilience to other critical elements of an organization’s digital infrastructure. Our primary offerings include: email security; email continuity; email archiving; awareness training; web security; DMARC analyzer; and brand exploit protection.
We operate our business as a SaaS model with renewable annual subscriptions. Customers enter into annual and multi-year contracts to utilize various components of our services. Our subscription fee includes the use of the selected service and technical support. We believe our technology, subscription-based model, and customer support have led to our high revenue retention rate, which has helped us drive our strong revenue growth. We have historically experienced significant revenue growth from our existing customer base as they renew our services and purchase additional products.
We market and sell our services to organizations of all sizes across a broad range of industries. As of March 31, 2020, we provided our services to approximately 38,100 customers and protected millions of their employees across the world. We generate sales through our network of channel partners as well as through our direct sales force. Our growth and future success depends on our ability to expand our customer base, sell additional services to our existing customers, and retain our customers.
In the fiscal year ended March 31, 2020, we generated 49% of our revenue outside of the United States, with 29% generated from the United Kingdom, 12% from South Africa and 8% from the rest of the world. In the fiscal year ended March 31, 2019, we generated 50% of our revenue outside of the United States, with 31% generated from the United Kingdom, 14% from South Africa and 5% from the rest of the world. In the fiscal year ended March 31, 2018, we generated 51% of our revenue outside of the United States, with 31% generated from the United Kingdom, 15% from South Africa and 5% from the rest of the world. Our most significant growth market is the United States. We also believe that there is a large opportunity in our other existing markets. We intend to make significant investments in sales and marketing to continue expanding our customer base in our target markets.
We were founded in 2003 in the United Kingdom with a mission to make email safer and better, and to transform the way organizations protect, store and access their email and corporate information. Our first service, Mimecast Email Security, was followed by Mimecast Email Continuity, Mimecast Enterprise Information Archiving, Mimecast Large File Send, Mimecast Targeted Threat Protection, Mimecast Secure Messaging, Impersonation Protect and Internal Email Protect, which are aspects of our Targeted Threat Protection service, Sync & Recover, web security services that provide a Domain Name System, or DNS, solution alongside Mimecast’s core email offerings. In 2019, with our acquisitions of ATAATA, Inc., or Ataata, and Solebit LABS, Ltd., or Solebit, we entered the security awareness training market and added leading threat detection technology, respectively. In 2019, we also acquired Simply Migrate Ltd., or Simply Migrate, a provider of archive data migration technology, and DMARC Analyzer B.V., or DMARC Analyzer, a provider of DMARC, setup, management and analysis. In January 2020, we acquired Segasec Labs Ltd., or Segasec, a provider of digital threat protection services.
Recent Developments
The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including global government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures. These containment efforts have caused significant societal and economic disruption worldwide, including in all of the regions in which we operate our business and sell our products and services. We remain committed to supporting our employees,
40
customers and partners, and their communities during the pandemic. We have taken a number of actions as a result of the COVID-19 pandemic, including: (i) instituting a short term closure of all of our global offices, including our global headquarters in London, United Kingdom and our offices in the U.S., and shifting to a remote working environment for all of our employees; (ii) implementing a travel ban, (iii) cancelling or shifting to virtual-only customer, industry and employee events; and (iv) establishing an employee support fund to offset the impact of the pandemic on our more vulnerable employees.
We believe that the COVID-19 pandemic and the resulting societal and economic disruption has negatively impacted and will continue to negatively impact our business and results of operations in a number of ways. Demand for our products and services has been and may continue to be negatively impacted by a decline in the rate of IT spending and a delay in purchasing decisions as IT and security staff focus on addressing the disruption to their businesses, which may impact sales to prospects and existing customers and increase customer attrition. Our global sales and marketing operations have been disrupted as we have moved to a remote working environment and canceled many customer and industry events. Some customers have requested extended payment terms and we expect that this trend will continue, or potentially accelerate if the economy worsens. The economic disruption may also negatively impact the collectability of our accounts receivables as customers experience extreme distress. We have been closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our operations, and we may take further precautionary and preemptive actions as may be required by the evolving circumstances. At the current time, the extent to which the global COVID-19 pandemic may affect our business, results of operations and financial condition is uncertain. See Item 1A, “Risk Factors - The global COVID-19 pandemic, including the related containment efforts, has had, and we expect will continue to have, certain negative impacts on our business and operations, and we are unable to predict with certainty the extent to which it may continue to adversely affect our business, results of operations and financial condition.”
Key Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent upon a number of key factors, including the following:
Acquisition of new customers. We employ a sales strategy that focuses on acquiring new customers, through our direct sales force and network of channel partners, and selling additional products to existing customers. Acquiring new customers is a key element of our continued success, growth opportunity and future revenue. We have invested in and intend to continue to invest in our direct sales force and channel partners. During the year ended March 31, 2020, our customer base increased by approximately 3,700 organizations.
Further penetration of existing customers. Our direct sales force, together with our channel partners and dedicated customer experience team seek to generate additional revenue from our existing customers by adding more of their employees to our services and selling additional services. We continue to believe a significant opportunity exists for us to sell additional services to current customers as they experience the benefits of our services and we address additional business use cases.
Investment in growth. We are expanding our operations, increasing our headcount and developing software to both enhance our current offerings and build new features and products. We expect our total operating expenses to increase, particularly as we continue to expand our sales operations, marketing activities and research and development team. We intend to continue to invest in our sales, marketing and customer experience organizations to drive additional revenue and support the growth of our customer base. Investments we make in our sales and marketing and research and development organizations will occur in advance of experiencing any benefits from such investments. For the year ending March 31, 2021, we plan to continue increasing the size of our sales force, investing in the development of additional marketing content and increasing the size of our research and development team.
Currency fluctuations. We conduct business in the United States and in other countries in North America, the United Kingdom and in other countries in Europe, South Africa and in other countries in Africa, Australia and the UAE. As a result, we are exposed to risks associated with fluctuations in currency exchange rates, particularly between the U.S. dollar, the British pound and the South African rand. In the year ended March 31, 2020, 54% of our revenue was denominated in U.S. dollars, 27% in British pounds, 12% in South African rand and 7% in other currencies. Given that the functional currency of our subsidiaries is generally the local currency of each entity, but our reporting currency is the U.S. dollar, devaluations of the British pound, South African rand and other currencies relative to the U.S. dollar impacts our profitability.
41
Key Performance Indicators
In addition to traditional financial metrics, such as revenue and revenue growth trends, we monitor several other key performance indicators to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. The key performance indicators that we monitor are as follows:
|
|
Year Ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Revenue constant currency growth rate (1) |
|
|
28 |
% |
|
|
32 |
% |
|
|
38 |
% |
Revenue retention rate |
|
|
107 |
% |
|
|
111 |
% |
|
|
110 |
% |
Total customers (2) |
|
|
38,100 |
|
|
|
34,400 |
|
|
|
30,400 |
|
Gross profit percentage |
|
|
74 |
% |
|
|
73 |
% |
|
|
73 |
% |
Adjusted EBITDA (1) |
|
$ |
78,088 |
|
|
$ |
54,008 |
|
|
$ |
25,752 |
|
(1) |
Adjusted EBITDA and revenue constant currency growth rates are non-GAAP financial measures. For a reconciliation of Adjusted EBITDA and revenue constant currency growth rates to the nearest comparable GAAP measures, see Item 6, “Selected Financial Data.” |
(2) |
Reflects the customer count on the last day of the period rounded to the nearest hundred customers. We define a customer as an entity with an active subscription contract as of the measurement date. A customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. In determining the number of customers, we do not include customers we acquired from DMARC Analyzer that transact with us on a credit card basis. |
Revenue constant currency growth rate. We believe revenue constant currency growth rate is a key indicator of our performance as it measures how we are executing on our strategy exclusive of currency fluctuations, which are beyond our control. We calculate revenue constant currency growth rate by translating revenue from entities reporting in foreign currencies into U.S. dollars using the comparable foreign currency exchange rates from the prior fiscal period. For further explanation of the uses and limitations of this non-GAAP measure and a reconciliation of our revenue constant currency growth rate to revenue, as reported, the most directly comparable GAAP measure, see Item 6, “Selected Financial Data.” As our total revenue grows, we expect our constant currency growth rate will decline as the incremental growth from period to period is expected to represent a smaller percentage of total revenue as compared to the prior period.
Revenue retention rate. We believe that our ability to retain customers is an indicator of the stability of our revenue base and the long-term value of our customer relationships. Our revenue retention rate is driven by our customer renewals and upsells. We calculate our revenue retention rate by annualizing constant currency revenue recorded on the last day of the measurement period for only those customers in place throughout the entire measurement period. This revenue includes renewed revenue contracts as well as additional revenue derived from the sale of additional seat licenses as well as additional services sold to these existing customers. We divide the result by revenue on a constant currency basis on the first day of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is the trailing twelve months. The revenue on a constant currency basis is based on the average exchange rates in effect during the respective period.
Total customers. We believe the total number of customers is a key indicator of our financial success and future revenue potential. We define a customer as an entity with an active subscription contract as of the measurement date. A customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. In determining the number of customers, we do not include customers we acquired from DMARC Analyzer that transact with us on a credit card basis. We expect to continue to grow our customer base through the addition of new customers in each of our markets.
Gross profit percentage. We believe gross profit percentage is a key indicator of our efficiency in offering our services to our customers. Gross profit percentage is calculated as gross profit divided by revenue. Our gross profit percentage has been relatively consistent over the past three years; however, it has fluctuated and will continue to fluctuate on a quarterly basis due to timing of the addition of hardware and employees to serve our growing customer base. Gross profit also includes amortization of intangible assets related to acquired businesses. We provide our services in each of the regions in which we operate. Costs related to supporting and hosting our product offerings and delivering our services are incurred in the region in which the related revenue is recognized. As a result, our gross profit percentage in actual terms is consistent with gross profit on a constant currency basis.
Adjusted EBITDA. We believe that Adjusted EBITDA is a key indicator of our operating results. We define Adjusted EBITDA as net loss, adjusted to exclude: depreciation, amortization, disposals and impairment of long-lived assets, acquisition-related gains and expenses, litigation-related expenses, share-based compensation expense, restructuring expense, interest income and interest expense, the provision for income taxes and foreign exchange (expense) income. Prior to the adoption of ASC 842 on April 1, 2019, Adjusted EBITDA also included rent paid in the period related to locations which had been accounted for as build-to-suit facilities. For further explanation of the uses and limitations of this non-GAAP measure and a reconciliation of our Adjusted EBITDA to the
42
most directly comparable GAAP measure, net loss, see Item 6, “Selected Financial Data.” We expect that our Adjusted EBITDA will continue to increase; however, we expect that our operating expenses will also increase in absolute dollars as we focus on expanding our sales and marketing teams and growing our research and development capabilities.
Components of Consolidated Statements of Operations
Revenue
We generate substantially all of our revenue from subscription fees paid by customers accessing our cloud services and by customers purchasing additional support beyond the standard support that is included in our basic subscription fees. A small portion of our revenue consists of related professional services and other revenue, which consists primarily of performance obligations related to set-up, ingestion, and training fees.
We generally license our services on a price per employee basis under annual contracts. In some instances, we receive upfront payments, which are determined to be material rights to a discount upon renewal. In these instances, we recognize revenue related to the upfront payment over the estimated customer benefit period, which has been determined to be six years.
We serve approximately 38,100 customers in multiple industries, and our revenue is not concentrated with any single customer or industry. For each of the years ended March 31, 2020, 2019 and 2018, no single customer accounted for more than 1% of our revenue, and our largest ten customers accounted for less than 10% of our revenue in aggregate.
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
We recognize revenue ratably on a straight-line basis over the subscription term, which begins when we have given the customer access to our SaaS solutions. Our subscription contracts are typically one year in duration and do not contain refund-type provisions.
Our professional services contracts are recognized based on out-put measures of performance.
Cost of revenue
Cost of revenue primarily consists of expenses related to supporting and hosting our product offerings and delivering our professional services. These costs consist primarily of personnel and related costs including salaries, benefits, bonuses and share-based compensation expense related to the management of our data centers, our customer support team and our professional services team. In addition to these expenses, we incur third-party service provider costs such as data center and networking expenses, allocated overhead costs, depreciation expense and amortization expense related to capitalized software and acquired intangible assets. We allocate overhead costs, such as rent and facility costs, information technology costs and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category.
We expect our cost of revenue to increase in absolute dollars due to expenditures related to the purchase of hardware, expansion and support of our data center operations and customer support teams. We also expect that cost of revenue as a percentage of revenue will decrease over time as we are able to achieve economies of scale in our business, although it may fluctuate from period to period depending on the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue in any particular quarterly or annual period.
Research and development expenses
Research and development expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, share-based compensation expense, costs of server usage by our developers and allocated overhead costs. We expense all research and development costs as they are incurred. We have focused our efforts on developing new versions of our SaaS technology with expanded features. Our technology is constantly being refined and, as such, we do not capitalize development costs. We believe that continued investment in our technology is important for our future growth. As a result, we expect research and development expenses to increase in absolute dollars as we make further investments in developing our Mime | OS™ platform, improving our existing services and creating new features and products. Research and development expenses as a percentage of total revenue may fluctuate on a quarterly basis but we expect it to increase in the coming fiscal year as a result of the expected investments noted above.
43
Sales and marketing expenses
Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions and share-based compensation expense. In addition to these expenses, we incur costs related to marketing and promotional events, online marketing, product marketing and allocated overhead costs. We expense all costs as they are incurred, excluding sales commissions identified as incremental costs to obtain a contract, which are capitalized and amortized over the life of our customers, which we estimate to be six years. Sales and marketing expenses increased in fiscal 2020 as we continued to expand our sales and marketing efforts globally, and particularly in the United States. We expect that our sales and marketing expenses will continue to increase in absolute dollars in the year ending March 31, 2021, but remain relatively consistent as a percentage of revenue with fiscal 2020. New sales personnel require training and may take several months or more to achieve productivity; as such, the costs we incur in connection with the hiring of new sales personnel in a given period are not typically offset by increased revenue in that period and may not result in new revenue if these sales personnel fail to become productive. We expect to increase our investment in sales and marketing as we add new services, which will increase these expenses in absolute dollars. Over the long term, we believe that sales and marketing expenses as a percentage of revenue will vary depending upon the mix of revenue from new and existing customers, as well as changes in the productivity of our sales and marketing programs.
General and administrative expenses
General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, information technology and human resources functions, including salaries, benefits, incentive compensation and share-based compensation expense, in addition to the costs associated with professional fees, litigation-related expenses, insurance premiums, other corporate expenses and allocated overhead costs. We expect general and administrative expenses to increase in absolute dollars as we continue to incur additional personnel and professional services costs in order to support business growth, costs associated with acquisitions, legal fees and litigation-related expenses, funding transactions, and others. Over the long term, we believe that general and administrative expenses as a percentage of revenue will decrease.
Impairments of long-lived assets
In the fourth quarter of fiscal 2018, upon the exit of our Watertown, Massachusetts corporate office space, we recorded a non-cash impairment charge of $1.7 million primarily related to leasehold improvements.
Restructuring
In the second quarter of fiscal 2019, we recorded a revision to restructuring expense of $0.2 million related to the exit of our Watertown, Massachusetts corporate office space. In the fourth quarter of fiscal 2018, upon the exit of our Watertown, Massachusetts corporate office space, we recorded a restructuring charge in the amount of $0.8 million for the remaining non-cancelable rent and estimated operating expenses, net of sublease rentals, for the vacated premises, in accordance with ASC 840-20, Leases.
Other income (expense)
Other income (expense) is comprised of the following items:
Interest income
Interest income includes interest income earned on our cash, cash equivalents and investments balances. We expect interest income to vary each reporting period depending on our average cash, cash equivalents and investments balances during the period and market interest rates.
Interest expense
Interest expense consists primarily of interest expense associated with our long-term debt and our finance leases. In fiscal 2019, interest expense also included amounts related to our finance lease obligation in connection with the construction of our Lexington, MA – U.S. headquarters. In April 2019, we derecognized the U.S. build-to-suit facility upon adoption of ASU 2016-02. We expect interest expense in fiscal 2021 associated with our long-term debt to be relatively consistent with fiscal 2020.
44
Foreign exchange (expense) income and other, net
Foreign exchange (expense) income and other, net consists primarily of foreign exchange fluctuations related to short-term intercompany accounts, foreign currency exchange gains and losses related to transactions denominated in currencies other than the functional currency for each of our subsidiaries and other non-operating items including sublease income and other income. We expect our foreign currency exchange gains and losses to continue to fluctuate in the future as foreign currency exchange rates change.
Provision for income taxes
We operate in several tax jurisdictions and are subject to tax in each country or jurisdiction in which we conduct business. We account for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases for assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Our provision for income taxes for the fiscal year ended March 31, 2020 was primarily attributable to the tax provision recorded on the earnings of our South African entity. This was partially offset by the tax benefit attributable to the operating loss of our Israeli entities.
Our provision for income taxes for the fiscal year ended March 31, 2019 primarily relates to the tax provision recorded on the earnings of our South African entity. This was partially offset by the tax benefit attributable to the operating loss on our Israeli entity, and the tax benefit for the release of a portion of our pre-existing U.S. and U.K. valuation allowances as a result of the Ataata and Simply Migrate business combinations. Our provision for income taxes for the fiscal year ending 2018 primarily relates to the tax provision recorded on the earnings of our South African entity.
Operating Results
The following table sets forth selected consolidated statements of operations data for each of the periods indicated:
|
|
Year Ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
|
|
(in thousands) |
|
|||||||||
Revenue |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
261,897 |
|
Cost of revenue |
|
|
109,382 |
|
|
|
90,874 |
|
|
|
69,699 |
|
Gross profit |
|
|
317,581 |
|
|
|
249,503 |
|
|
|
192,198 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
80,790 |
|
|
|
57,939 |
|
|
|
38,373 |
|
Sales and marketing |
|
|
169,179 |
|
|
|
139,194 |
|
|
|
121,246 |
|
General and administrative |
|
|
65,314 |
|
|
|
53,759 |
|
|
|
36,989 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,712 |
|
Restructuring |
|
|
— |
|
|
|
(170 |
) |
|
|
832 |
|
Total operating expenses |
|
|
315,283 |
|
|
|
250,722 |
|
|
|
199,152 |
|
Income (loss) from operations |
|
|
2,298 |
|
|
|
(1,219 |
) |
|
|
(6,954 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,446 |
|
|
|
2,515 |
|
|
|
1,310 |
|
Interest expense |
|
|
(4,507 |
) |
|
|
(5,940 |
) |
|
|
(598 |
) |
Foreign exchange expense and other, net |
|
|
(1,078 |
) |
|
|
(356 |
) |
|
|
(3,439 |
) |
Total other income (expense), net |
|
|
(2,139 |
) |
|
|
(3,781 |
) |
|
|
(2,727 |
) |
Income (loss) before income taxes |
|
|
159 |
|
|
|
(5,000 |
) |
|
|
(9,681 |
) |
Provision for income taxes |
|
|
2,359 |
|
|
|
2,001 |
|
|
|
2,705 |
|
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
45
The following table sets forth our consolidated statements of operations data as a percentage of revenue for each of the periods indicated:
|
|
Year Ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenue |
|
|
26 |
% |
|
|
27 |
% |
|
|
27 |
% |
Gross profit |
|
|
74 |
% |
|
|
73 |
% |
|
|
73 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
19 |
% |
|
|
17 |
% |
|
|
15 |
% |
Sales and marketing |
|
|
40 |
% |
|
|
41 |
% |
|
|
46 |
% |
General and administrative |
|
|
15 |
% |
|
|
16 |
% |
|
|
14 |
% |
Impairment of long-lived assets |
|
|
— |
% |
|
|
— |
% |
|
|
1 |
% |
Restructuring |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Total operating expenses |
|
|
74 |
% |
|
|
74 |
% |
|
|
76 |
% |
Income (loss) from operations |
|
|
1 |
% |
|
|
— |
% |
|
|
(3 |
)% |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Interest expense |
|
|
(1 |
)% |
|
|
(2 |
)% |
|
|
— |
% |
Foreign exchange expense and other, net |
|
|
— |
% |
|
|
— |
% |
|
|
(1 |
)% |
Total other income (expense), net |
|
|
(1 |
)% |
|
|
(1 |
)% |
|
|
— |
% |
Income (loss) before income taxes |
|
|
— |
% |
|
|
(1 |
)% |
|
|
(3 |
)% |
Provision for income taxes |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Net loss |
|
|
(1 |
)% |
|
|
(2 |
)% |
|
|
(4 |
)% |
We have operations in jurisdictions other than the United States and generate revenue and incur expenditures in currencies other than the U.S. dollar. The following information shows the effect on certain components of our consolidated statements of operations data for each of the periods indicated below based on a 10% increase or decrease in foreign currency exchange rates assuming that all foreign currency exchange rates move in the same direction at the same time:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
|
|
(in millions) |
|
|||||||||
Revenue |
|
$ |
19.7 |
|
|
$ |
16.5 |
|
|
$ |
13.0 |
|
Cost of Revenue |
|
|
6.2 |
|
|
|
5.0 |
|
|
|
4.0 |
|
Research and development |
|
|
5.6 |
|
|
|
4.0 |
|
|
|
3.0 |
|
Sales and marketing |
|
|
7.2 |
|
|
|
5.4 |
|
|
|
4.9 |
|
General and administrative |
|
|
1.9 |
|
|
|
1.5 |
|
|
|
1.1 |
|
Comparison of Years Ended March 31, 2020 and 2019
Revenue
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
86,586 |
|
|
|
25 |
% |
Revenue increased $86.6 million in the year ended March 31, 2020 compared to the year ended March 31, 2019. The increase in revenue was primarily attributable to increases in new customers, including the 3,700 new customers added since March 31, 2019, a full year of revenue related to new customers added during fiscal 2019 and additional revenue from customers that existed as of March 31, 2019. Revenue for the year ended March 31, 2020 compared to the year ended March 31, 2019 was negatively impacted by approximately $9.5 million primarily as a result of the strengthening of the U.S. dollar relative to the South African rand and British pound and to a lesser extent the Australian dollar.
46
Cost of revenue
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
109,382 |
|
|
$ |
90,874 |
|
|
$ |
18,508 |
|
|
|
20 |
% |
Cost of revenue increased $18.5 million in the year ended March 31, 2020 compared to the year ended March 31, 2019, which was primarily attributable to increases in personnel-related costs of $5.6 million, data center costs of $4.2 million, information technology and facilities costs of $3.3 million, share-based compensation expense of $1.8 million and depreciation expense and amortization of acquisition-related intangible assets of $1.4 million each. Cost of revenue for the year ended March 31, 2020 compared to the year ended March 31, 2019 was positively impacted by approximately $2.6 million primarily as a result of the strengthening of the U.S. dollar relative to the British pound, South African rand, and Australian dollar. Personnel-related cost increased primarily as a result of salaries and benefits associated with increased headcount, data center costs increased as a result of the increase in our customer base, information technology and facility costs increased primarily as a result of increased headcount, share-based compensation expense increased primarily as a result of equity grants since the prior year, depreciation expense increased primarily as a result of increased capital expenditures in support of our expanding infrastructure, and the amortization of acquisition-related intangible assets increased primarily as a result of our fiscal 2019 and 2020 acquisitions.
As a result of changes in foreign currency exchange rates, gross profit decreased in absolute dollars by approximately $6.9 million for the year ended March 31, 2020 as compared to the year ended March 31, 2019. Excluding the impact of changes in foreign currency exchange rates, gross profit as a percentage of revenue remained consistent as costs related to supporting and hosting our product offerings and delivering our services are primarily incurred in the region in which the related revenue is recognized.
Operating expenses
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
80,790 |
|
|
$ |
57,939 |
|
|
$ |
22,851 |
|
|
|
39 |
% |
Sales and marketing |
|
|
169,179 |
|
|
|
139,194 |
|
|
|
29,985 |
|
|
|
22 |
% |
General and administrative |
|
|
65,314 |
|
|
|
53,759 |
|
|
|
11,555 |
|
|
|
21 |
% |
Restructuring |
|
|
— |
|
|
|
(170 |
) |
|
|
170 |
|
|
nm |
|
|
Total operating expenses |
|
$ |
315,283 |
|
|
$ |
250,722 |
|
|
$ |
64,561 |
|
|
|
26 |
% |
nm—not meaningful
Research and development expenses
Research and development expenses increased $22.9 million in the year ended March 31, 2020 compared to the year ended March 31, 2019, which was primarily attributable to increases in personnel-related costs of $11.6 million, information technology and facility costs of $4.6 million, and share-based compensation expense of $4.7 million. Research and development expenses for the year ended March 31, 2020 as compared to the year ended March 31, 2019, were positively impacted by approximately $1.5 million primarily as a result of the strengthening of the U.S. dollar relative to the British pound. Personnel-related cost increased primarily as a result of salaries and benefits associated with increased headcount throughout the year, information technology and facility costs increased primarily as a result of increased headcount, and share-based compensation expense increased primarily as a result of equity grants since the prior year.
Sales and marketing expenses
Sales and marketing expenses increased $30.0 million in the year ended March 31, 2020 compared to the year ended March 31, 2019, which was primarily attributable to increases in personnel-related costs of $16.3 million, share-based compensation expense of $5.3 million, information technology and facilities costs of $5.6 million, and marketing costs of $2.0 million. Sales and marketing expenses for the year ended March 31, 2020 as compared to the year ended March 31, 2019, were positively impacted by approximately $3.1 million primarily as a result of the strengthening of the U.S. dollar relative to the British pound, Australian dollar, and South African rand. Personnel-related costs increased primarily as a result of salaries and benefits associated with increased headcount and commissions. Share-based compensation expense increased primarily as a result of equity grants since the prior year.
47
Information technology and facilities costs and travel and other costs increased primarily as a result of increased headcount. Marketing costs increased primarily as a result of our inaugural Mimecast Cyber Resilience Summit held in October 2019.
General and administrative expenses
General and administrative expenses increased $11.6 million in the year ended March 31, 2020 compared to the year ended March 31, 2019, which was primarily attributable to increases in personnel-related costs of $4.2 million, information technology and facilities costs of $2.5 million, share-based compensation expense of $1.8 million and professional services costs of $2.2 million. Personnel-related costs increased primarily as a result of salaries and benefits associated with increased headcount. Information technology and facility costs increased primarily as a result of increased headcount. Share-based compensation expense increased primarily as a result of equity grants since the prior year, partially offset by the impact of share option forfeitures. Professional services costs increased primarily as a result of a litigation-related settlement with a non-practicing entity.
Restructuring and Impairment of long-lived assets
In the second quarter of fiscal 2019, we recorded a revision to restructuring expense of $0.2 million related to the exit of our Watertown, Massachusetts corporate office space. In the fourth quarter of fiscal 2018, upon the exit of our Watertown, Massachusetts corporate office space, we recorded a restructuring charge of $0.8 million for the remaining non-cancelable rent and estimated operating expenses for the vacated premises, net of sublease rentals and we recorded a non-cash impairment charge of $1.7 million primarily related to leasehold improvements.
Other income (expense)
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,446 |
|
|
$ |
2,515 |
|
|
$ |
931 |
|
|
|
37 |
% |
Interest expense |
|
|
(4,507 |
) |
|
|
(5,940 |
) |
|
|
1,433 |
|
|
|
(24 |
)% |
Foreign exchange expense and other, net |
|
|
(1,078 |
) |
|
|
(356 |
) |
|
|
(722 |
) |
|
nm |
|
|
Total other income (expense), net |
|
$ |
(2,139 |
) |
|
$ |
(3,781 |
) |
|
$ |
1,642 |
|
|
nm |
|
nm—not meaningful
Interest expense decreased $1.4 million primarily as a result of the derecognition of the U.S. build-to-suit facility in April 2019 upon adoption of ASU 2016-02, partially offset by increased interest expense associated with our long-term debt.
Provision for income taxes
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Provision for income taxes |
|
$ |
2,359 |
|
|
$ |
2,001 |
|
|
$ |
358 |
|
|
|
18 |
% |
Provision for income taxes increased $0.4 million in the year ended March 31, 2020 compared to the year ended March 31, 2019. Provision for income taxes in the year ending March 31, 2019 included a benefit for the release of a portion of pre-existing U.S. and U.K. valuation allowances as a result of the Ataata and Simply Migrate business combinations, which did not recur for the year ending March 31, 2020. This is offset partially by a decrease in tax expense resulting from changes in the geographical mix of earnings.
Comparison of Years Ended March 31, 2019 and 2018
Revenue
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
340,377 |
|
|
$ |
261,897 |
|
|
$ |
78,480 |
|
|
|
30 |
% |
48
Revenue increased $78.5 million in the year ended March 31, 2019 compared to the year ended March 31, 2018. The increase in revenue was primarily attributable to increases in new customers, including the 4,000 new customers added since March 31, 2018, a full year of revenue related to new customers added during fiscal 2018 and additional revenue from customers that existed as of March 31, 2018. Revenue for the year ended March 31, 2019 compared to the year ended March 31, 2018 was negatively impacted by approximately $4.8 million primarily as a result of the strengthening of the U.S. dollar relative to the South African rand and to a lesser extent relative to the Australian dollar and British pound.
Cost of revenue
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
90,874 |
|
|
$ |
69,699 |
|
|
$ |
21,175 |
|
|
|
30 |
% |
Cost of revenue increased $21.2 million in the year ended March 31, 2019 compared to the year ended March 31, 2018, which was primarily attributable to increases in personnel-related costs of $6.3 million, data center costs of $4.8 million, depreciation expense of $3.5 million, information technology and facility costs of $3.0 million, amortization of acquisition-related intangible assets of $1.3 million and professional services costs of $1.0 million. Cost of revenue for the year ended March 31, 2019 compared to the year ended March 31, 2018 was positively impacted by approximately $1.4 million primarily as a result of the strengthening of the U.S. dollar relative to the South African rand, Australian dollar and British pound. Personnel-related cost increased primarily as a result of salaries and benefits associated with increased headcount, data center costs increased as a result of the increase in our customer base, and depreciation expense increased primarily as a result of increased capital expenditures in support of our expanding infrastructure. In addition, the increase in information technology and facility costs is primarily a result of increased headcount and the increase in amortization of acquisition-related intangible assets is primarily attributable to the Solebit acquisition.
As a result of changes in foreign currency exchange rates, gross profit decreased in absolute dollars by approximately $3.4 million for the year ended March 31, 2019 as compared to the year ended March 31, 2018. Excluding the impact of changes in foreign currency exchange rates, gross profit as a percentage of revenue remained consistent as costs related to supporting and hosting our product offerings and delivering our services are primarily incurred in the region in which the related revenue is recognized.
Operating expenses
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
57,939 |
|
|
$ |
38,373 |
|
|
$ |
19,566 |
|
|
|
51 |
% |
Sales and marketing |
|
|
139,194 |
|
|
|
121,246 |
|
|
|
17,948 |
|
|
|
15 |
% |
General and administrative |
|
|
53,759 |
|
|
|
36,989 |
|
|
|
16,770 |
|
|
|
45 |
% |
Impairment of long-lived assets |
|
|
— |
|
|
|
1,712 |
|
|
|
(1,712 |
) |
|
nm |
|
|
Restructuring |
|
|
(170 |
) |
|
|
832 |
|
|
|
(1,002 |
) |
|
nm |
|
|
Total operating expenses |
|
$ |
250,722 |
|
|
$ |
199,152 |
|
|
$ |
51,570 |
|
|
|
26 |
% |
nm—not meaningful
Research and development expenses
Research and development expenses increased $19.6 million in the year ended March 31, 2019 compared to the year ended March 31, 2018, which was primarily attributable to increases in personnel-related costs of $11.8 million, share-based compensation expense of $3.6 million and information technology and facility costs of $1.6 million. Research and development expenses for the year ended March 31, 2019 as compared to the year ended March 31, 2018 were positively impacted by approximately $0.5 million primarily as a result of the strengthening of the U.S. dollar relative to the British pound. Personnel-related cost increased primarily as a result of salaries and benefits associated with increased headcount throughout the year, share-based compensation expense increased primarily as a result of share option grants since the prior year and information technology and facility costs increased primarily as a result of increased headcount.
49
Sales and marketing expenses
Sales and marketing expenses increased $17.9 million in the year ended March 31, 2019 compared to the year ended March 31, 2018, which was primarily attributable to increases in information technology and facilities costs of $5.3 million, personnel-related costs of $4.0 million, share-based compensation expense of $3.4 million, professional services of $2.7 million, travel and other costs of $1.2 million and marketing costs of $1.1 million. Sales and marketing expenses for the year ended March 31, 2019 as compared to the year ended March 31, 2018 were positively impacted by approximately $1.5 million primarily as a result of the strengthening of the U.S. dollar relative to the Australian dollar, South African rand and British pound. Information technology and facilities costs and travel and other costs increased primarily as a result of increased headcount. Personnel-related costs increased primarily as a result of salaries and benefits associated with increased headcount and commissions, partially offset by the impact of adopting ASC 606, which resulted in capitalizing $13.8 million of commissions that would have been expensed under the prior accounting rules. Share-based compensation expense increased primarily as a result of share option grants since the prior year. Professional services costs increased primarily due to increased consulting fees.
General and administrative expenses
General and administrative expenses increased $16.8 million in the year ended March 31, 2019 compared to the year ended March 31, 2018, which was primarily attributable to increases in personnel-related costs of $6.3 million, share-based compensation expense of $5.8 million, information technology and facilities costs of $1.9 million, professional services costs of $1.2 million and litigation-related expenses of $1.0 million. Personnel-related costs increased primarily as a result of salaries and benefits associated with increased headcount. Share-based compensation expense increased primarily as a result of share option grants since the prior year and to a lesser extent the impact of share option modifications. Information technology and facility costs increased primarily as a result of increased headcount. Professional services costs increased primarily due to acquisition-related expenses.
Restructuring and Impairment of long-lived assets
In the second quarter of fiscal 2019, we recorded a revision to restructuring expense of $0.2 million related to the exit of our Watertown, Massachusetts corporate office space. In the fourth quarter of fiscal 2018, upon the exit of our Watertown, Massachusetts corporate office space, we recorded a restructuring charge of $0.8 million for the remaining non-cancelable rent and estimated operating expenses for the vacated premises, net of sublease rentals and we recorded a non-cash impairment charge of $1.7 million primarily related to leasehold improvements.
Other income (expense)
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
2,515 |
|
|
$ |
1,310 |
|
|
$ |
1,205 |
|
|
|
92 |
% |
Interest expense |
|
|
(5,940 |
) |
|
|
(598 |
) |
|
|
(5,342 |
) |
|
nm |
|
|
Foreign exchange (expense) income and other, net |
|
|
(356 |
) |
|
|
(3,439 |
) |
|
|
3,083 |
|
|
nm |
|
|
Total other income (expense), net |
|
$ |
(3,781 |
) |
|
$ |
(2,727 |
) |
|
$ |
(1,054 |
) |
|
nm |
|
nm—not meaningful
Interest income increased $1.2 million primarily as a result of higher weighted-average balances of cash, cash equivalents and investments and higher yields on investments.
Interest expense increased $5.3 million primarily as a result of interest expense of $3.3 million associated with our long-term debt and our financing lease obligation of $2.0 million in connection with the construction of our Lexington, MA – U.S. headquarters.
50
Foreign exchange expense and other, net decreased by $3.1 million primarily as a result of a decrease in foreign exchange expense of $1.9 million, sublease income of $0.9 million and a gain on a previously held asset related to the Solebit acquisition of $0.3 million.
Provision for income taxes
|
|
Year ended March 31, |
|
|
Period-to-period change |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
Amount |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Provision for income taxes |
|
$ |
2,001 |
|
|
$ |
2,705 |
|
|
$ |
(704 |
) |
|
|
-26 |
% |
Provision for income taxes decreased $0.7 million in the year ended March 31, 2019 compared to the year ended March 31, 2018, which is primarily attributable to the tax benefit provided on the loss of our Israeli entity, and the tax benefit for the release of a portion of pre-existing U.S. and U.K. valuation allowances as a result of the Ataata and Simply Migrate business combinations, partially offset by an increase in income tax provision due to the earnings of our South African entity.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, investments and accounts receivable. The following table shows net cash provided by operating activities, net cash used in investing activities, and net cash provided by financing activities for the years ended March 31, 2020, 2019 and 2018:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
|
|
(in thousands) |
|
|||||||||
Net cash provided by operating activities |
|
$ |
90,538 |
|
|
$ |
66,235 |
|
|
$ |
46,412 |
|
Net cash used in investing activities |
|
|
(65,539 |
) |
|
|
(121,324 |
) |
|
|
(35,019 |
) |
Net cash provided by financing activities |
|
|
17,733 |
|
|
|
116,985 |
|
|
|
13,156 |
|
As of March 31, 2020 and 2019, we had cash, cash equivalents and investments of $174.0 million and $173.5 million, respectively. Net cash provided by operating activities was $90.5 million for the year ended March 31, 2020. In the year ending March 31, 2021, we expect net cash provided by operating activities to increase as compared to the year ended March 31, 2020. In the year ending March 31, 2021, we plan to continue to invest in the development and expansion of our Mime | OS™ platform to improve on our existing solutions in order to provide more capabilities to our customers. Investments in capital expenditures in the year ended March 31, 2020 were $53.2 million, of which $31.2 million related to the expansion of our grid architecture. We expect fiscal year 2021 capital expenditures to decrease significantly as fiscal year 2020 included one-time costs related to the build-out and expansion of facilities in the United Kingdom and other locations.
Based on our current operating plan, we believe that our current cash and cash equivalents, investments and operating cash flows will be sufficient to fund our operations for at least twelve months from the date of this filing. Our future capital requirements may vary materially from those planned and will depend on certain factors, such as our growth and our operating results. If we require additional capital resources to grow our business or to acquire complementary technologies and businesses in the future, we may seek to sell additional equity or raise funds through debt financing or other sources. We cannot provide assurance that additional financing will be available at all or on terms favorable to us. We had commitments for capital expenditures of approximately $10.7 million as of March 31, 2020, primarily related to the expansion of our grid architecture. We had no material commitments for capital expenditures as of March 31, 2019.
Borrowings and Credit Facility
In July 2018, we entered into a Credit Agreement, or the Credit Agreement, by and among us, certain of our subsidiaries party thereto, as guarantors, certain financial institutions party thereto from time to time, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, or the Administrative Agent. The Credit Agreement provided the Company with a $100.0 million senior secured term loan, or the Term Loan, and a $50.0 million senior secured revolving credit facility, or the Revolving Facility, and together with the Term Loan, the Credit Facility, which is available to fund working capital and for other corporate purposes, including to finance permitted acquisitions and investments. Total availability under the Revolving Facility is reduced by outstanding letters of credit of $2.0 million. As of March 31, 2020 and 2019, total availability under the Revolving Facility was $48.0 million and $46.1 million, respectively. Interest under the Credit Facility accrues at a rate between LIBOR plus 1.375% and LIBOR plus 1.875%, based on our ratio of indebtedness to earnings before interest, taxes, depreciation, amortization and certain other adjustments, or Consolidated
51
EBITDA. Based on this ratio, the current interest rate as of March 31, 2020 under the Credit Facility is LIBOR plus 1.375%. The term of the Credit Facility is five years, maturing on July 23, 2023. At the time we entered into the Credit Agreement, we had no existing debt.
The Credit Facility has financial covenants that require us to maintain a Consolidated Secured Leverage Ratio (as described below), which commenced on September 30, 2018, of not more than 3.00 to 1.00 for the four consecutive fiscal quarter period ending on the last day of each fiscal quarter, or the Reference Period, with a step-up to 3.50 to 1.00 for any four-quarter period in which we consummate a permitted acquisition having an aggregate purchase price in excess of $25.0 million. We must also maintain a Consolidated Interest Expense Ratio of 3.00 to 1.00 which commenced on September 30, 2018 and for each Reference Period thereafter. For purposes of the covenants, “Consolidated Secured Leverage Ratio” generally refers to the ratio of Consolidated Funded Debt that is secured by a lien on assets of us or our subsidiaries to Consolidated EBITDA. “Consolidated Funded Debt” generally refers to borrowed money, debt instruments, finance leases, deferred purchase price of property or services (excluding accounts payable in the ordinary course of business) and earn outs that are due and payable. “Consolidated Interest Expense Ratio” generally refers to the ratio of Consolidated EBITDA to cash interest expense with respect to indebtedness, with certain exclusions. The Company was in compliance with all covenants as of March 31, 2020 and management reasonably believes it will be in compliance over next 12 months.
All obligations under the Credit Agreement are unconditionally guaranteed by all of our material direct and indirect subsidiaries organized under the laws of the United States, the United Kingdom, the Bailiwick of Jersey, and other jurisdictions agreed to us and the Administrative Agent, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.
The foregoing summary (and any reference to the Credit Facility contained in this Annual Report on Form 10-K) does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement and the related agreements, which are filed as Exhibits 10.19, 10.20, 10.21, 10.22, 10.23, 10.24, 10.25, 10.26, and 10.27 to this Annual Report on Form 10-K incorporated herein by reference.
Operating activities
For the year ended March 31, 2020, cash provided by operating activities was $90.5 million. The primary factors affecting our operating cash flows during the period were our net loss of $2.2 million, adjusted for non-cash items of $39.5 million of share-based compensation expense, $32.2 million for depreciation and amortization of our property, equipment and intangible assets, $31.9 million of amortization of operating lease right-of-use assets, and $9.6 million in amortization of deferred contract costs. The drivers of the changes in operating assets and liabilities were a $25.9 million decrease in operating lease liabilities, $22.8 million increase in deferred contract costs, $20.5 million increase in accounts receivable, and $3.8 million decrease in accrued expenses and other current liabilities, partially offset by a $38.5 million increase in deferred revenue, $8.8 million decrease in prepaid expenses and other current assets primarily due to the receipt of a lease incentive from our U.K. landlord, and $4.2 million increase in accounts payable.
For the year ended March 31, 2019, cash provided by operating activities was $66.2 million. The primary factors affecting our operating cash flows during the period were our net loss of $7.0 million, adjusted for non-cash items of $30.0 million for depreciation and amortization of our property, equipment and intangible assets, $26.0 million of share-based compensation expense, and $6.4 million in amortization of deferred contract costs. The drivers of the changes in operating assets and liabilities were a $45.9 million increase in deferred revenue, a $5.2 million increase in accrued expenses and other current liabilities and a $2.1 million increase in accounts payable, partially offset by a $20.2 million increase in deferred contract costs, $18.8 million increase in accounts receivable, $2.0 million increase in prepaid expenses and other current assets and a $2.0 million increase in other assets.
For the year ended March 31, 2018, cash provided by operating activities was $46.4 million. The primary factors affecting our operating cash flows during the period were our net loss of $12.4 million, adjusted for non-cash items of $19.0 million for depreciation and amortization of our property, equipment and intangible assets, $11.7 million of share-based compensation expense, and $3.0 million in unrealized foreign currency gains on foreign denominated transactions, primarily intercompany balances, and $1.7 million of long-lived asset impairments. The primary drivers of the changes in operating assets and liabilities were a $39.0 million increase in deferred revenue and $7.1 million increase in accrued expenses and other current liabilities, partially offset by a $17.9 million increase in accounts receivable and a $5.0 million increase in prepaid expenses and other current assets.
Investing activities
Cash used in investing activities of $65.5 million for the year ended March 31, 2020 consisted primarily of $53.2 million in purchases of property, equipment and capitalized software, $45.3 million in payments for the Segasec Labs and DMARC Analyzer acquisitions, and $3.0 million in purchases of strategic investments, partially offset by $36.0 million in maturities of investments.
52
Cash used in investing activities of $121.3 million for the year ended March 31, 2019 consisted primarily of $115.7 million in payments for the Solebit, Ataata and Simply Migrate acquisitions, $28.8 million in purchases of property, equipment and capitalized software and $42.9 million in purchases of investments, partially offset by $66.0 million in maturities of investments.
Cash used in investing activities of $35.0 million for the year ended March 31, 2018 consisted primarily of $34.5 million in capital expenditures and $1.4 million in payments related to the iSheriff and other acquisitions, partially offset by net purchase and maturity activity on investments of $0.9 million.
Our capital expenditures in each period were primarily associated with computer equipment and software purchased in support of our expanding infrastructure. Additionally, in the years ended March 31, 2020 and 2019, we had purchases of $22.0 million and $3.0 million, respectively in leasehold improvements and office equipment related to the fit-out of our new office facilities.
Financing activities
Cash provided by financing activities of $17.7 million for the year ended March 31, 2020 was primarily due to proceeds from issuance of ordinary shares under our equity plans of $25.4 million, partially offset by payments on debt of $4.4 million and withholding taxes related to net share settlement of employee stock purchase plan, or ESPP, purchases and vesting of restricted share units, or RSUs, of $2.5 million.
Cash provided by financing activities of $117.0 million for the year ended March 31, 2019 was primarily due to proceeds from issuance of debt, net of issuance costs, of $97.7 million and proceeds from issuance of ordinary shares under our equity plans of $25.0 million, partially offset by payments on construction financing lease obligations of $2.3 million, payments on debt of $1.9 million and payments on capital lease obligations of $1.3 million.
Cash provided by financing activities of $13.2 million for the year ended March 31, 2018 was primarily due to $17.0 million of proceeds from issuance of ordinary shares from share option exercises and our ESPP, partially offset by payments on debt of $1.8 million, payments on capital lease obligations of $1.0 million and payments on construction financing lease obligation of $1.0 million.
Net operating loss carryforwards and income tax credits
As of March 31, 2020, we had U.K. net operating loss carryforwards of approximately $70.2 million that do not expire. As of March 31, 2020, we had U.S. federal net operating loss carryforwards of approximately $69.4 million. U.S. federal net operating loss carryforwards generated through March 31, 2018 of approximately $51.4 million expire at various dates through 2038, and U.S. federal net operating loss carryforwards generated in tax years beginning after March 31, 2018 of approximately $18.0 million do not expire. As of March 31, 2020, we had U.S. state net operating loss carryforwards of approximately $33.9 million, substantially all of which expire at various dates through 2040. As of March 31, 2020, we had Australian net operating loss carryforwards of approximately $22.0 million that do not expire. As of March 31, 2020, we had German net operating loss carryforwards of approximately $9.9 million that do not expire. As of March 31, 2020, we had Israeli net operating loss carryforwards of approximately $9.7 million that do not expire. As of March 31, 2020, we had Dutch net operating loss carryforwards of approximately $0.8 million that expire at various dates from 2026 through 2028. As of March 31, 2020, we had a U.K. income tax credit carryforward of $1.4 million that does not expire. As of March 31, 2020, we had an Israeli income tax credit carryforward of $0.9 million that expires at various dates from 2023 through 2025.
In assessing our ability to realize our net deferred tax assets, we considered various factors including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations, to determine whether it is more likely than not that some portion or all of our net deferred tax assets will not be realized. Based upon these factors, we have determined that the uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against our net deferred tax assets.
Off-balance sheet arrangements
Up to and including the fiscal year ended March 31, 2020, we have not had any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As a result, we are not exposed to related financing, liquidity, market or credit risks that could arise if we had engaged in those types of arrangements.
53
Contractual obligations and commitments
The following table represents our contractual obligations as of March 31, 2020, aggregated by type:
|
|
|
|
|
|
Payments due in: |
|
|||||||||||||
|
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Debt obligations principal |
|
$ |
93,750 |
|
|
$ |
6,875 |
|
|
$ |
19,375 |
|
|
$ |
67,500 |
|
|
$ |
— |
|
Debt obligations interest |
|
|
8,433 |
|
|
|
2,792 |
|
|
|
4,803 |
|
|
|
838 |
|
|
|
— |
|
Finance lease obligations |
|
|
1,428 |
|
|
|
1,102 |
|
|
|
326 |
|
|
|
— |
|
|
|
— |
|
Facility lease obligations |
|
|
114,682 |
|
|
|
15,481 |
|
|
|
28,232 |
|
|
|
27,453 |
|
|
|
43,516 |
|
Data center lease obligations |
|
|
43,004 |
|
|
|
20,750 |
|
|
|
20,712 |
|
|
|
1,542 |
|
|
|
— |
|
Data center non-lease obligations |
|
|
2,177 |
|
|
|
1,111 |
|
|
|
1,066 |
|
|
|
— |
|
|
|
— |
|
Other long-term obligations |
|
|
4,439 |
|
|
|
2,650 |
|
|
|
1,789 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
267,913 |
|
|
$ |
50,761 |
|
|
$ |
76,303 |
|
|
$ |
97,333 |
|
|
$ |
43,516 |
|
We lease our facilities under non-cancelable operating leases with various expiration dates through March 2029. We have outstanding letters of credit of $2.0 million related to certain operating leases.
Recently issued and adopted accounting pronouncements
For information on recent accounting pronouncements, see Note 2. “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Critical accounting policies and estimates
Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that of our significant accounting policies, which are described in Note 2 to the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
Revenue Recognition
Revenue Recognition Policy
We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve the core principle of ASC 606, we perform the following steps:
|
1) |
Identify the contract(s) with a customer; |
|
2) |
Identify the performance obligations in the contract; |
|
3) |
Determine the transaction price; |
|
4) |
Allocate the transaction price to the performance obligations in the contract; and |
|
5) |
Recognize revenue when (or as) we satisfy a performance obligation. |
54
We derive our revenue from two sources: (1) subscription revenues, which are comprised of subscription fees from customers accessing our cloud services and from customers purchasing additional support beyond the standard support that is included in the basic subscription fees; and (2) related professional services and other revenue, which consists primarily of certain performance obligations related to set-up, ingestion, consulting and training fees.
In the years ended March 31, 2020, 2019 and 2018, subscription revenue made up the substantial majority of our revenue and professional services and other revenue made up less than 5% of our revenue.
Our subscription arrangements provide customers the right to access our hosted software applications. Customers do not have the right to take possession of our software during the hosting arrangement.
We sell our products and services directly through our sales force and also indirectly through third-party resellers. In accordance with the provisions of ASC 606, we have considered certain factors in determining whether the end-user or the third-party reseller is the customer in arrangements involving resellers. We concluded that in the majority of transactions with resellers, the reseller is the customer. In these arrangements, we consider that it is the reseller, and not us, that has the relationship with the end-user. Specifically, the reseller has the ability to set pricing with the end-user and the credit risk with the end-user is borne by the reseller. Further, the reseller is not obligated to report its transaction price with the end-user to us, and in the majority of transactions, we are unable to determine the amount paid by the end-user customer to the reseller in these transactions. As a result of such considerations, revenue for these transactions is presented in the accompanying consolidated statements of operations based upon the amount billed to the reseller. For transactions where we have determined that the end-user is the ultimate customer, revenue is presented in the accompanying consolidated statements of operations based on the transaction price with the end-user.
We recognize subscription and support revenue ratably over the term of the contract, typically one year in duration, beginning on the date the customer is provided access to our service. For performance obligations related to set-up and ingestion, including implementation assistance and data migration services, respectively, we recognize revenue using output measures of performance that reflect the transfer of promised services to the customer consistent with progress to completion. We consider training, consulting, and other professional services contracts as separate performance obligations and recognize revenue using output measures of performance as services are completed.
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. We primarily bill and collect payments from customers for our services in advance on a monthly and annual basis.
In some instances, we receive non-refundable upfront payments for activities that do not constitute a promise to transfer a service and therefore are considered administrative tasks, not separate performance obligations. The upfront payments are evaluated to determine whether a material right to a discount upon renewal of the subscription exists. When we conclude a material right does not exist, we recognize revenue related to the upfront payment over the initial contract term. When we conclude a material right does exist, we recognize revenue related to the upfront payment, under the look-through method, over the estimated customer benefit period, which has been determined to be six years.
All of our performance obligations, and associated revenue, are generally transferred to customers over time, with the exception of training, consulting and other professional services, which are generally transferred to the customer at a point in time.
Revenue is presented net of any taxes collected from customers.
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the products sold, customer demographics, our sales channel, and the number and size of users within our contracts.
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription and other services described above and is recognized as the revenue recognition criteria are met. Deferred revenue that is expected to be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current in the accompanying consolidated balance sheets.
55
Deferred Cost Policy
We capitalize incremental costs of obtaining revenue contracts, which primarily consist of commissions paid to our sales representatives. We amortize these commissions over six years on a systematic basis, consistent with the pattern of transfer of the goods or services to which the asset relates. Six years represents the estimated benefit period of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data. No commissions are paid related to contract renewals. The current and noncurrent portions of deferred commissions are included in deferred contract costs, net, and deferred contract costs, net of current portion, respectively, in the accompanying consolidated balance sheets. Amortization of capitalized costs to obtain revenue contracts is included in sales and marketing expense in the accompanying consolidated statements of operations. See Note 2 of the notes to our consolidated financial statements, included elsewhere in this Annual Report on Form 10-K for costs capitalized as of March 31, 2020.
Goodwill and long-lived asset impairment assessments
Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We have determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, we estimate the fair value of the reporting unit, based on our market capitalization, and compare this amount to the carrying value of the reporting unit. If we determine that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The annual goodwill impairment test is performed as of January 1st of each year. To date, we have not identified any impairment to goodwill.
Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. We amortize acquired definite-lived intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.
We review long-lived assets, including property and equipment, right-of-use assets, and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. During this review, we re-evaluate the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows, and other indicators of value. We then determine whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the recoverability of these assets. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
Income taxes
We are subject to income tax in the United Kingdom, the United States and other international jurisdictions, and we use estimates in determining our provision for income taxes. We account for income taxes in accordance with ASC 740, Income Taxes, or ASC 740. ASC 740 is an asset and liability approach that requires recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis, and for net operating loss and tax credit carryforwards. ASC 740 requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. As of March 31, 2020 and 2019, we maintained tax reserves for uncertain tax positions, however none of these amounts would materially impact our tax provision if recognized.
Share-based compensation
We account for share-based compensation awards in accordance with the provisions of ASC 718, Compensation—Stock Compensation, which requires the recognition of expense related to the fair value of share-based compensation awards in the
56
statements of operations. For service-based awards, we recognize share-based compensation expense on a straight-line basis over the requisite service period of the award with actual forfeitures recognized as they occur.
Share Options
We estimate the fair value of employee share options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. We estimate the expected term of share options for service-based awards utilizing the “Simplified Method,” as we do not have sufficient historical share option exercise information on which to base our estimate. The Simplified Method is based on the average of the vesting tranches and the contractual life of each grant. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the share option. Since there was no public market for our ordinary shares prior to the IPO and as our shares have been publicly traded for a limited time, we determined the expected volatility for options granted based on an analysis of reported data for a peer group of companies that issue options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies and the Company’s historical volatility. We use an expected dividend rate of zero as we currently have no history or expectation of paying dividends on our ordinary shares. The grant date fair value of our ordinary shares at the time of each share option grant is based on the closing market value of our ordinary shares on the grant date.
Employee Share Purchase Plan
We estimate the fair value of ESPP share options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. We estimate the expected term of ESPP share options based on the length of each offering period, which is six months. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the ESPP share option. Expected volatility is based on an average of the historical volatility measures of the peer group of companies noted above and the Company’s historical volatility. We use an expected dividend rate of zero as we currently have no history or expectation of paying dividends on our ordinary shares. The grant date fair value per ordinary share is based on the closing market value of our ordinary shares on the first day of each ESPP offering period. The first authorized offering period under the ESPP commenced on July 1, 2017.
Restricted Share Units
For RSUs issued under our share-based compensation plans, the fair value of each grant is calculated based on the closing market value of our ordinary shares on the grant date.
57
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have some exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound and South African rand. Percentage of revenues and expenses in foreign currency are as follows:
|
|
Year ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Revenues generated in locations outside the United States |
|
|
49 |
% |
|
|
50 |
% |
Revenues in currencies other than the United States dollar |
|
|
46 |
% |
|
|
48 |
% |
Expenses in currencies other than the United States dollar |
|
|
49 |
% |
|
|
47 |
% |
Percentage of revenues and expenses denominated in foreign currency are as follows:
|
|
Year ended March 31, 2020 |
|
|||||
|
|
Revenues |
|
|
Expenses |
|
||
British pound |
|
|
27 |
% |
|
|
33 |
% |
South African Rand |
|
|
12 |
% |
|
|
5 |
% |
Other currencies |
|
|
7 |
% |
|
|
11 |
% |
Total |
|
|
46 |
% |
|
|
49 |
% |
|
|
Year ended March 31, 2019 |
|
|||||
|
|
Revenues |
|
|
Expenses |
|
||
British pound |
|
|
28 |
% |
|
|
32 |
% |
South African Rand |
|
|
14 |
% |
|
|
5 |
% |
Other currencies |
|
|
6 |
% |
|
|
10 |
% |
Total |
|
|
48 |
% |
|
|
47 |
% |
As of March 31, 2020 and 2019, we had $48.8 million and $41.4 million, respectively, of receivables denominated in currencies other than the U.S. dollar. We also maintain cash accounts denominated in currencies other than the local currency, which exposes us to foreign exchange rate movements. As of March 31, 2020 and 2019, we had $44.2 million and $26.5 million, respectively, of cash denominated in currencies other than the U.S. dollar. As of March 31, 2020, cash denominated in British pounds and South African rand was $14.1 million and $20.1 million, respectively. As of March 31, 2019, cash denominated in British pounds and South African rand was $10.3 million and $11.2 million, respectively.
In addition, although our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our consolidated statements of operations under “foreign exchange (expense) income and other, net.”
Currently, our largest foreign currency exposures are to the British pound and South African rand. From time to time certain macro-economic events have resulted in volatility in exchange rates including the global COVID-19 pandemic and Brexit. See Item 1A, “Risk Factors – Fluctuations in currency exchange rates could adversely affect our business.” Relative to foreign currency exposures existing as of March 31, 2020, significant movements in foreign currency exchange rates may expose us to significant losses in earnings or cash flows or significantly diminish the fair value of our foreign currency financial instruments. For the year ended March 31, 2020, we estimate that a 10% unfavorable movement in foreign currency exchange rates against the U.S. dollar would have decreased revenue by $19.7 million, decreased expenses by $20.9 million and had a positive impact on our operating results of $1.2 million. For the year ended March 31, 2019, we estimate that a 10% unfavorable movement in foreign currency exchange rates against the U.S. dollar would have decreased revenue by $16.5 million, decreased expenses by $15.9 million and had a negative impact on our operating results of $0.6 million. The estimates used assume that all currencies move in the same direction at the same time and the ratio of non-U.S. dollar denominated revenue and expenses to U.S. dollar denominated revenue and expenses does not change from current levels. Since a portion of our revenue is deferred revenue that is recorded at different foreign currency exchange rates, the impact to revenue of a change in foreign currency exchange rates is recognized over time, and the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is incurred. All of the potential changes noted above are based on sensitivity analyses performed on our financial results as of March 31, 2020 and 2019.
58
Inflation Risk
Inflationary factors, such as increases in our operating expenses, may adversely affect our results of operations, as our customers typically purchase services from us on a subscription basis over a period of time. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, an increase in the rate of inflation in the future may have an adverse effect on our levels of operating expenses as a percentage of revenue if we are unable to increase the prices for our subscription-based services to keep pace with these increased expenses.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. Our investments primarily consist of short-term investments and money market funds. As of March 31, 2020 and 2019, we had cash, cash equivalents and investments of $174.0 million and $173.5 million, respectively. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these investments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our investment portfolio, we believe only dramatic fluctuations in interest rates would have a material effect on our investments. We do not believe that an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio. As such we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
We entered into the Credit Agreement in July 2018. The Credit Agreement provides us with a $100.0 million senior secured term loan, and a $50.0 million senior secured revolving credit facility. Interest under the Credit Facility accrues at a rate between LIBOR plus 1.375% and LIBOR plus 1.875%. We estimate that a 100-basis point increase in the LIBOR rate would result in approximately $0.9 million of additional interest expense over the ensuing twelve-month period under the Credit Facility. The InterContinental Exchange Benchmark Administration has announced that it will no longer publish the LIBOR rate at some time during 2021. We anticipate that we will amend Credit Agreement before that time to reflect an alternative interest rate calculation. We do not expect change to an alternative rate to have a material impact on our financial results.
59
Item 8. Financial Statements and Supplementary Data.
MIMECAST LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
60
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mimecast Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mimecast Limited (the Company) as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 22, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02 and ASU No. 2014-09
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2019 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
61
|
Uncertain Tax Positions |
Description of the Matter |
As discussed in Note 2 and Note 17 to the consolidated financial statements, the Company operates in a multinational tax environment and is subject to tax laws, regulations and transfer pricing guidelines for intercompany transactions. Uncertainty in a tax position may arise because tax laws are subject to interpretation. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. As of March 31, 2020, the Company accrued liabilities of approximately $10.4 million for uncertain tax positions. Auditing management’s estimate of the amount of tax benefit that qualifies for recognition involved especially challenging auditor judgment because management’s estimate is complex, highly judgmental and based on interpretations of tax laws, legal rulings and determination of arm’s length pricing. |
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting process for uncertain tax positions. For example, this included controls over the Company’s assessment of the technical merits of tax positions related to certain intercompany transactions and management’s process to measure the benefit of those tax positions. Among the audit procedures we performed, we involved our tax professionals to assess the technical merits of the Company’s tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company. In addition, we evaluated the appropriateness of the Company’s accounting for its tax positions taking into consideration relevant international and local income tax laws. We analyzed the Company’s assumptions and data used to determine the amount of tax benefit to recognize and tested the accuracy of the calculations. For certain tax positions related to intercompany transactions, we assessed the assumptions and pricing method used in setting arm’s length prices and the documentation to support the pricing. We also evaluated the adequacy of the Company’s financial statement disclosures related to these tax matters. |
|
Business Combinations – Valuation of Acquired Intangible Assets (Developed Technology) |
Description of the Matter |
As discussed in Note 6 to the consolidated financial statements, during the year ended March 31, 2020, the Company completed its acquisition of DMARC Analyzer (“DMARC”) for net consideration of $21.1 million and its acquisition of Segasec Labs Ltd. (“Segasec”) for net consideration of $24.2 million. The transactions were accounted for as business combinations. Auditing the Company's accounting for its acquisitions of DMARC and Segasec required significant auditor judgment due to the estimation uncertainty in determining the fair value of identified intangible assets, which primarily consisted of developed technology of $9.9 million. The estimation uncertainty was primarily due to the complexity of the excess-earnings and distributor valuation models prepared by management to measure the fair value of the intangible assets and the sensitivity of the respective fair values to the significant underlying assumptions. The significant assumptions used to estimate the value of the intangible assets included the discount rates, revenue growth rates and technology migration curves. These significant assumptions are especially challenging to audit as they are forward looking and could be affected by future economic and market conditions.
|
62
How We Addressed the Matter in Our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s valuation of acquired intangible assets. This included testing controls over management’s review of the valuation models and significant assumptions used to develop the estimates of fair value for developed technology and other intangible assets as well as controls over the completeness and accuracy of the data used in the valuation models and assumptions. To test the estimated fair value of the developed technology intangible assets, our audit procedures included, among others, evaluating the Company’s selection of the valuation methodology, evaluating the methods and significant assumptions described above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, our valuation specialists performed independent comparative calculations to estimate the discount rate. Additionally, we compared the Company’s revenue growth rates and technology migration curves to historical results and current industry, market and economic trends. We also performed a sensitivity analysis on the significant assumptions to evaluate the change in the fair values of the intangible assets that would result from the changes in assumptions. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015.
Boston, Massachusetts
May 22, 2020
63
MIMECAST LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
173,958 |
|
|
$ |
137,576 |
|
Short-term investments |
|
|
— |
|
|
|
35,941 |
|
Accounts receivable, net |
|
|
97,659 |
|
|
|
80,953 |
|
Deferred contract costs, net |
|
|
11,133 |
|
|
|
8,140 |
|
Prepaid expenses and other current assets |
|
|
16,145 |
|
|
|
25,871 |
|
Total current assets |
|
|
298,895 |
|
|
|
288,481 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
85,178 |
|
|
|
94,202 |
|
Operating lease right-of-use assets |
|
|
116,564 |
|
|
|
— |
|
Intangible assets, net |
|
|
38,394 |
|
|
|
30,623 |
|
Goodwill |
|
|
150,525 |
|
|
|
107,575 |
|
Deferred contract costs, net of current portion |
|
|
36,664 |
|
|
|
28,250 |
|
Other assets |
|
|
3,614 |
|
|
|
5,156 |
|
Total assets |
|
$ |
729,834 |
|
|
$ |
554,287 |
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
14,907 |
|
|
$ |
9,457 |
|
Accrued expenses and other current liabilities |
|
|
41,607 |
|
|
|
44,309 |
|
Deferred revenue |
|
|
194,151 |
|
|
|
163,102 |
|
Current portion of finance lease obligations |
|
|
1,058 |
|
|
|
844 |
|
Current portion of operating lease liabilities |
|
|
30,379 |
|
|
|
— |
|
Current portion of long-term debt |
|
|
6,573 |
|
|
|
4,059 |
|
Total current liabilities |
|
|
288,675 |
|
|
|
221,771 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue, net of current portion |
|
|
12,816 |
|
|
|
12,472 |
|
Long-term finance lease obligations |
|
|
323 |
|
|
|
1,381 |
|
Operating lease liabilities |
|
|
105,321 |
|
|
|
— |
|
Long-term debt |
|
|
86,258 |
|
|
|
92,797 |
|
Construction financing lease obligations |
|
|
— |
|
|
|
36,650 |
|
Other non-current liabilities |
|
|
4,386 |
|
|
|
15,581 |
|
Total liabilities |
|
|
497,779 |
|
|
|
380,652 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
Ordinary shares, $0.012 par value, 300,000,000 shares authorized; 62,791,691 and 61,158,051 shares issued and outstanding as of March 31, 2020 and 2019, respectively |
|
|
754 |
|
|
|
734 |
|
Additional paid-in capital |
|
|
325,808 |
|
|
|
263,388 |
|
Accumulated deficit |
|
|
(83,660 |
) |
|
|
(83,632 |
) |
Accumulated other comprehensive loss |
|
|
(10,847 |
) |
|
|
(6,855 |
) |
Total shareholders' equity |
|
|
232,055 |
|
|
|
173,635 |
|
Total liabilities and shareholders' equity |
|
$ |
729,834 |
|
|
$ |
554,287 |
|
The accompanying notes are an integral part of these consolidated financial statements.
64
MIMECAST LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
Year Ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Revenue |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
261,897 |
|
Cost of revenue |
|
|
109,382 |
|
|
|
90,874 |
|
|
|
69,699 |
|
Gross profit |
|
|
317,581 |
|
|
|
249,503 |
|
|
|
192,198 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
80,790 |
|
|
|
57,939 |
|
|
|
38,373 |
|
Sales and marketing |
|
|
169,179 |
|
|
|
139,194 |
|
|
|
121,246 |
|
General and administrative |
|
|
65,314 |
|
|
|
53,759 |
|
|
|
36,989 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,712 |
|
Restructuring |
|
|
— |
|
|
|
(170 |
) |
|
|
832 |
|
Total operating expenses |
|
|
315,283 |
|
|
|
250,722 |
|
|
|
199,152 |
|
Income (loss) from operations |
|
|
2,298 |
|
|
|
(1,219 |
) |
|
|
(6,954 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,446 |
|
|
|
2,515 |
|
|
|
1,310 |
|
Interest expense |
|
|
(4,507 |
) |
|
|
(5,940 |
) |
|
|
(598 |
) |
Foreign exchange expense and other, net |
|
|
(1,078 |
) |
|
|
(356 |
) |
|
|
(3,439 |
) |
Total other income (expense), net |
|
|
(2,139 |
) |
|
|
(3,781 |
) |
|
|
(2,727 |
) |
Income (loss) before income taxes |
|
|
159 |
|
|
|
(5,000 |
) |
|
|
(9,681 |
) |
Provision for income taxes |
|
|
2,359 |
|
|
|
2,001 |
|
|
|
2,705 |
|
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.04 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
Weighted-average number of ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
62,024 |
|
|
|
59,960 |
|
|
|
57,269 |
|
The accompanying notes are an integral part of these consolidated financial statements.
65
MIMECAST LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on investments, net of tax |
|
|
(28 |
) |
|
|
117 |
|
|
|
40 |
|
Change in foreign currency translation adjustment |
|
|
(3,964 |
) |
|
|
(1,625 |
) |
|
|
2,839 |
|
Reclassification of cumulative translation adjustment to net loss upon liquidation of subsidiaries, net of tax |
|
|
— |
|
|
|
— |
|
|
|
188 |
|
Total other comprehensive (loss) income |
|
|
(3,992 |
) |
|
|
(1,508 |
) |
|
|
3,067 |
|
Comprehensive loss |
|
$ |
(6,192 |
) |
|
$ |
(8,509 |
) |
|
$ |
(9,319 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
66
MIMECAST LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
||||||||
|
|
Number of |
|
|
|
|
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders' |
|
|||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
Balance as of March 31, 2017 |
|
|
55,902 |
|
|
$ |
671 |
|
|
$ |
183,752 |
|
|
$ |
(94,017 |
) |
|
$ |
(8,414 |
) |
|
$ |
81,992 |
|
Cumulative effect adjustment ASU 2016-09 (1) |
|
|
— |
|
|
|
— |
|
|
|
104 |
|
|
|
(104 |
) |
|
|
— |
|
|
|
— |
|
Excess tax benefits related to exercise of share options |
|
|
— |
|
|
|
— |
|
|
|
217 |
|
|
|
— |
|
|
|
— |
|
|
|
217 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,386 |
) |
|
|
— |
|
|
|
(12,386 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,027 |
|
|
|
3,027 |
|
Unrealized gains on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
40 |
|
Issuance of ordinary shares upon exercise of share options |
|
|
2,961 |
|
|
|
36 |
|
|
|
15,600 |
|
|
|
— |
|
|
|
— |
|
|
|
15,636 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
11,763 |
|
|
|
— |
|
|
|
— |
|
|
|
11,763 |
|
Employee share purchase plan (ESPP) purchase |
|
|
67 |
|
|
|
— |
|
|
|
1,492 |
|
|
|
— |
|
|
|
— |
|
|
|
1,492 |
|
Tax withholdings on issuance of ordinary shares |
|
|
(3 |
) |
|
|
— |
|
|
|
(89 |
) |
|
|
— |
|
|
|
— |
|
|
|
(89 |
) |
Vesting of restricted share units (RSUs) |
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of March 31, 2018 |
|
|
58,950 |
|
|
|
707 |
|
|
|
212,839 |
|
|
|
(106,507 |
) |
|
|
(5,347 |
) |
|
|
101,692 |
|
Cumulative effect adjustment ASU 2014-09 (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29,876 |
|
|
|
— |
|
|
|
29,876 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,001 |
) |
|
|
— |
|
|
|
(7,001 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,625 |
) |
|
|
(1,625 |
) |
Unrealized gains on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
117 |
|
|
|
117 |
|
Issuance of ordinary shares upon exercise of share options |
|
|
2,055 |
|
|
|
25 |
|
|
|
21,328 |
|
|
|
— |
|
|
|
— |
|
|
|
21,353 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
25,929 |
|
|
|
— |
|
|
|
— |
|
|
|
25,929 |
|
ESPP purchase |
|
|
138 |
|
|
|
2 |
|
|
|
3,631 |
|
|
|
— |
|
|
|
— |
|
|
|
3,633 |
|
Vesting of RSUs |
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Tax withholding on ESPP purchases and vesting of RSUs |
|
|
(9 |
) |
|
|
— |
|
|
|
(339 |
) |
|
|
— |
|
|
|
— |
|
|
|
(339 |
) |
Balance as of March 31, 2019 |
|
|
61,158 |
|
|
|
734 |
|
|
|
263,388 |
|
|
|
(83,632 |
) |
|
|
(6,855 |
) |
|
|
173,635 |
|
Cumulative effect adjustment ASU 2016-02 (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,172 |
|
|
|
— |
|
|
|
2,172 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,200 |
) |
|
|
— |
|
|
|
(2,200 |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,964 |
) |
|
|
(3,964 |
) |
Unrealized losses on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28 |
) |
|
|
(28 |
) |
Issuance of ordinary shares upon exercise of share options |
|
|
1,360 |
|
|
|
16 |
|
|
|
20,128 |
|
|
|
— |
|
|
|
— |
|
|
|
20,144 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
39,488 |
|
|
|
— |
|
|
|
— |
|
|
|
39,488 |
|
ESPP purchase |
|
|
165 |
|
|
|
2 |
|
|
|
5,282 |
|
|
|
— |
|
|
|
— |
|
|
|
5,284 |
|
Tax withholding on ESPP purchases and vesting of RSUs |
|
|
(52 |
) |
|
|
— |
|
|
|
(2,476 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,476 |
) |
Vesting of RSUs |
|
|
161 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of March 31, 2020 |
|
|
62,792 |
|
|
$ |
754 |
|
|
$ |
325,808 |
|
|
$ |
(83,660 |
) |
|
$ |
(10,847 |
) |
|
$ |
232,055 |
|
(1) |
Accounting Standards Update (ASU) No. 2016-09, Compensation – Stock Compensation (ASU 2016-09) |
(2) |
ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASC 606) |
(3) |
ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02 or ASC 842) |
The accompanying notes are an integral part of these consolidated financial statements.
67
MIMECAST LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,200 |
) |
|
$ |
(7,001 |
) |
|
$ |
(12,386 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
32,245 |
|
|
|
29,953 |
|
|
|
18,960 |
|
Share-based compensation expense |
|
|
39,544 |
|
|
|
25,954 |
|
|
|
11,734 |
|
Amortization of deferred contract costs |
|
|
9,587 |
|
|
|
6,390 |
|
|
|
— |
|
Amortization of debt issuance costs |
|
|
501 |
|
|
|
336 |
|
|
|
— |
|
Amortization of operating lease right-of-use assets |
|
|
31,940 |
|
|
|
— |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,712 |
|
Other non-cash items |
|
|
(54 |
) |
|
|
(400 |
) |
|
|
365 |
|
Unrealized currency losses on foreign denominated transactions |
|
|
1,567 |
|
|
|
880 |
|
|
|
2,958 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(20,467 |
) |
|
|
(18,771 |
) |
|
|
(17,935 |
) |
Prepaid expenses and other current assets |
|
|
8,808 |
|
|
|
(2,046 |
) |
|
|
(5,037 |
) |
Deferred contract costs |
|
|
(22,751 |
) |
|
|
(20,219 |
) |
|
|
— |
|
Other assets |
|
|
(1,161 |
) |
|
|
(2,045 |
) |
|
|
33 |
|
Accounts payable |
|
|
4,215 |
|
|
|
2,093 |
|
|
|
(104 |
) |
Deferred revenue |
|
|
38,457 |
|
|
|
45,901 |
|
|
|
39,042 |
|
Operating lease liabilities |
|
|
(25,941 |
) |
|
|
— |
|
|
|
— |
|
Accrued expenses and other liabilities |
|
|
(3,752 |
) |
|
|
5,210 |
|
|
|
7,070 |
|
Net cash provided by operating activities |
|
|
90,538 |
|
|
|
66,235 |
|
|
|
46,412 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of strategic investments |
|
|
(3,025 |
) |
|
|
— |
|
|
|
— |
|
Purchases of investments |
|
|
— |
|
|
|
(42,856 |
) |
|
|
(76,948 |
) |
Maturities of investments |
|
|
36,000 |
|
|
|
66,000 |
|
|
|
77,808 |
|
Purchases of property, equipment and capitalized software |
|
|
(53,234 |
) |
|
|
(28,795 |
) |
|
|
(34,498 |
) |
Payments for acquisitions, net of cash acquired |
|
|
(45,280 |
) |
|
|
(115,673 |
) |
|
|
(1,381 |
) |
Net cash used in investing activities |
|
|
(65,539 |
) |
|
|
(121,324 |
) |
|
|
(35,019 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares |
|
|
25,428 |
|
|
|
24,986 |
|
|
|
17,128 |
|
Withholding taxes related to net share settlement of ESPP purchases and vesting of RSUs |
|
|
(2,476 |
) |
|
|
(298 |
) |
|
|
(89 |
) |
Payments on debt |
|
|
(4,375 |
) |
|
|
(1,875 |
) |
|
|
(1,825 |
) |
Payments on finance lease obligations |
|
|
(844 |
) |
|
|
(1,275 |
) |
|
|
(1,039 |
) |
Payments on construction financing lease obligations |
|
|
— |
|
|
|
(2,301 |
) |
|
|
(1,019 |
) |
Proceeds from issuance of debt, net of issuance costs |
|
|
— |
|
|
|
97,748 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
17,733 |
|
|
|
116,985 |
|
|
|
13,156 |
|
Effect of foreign exchange rates on cash |
|
|
(6,350 |
) |
|
|
(2,659 |
) |
|
|
2,471 |
|
Net increase in cash and cash equivalents |
|
|
36,382 |
|
|
|
59,237 |
|
|
|
27,020 |
|
Cash and cash equivalents at beginning of period |
|
|
137,576 |
|
|
|
78,339 |
|
|
|
51,319 |
|
Cash and cash equivalents at end of period |
|
$ |
173,958 |
|
|
$ |
137,576 |
|
|
$ |
78,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
4,114 |
|
|
$ |
4,598 |
|
|
$ |
591 |
|
Cash paid during the period for income taxes |
|
$ |
2,489 |
|
|
$ |
3,010 |
|
|
$ |
2,545 |
|
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid purchases of property, equipment and capitalized software |
|
$ |
13,232 |
|
|
$ |
7,634 |
|
|
$ |
7,977 |
|
Property and equipment acquired under capital lease |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,000 |
|
Construction costs capitalized under financing lease obligations |
|
$ |
— |
|
|
$ |
27,903 |
|
|
$ |
70,645 |
|
Derecognition of building upon completion of construction period |
|
$ |
— |
|
|
$ |
(56,794 |
) |
|
$ |
— |
|
Operating lease right-of-use assets exchanged for lease obligations |
|
$ |
13,982 |
|
|
$ |
— |
|
|
$ |
— |
|
Withholding taxes payable upon RSU vesting |
|
$ |
— |
|
|
$ |
41 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these consolidated financial statements.
68
MIMECAST LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended March 31, 2020, 2019 and 2018
(in thousands, except share and per share data, unless otherwise noted)
1. Organization and Description of Business
Mimecast Limited (Mimecast Jersey) is a public limited company organized under the laws of the Bailiwick of Jersey on July 28, 2015. On November 4, 2015, Mimecast Jersey changed its corporate structure whereby it became the holding company of Mimecast Limited (Mimecast UK), a private limited company incorporated in 2003 under the laws of England and Wales, and its wholly-owned subsidiaries by way of a share-for-share exchange in which the shareholders of Mimecast UK exchanged their shares in Mimecast UK for an identical number of shares of the same class in Mimecast Jersey. Upon the exchange, the historical consolidated financial statements of Mimecast UK became the historical consolidated financial statements of Mimecast Jersey.
Mimecast Jersey and its subsidiaries (together, the Group, the Company, or Mimecast) is headquartered in London, England. The principal activity of the Group is the provision of email management services. Delivered as a software-as-a-service (SaaS), Mimecast’s Email Security 3.0 offerings and Cyber Resilience Extensions include email security, awareness training, continuity, archiving, and web security. By unifying disparate and fragmented email environments into one holistic solution from the cloud, Mimecast minimizes risk and reduces cost and complexity while providing total end-to-end control of email. Mimecast’s proprietary software platform provides a single system to address key email management issues. 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.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements. The Company believes that a significant accounting policy is one that is both important to the portrayal of the Company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effect of matters that are inherently uncertain.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
The Company reclassified certain amounts within its consolidated statements of cash flows to conform to current period presentation. The reclassifications include $0.3 million and $0.1 million from proceeds from issuance of ordinary shares to withholding taxes related to net share settlement of ESPP purchases and vesting of RSUs for the years ended March 31, 2019 and 2018, respectively. These reclassifications had no impact on the Company’s previously reported results of operations or its balance sheets.
Principles of Consolidation
The 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 consolidated financial statements and the reported amounts of income and expenses during the reporting period.
69
Significant estimates relied upon in preparing these consolidated financial statements include revenue recognition, variable consideration, valuation at fair value of assets acquired or sold, including intangibles, 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.
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.
Subsequent Events Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required. See Note 18.
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. Cash equivalents are carried at cost, which approximates their fair market value. 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 consolidated statements of operations.
The Company did not hold any debt investments as of March 31, 2020. When the Company holds debt investments classified as available-for-sale pursuant to ASC 320, Investments – Debt Securities, it records available-for-sale securities at fair value, with unrealized gains and losses included in accumulated other comprehensive loss in shareholders’ equity. The Company includes interest and dividends on securities classified as available-for-sale in interest income in the consolidated statements of operations. Realized gains and losses are recorded in the consolidated statements of operations and comprehensive loss based on the specific-identification method. There were no material realized gains or losses on investments for the years ended March 31, 2020, 2019 and 2018.
The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than its amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the investment, or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period. As of March 31, 2020, the Company did not hold any investments. As of March 31, 2019, the aggregate fair value of investments held by the Company in an unrealized loss position for less than twelve months was $10.0 million. For the years ended March 31, 2020, 2019 and 2018, the Company determined that no other-than-temporary impairments were required to be recognized in the consolidated statements of operations.
The following is a summary of cash, cash equivalents and investments as of March 31, 2020 and March 31, 2019:
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due in 90 days or less |
|
$ |
173,958 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
173,958 |
|
Total cash, cash equivalents and investments |
|
$ |
173,958 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
173,958 |
|
70
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents due in 90 days or less |
|
$ |
137,576 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
137,576 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities due in one year or less |
|
|
1,993 |
|
|
|
1 |
|
|
|
— |
|
|
|
1,994 |
|
Non-U.S. government securities due in one year or less |
|
|
7,969 |
|
|
|
12 |
|
|
|
— |
|
|
|
7,981 |
|
Corporate securities due in one year or less |
|
|
25,951 |
|
|
|
24 |
|
|
|
(9 |
) |
|
|
25,966 |
|
Total investments |
|
|
35,913 |
|
|
|
37 |
|
|
|
(9 |
) |
|
|
35,941 |
|
Total cash, cash equivalents and investments |
|
$ |
173,489 |
|
|
$ |
37 |
|
|
$ |
(9 |
) |
|
$ |
173,517 |
|
Revenue Recognition
Revenue Recognition Policy
The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. To achieve the core principle of ASC 606, the Company performs the following steps:
|
1) |
Identify the contract(s) with a customer; |
|
2) |
Identify the performance obligations in the contract; |
|
3) |
Determine the transaction price; |
|
4) |
Allocate the transaction price to the performance obligations in the contract; and |
|
5) |
Recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company derives its revenue from two sources: (1) subscription revenue, which are comprised of subscription fees from customers accessing the Company’s cloud services and from customers purchasing additional support beyond the standard support that is included in the basic subscription fees; and (2) related professional services and other revenue, which consists primarily of certain performance obligations related to set-up, ingestion, consulting and training fees.
In the years ended March 31, 2020, 2019 and 2018, subscription revenue made up the substantial majority of the Company’s revenue and professional services and other revenue made up less than 5% of the Company’s revenue.
The Company’s subscription arrangements provide customers the right to access the Company’s hosted software applications. Customers do not have the right to take possession of the Company’s software during the hosting arrangement.
The Company sells its products and services directly through the Company’s sales force and also indirectly through third-party resellers. In accordance with the provisions of ASC 606, the Company has considered certain factors in determining whether the end-user or the third-party reseller is the customer in arrangements involving resellers. The Company concluded that in the majority of transactions with resellers, the reseller is the customer. In these arrangements, the Company considered that it is the reseller, and not the Company, that has the relationship with the end-user. Specifically, the reseller has the ability to set pricing with the end-user and the credit risk with the end-user is borne by the reseller. Further, the reseller is not obligated to report its transaction price with the end-user to the Company, and in the majority of transactions, the Company is unable to determine the amount paid by the end-user customer to the reseller in these transactions. As a result of such considerations, revenue for these transactions is presented in the accompanying consolidated statements of operations based upon the amount billed to the reseller. For transactions where the Company has determined that the end-user is the ultimate customer, revenue is presented in the accompanying consolidated statements of operations based on the transaction price with the end-user.
The Company recognizes subscription and support revenue ratably over the term of the contract, typically one year in duration, beginning on the date the customer is provided access to the Company’s service. For performance obligations related to set-up and ingestion, including implementation assistance and data migration services, respectively, the Company recognizes revenue using output measures of performance that reflect the transfer of promised services to the customer consistent with progress to completion. The Company considers training, consulting, and other professional services contracts as separate performance obligations and recognizes revenue using output measures of performance as services are completed.
71
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. The Company primarily bills and collects payments from customers for its services in advance on a monthly and annual basis.
In some instances, the Company receives non-refundable upfront payments for activities that do not constitute a promise to transfer a service and therefore are considered administrative tasks, not separate performance obligations. The upfront payments are evaluated to determine whether a material right to a discount upon renewal of the subscription exists. When the Company concludes a material right does not exist, the Company recognizes revenue related to the upfront payment over the initial contract term. When the Company concludes a material right does exist, the Company recognizes revenue related to the upfront payment, under the look-through method, over the estimated customer benefit period, which has been determined to be six years.
All of the Company’s performance obligations, and associated revenue, are generally transferred to customers over time, with the exception of training, consulting and other professional services, which are generally transferred to the customer at a point in time.
Revenue is presented net of any taxes collected from customers.
Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on the Company’s overall pricing objectives, taking into consideration market conditions and other factors, including the value of the Company’s contracts, the products sold, customer demographics, the Company’s sales channel, and the number and size of users within the Company’s contracts.
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription and other services described above and is recognized as the revenue recognition criteria are met. Deferred revenue that is expected to be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as non-current in the accompanying consolidated balance sheets.
Deferred Cost Policy
The Company capitalizes incremental costs of obtaining revenue contracts, which primarily consist of commissions paid to its sales representatives. The Company amortizes these commissions over six years on a systematic basis, consistent with the pattern of transfer of the goods or services to which the asset relates. Six years represents the estimated benefit period of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as the Company's own historical data. No commissions are paid related to contract renewals. The current and noncurrent portions of deferred commissions are included in deferred contract costs, net, and deferred contract costs, net of current portion, respectively, in the accompanying consolidated balance sheets. Amortization of capitalized costs to obtain revenue contracts is included in sales and marketing expense in the accompanying consolidated statements of operations.
Cost of Revenue
Cost of revenue primarily consists of expenses related to supporting and hosting the Company’s product offerings and delivering professional services. These costs include salaries, benefits, incentive compensation and share-based compensation expense related to the management of the Company’s data centers, customer support team and the Company’s professional services team. In addition to these costs, the Company incurs third-party service provider costs such as data center and networking expenses, allocated overhead, amortization of capitalized software and acquired intangible assets and depreciation expense.
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.
72
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. 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. As of March 31, 2020 and 2019, no individual customer represented more than 10% of the Company’s accounts receivable. During the years ended March 31, 2020, 2019 and 2018, no individual customer represented more than 10% of the Company’s revenue.
The Company's board of directors approved investment policy permits investments in fixed income securities denominated and payable in U.S. dollars, including U.S. government and agency securities, non-U.S. government securities, money market instruments, commercial paper, certificates of deposit, corporate bonds and asset-backed securities. The Company diversifies its investment portfolio by investing in multiple types of investment-grade securities across various industries and issuers, limiting the amount invested in individual securities and limiting the average maturity to two years or less and attempts to mitigate a risk of loss by using a third-party investment manager.
As of March 31, 2020, the Company did not hold any investments. As of March 31, 2019, the Company’s investments consisted primarily of investment-grade fixed income corporate debt securities with maturities ranging from one to seven months, non-U.S. government securities with maturities ranging from three to eight months and U.S. treasury securities with maturities in approximately five months.
Allowance for Doubtful Accounts
The Company makes judgments as to its ability to collect outstanding receivables and provide allowances for the portion of receivables when a loss is reasonably expected to occur. The allowance for doubtful accounts is established to represent the best estimate of the net realizable value of the outstanding accounts receivable. The development of the allowance for doubtful accounts is based on a review of past due amounts, historical write-off and recovery experience, as well as aging trends affecting specific accounts and general operational factors affecting all amounts. In addition, factors are developed utilizing historical trends in bad debts, returns and allowances.
The Company considers current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If circumstances relating to specific customers change or unanticipated changes occur in the general business environment, the Company’s estimates of the recoverability of receivables could be further adjusted. For the years ended March 31, 2020, 2019 and 2018, bad debt expense was $0.3 million, $0.2 million and $0.2 million, respectively. The allowance for doubtful accounts as of March 31, 2020 and 2019 was not material.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful life of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Property and equipment acquired under capital leases is amortized over the lease term or, in circumstances where ownership is transferred by the end of the lease or there is a bargain purchase option, over the useful life that would be assigned if the asset were owned. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation, are removed from the accounts, and any resulting gain or loss is included in the determination of net loss in the period of retirement or sale. The estimated useful lives of the Company’s property and equipment are as follows:
|
|
Estimated Useful Life |
Computer equipment |
|
3 to 5 |
Leasehold improvements |
|
Lesser of asset life or lease term |
Furniture and fixtures |
|
5 |
Office equipment |
|
3 |
Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property and equipment.
73
Business Combinations
In accordance with ASC 805, Business Combinations (ASC 805), the Company recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.
The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair value of the assets acquired and the liabilities assumed and represents the expected future economic benefits arising from other assets acquired that are not individually identified and separately recognized. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. Assumptions may be incomplete or inaccurate, and unanticipated events or circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Goodwill and acquired intangible assets
Goodwill is not amortized, but is evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has determined that there is a single reporting unit for the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates the fair value of the reporting unit, based on the Company’s market capitalization, and compares this amount to the carrying value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required. The annual goodwill impairment test is performed as of January 1st of each year. To date, the Company has not identified any impairment to goodwill.
Intangible assets acquired in a business combination are recorded at their estimated fair values at the date of acquisition. The Company amortizes acquired definite-lived intangible assets over their estimated useful lives based on the pattern of consumption of the economic benefits or, if that pattern cannot be readily determined, on a straight-line basis.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, right-of-use assets, and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. During this review, the Company re-evaluates the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows, and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the recoverability of these assets. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
For the years ended March 31, 2020 and 2019, the Company did not identify any indicators of impairment of its long-lived assets. For the year ended March 31, 2018, the Company recorded an impairment of long-lived assets of $1.7 million due to the exit of its Watertown facilities in the fourth quarter of fiscal 2018.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures (ASC 820), establishes a three-level valuation hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
74
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
|
• |
Level 1 inputs—Unadjusted observable quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
|
• |
Level 2 inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. |
|
• |
Level 3 inputs—Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and nonrecurring basis to determine the appropriate level to classify them for each reporting period.
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 years ended March 31, 2020, 2019 and 2018.
Software Development Costs
Costs incurred to develop software applications used in the Company’s SaaS platform consist of certain direct costs of materials and services incurred in developing or obtaining internal-use computer software, and payroll and payroll-related costs for employees who are directly associated with, and who devote time to, the project. These costs generally consist of internal labor during configuration, coding, and testing activities. Research and development costs incurred during the preliminary project stage or costs incurred for data conversion activities, training, maintenance and general and administrative or overhead costs are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. Qualified costs incurred during the operating stage of the Company’s software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs incurred for maintenance of, and minor upgrades and enhancements to, internal-use software are expensed as incurred. During the years ended March 31, 2020, 2019 and 2018, the Company believes the substantial majority of its development efforts were either in the preliminary project stage of development or in the operation stage (post-implementation), and accordingly, no costs have been capitalized during these periods. These costs are included in the accompanying consolidated statements of operations as research and development expense.
Capitalized software and Cloud-computing Arrangements (CCA)
The Company accounts for acquired internal-use software licenses and certain costs related to video content production related to its awareness training offering within the scope of ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software (ASC 350-40) as intangible assets (Capitalized Software). Acquired internal-use software licenses are amortized over the term of the arrangement to the line item within the consolidated statements of operations that reflects the nature of the license. Video production costs are amortized to cost of revenue over their expected useful life of five years when the content is ready for use. See Note 7 for further details.
Additionally, the Company evaluates its accounting for fees paid in a CCA to determine whether the CCA includes a license to internal-use software. If the CCA includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the CCA does not include a software license, the Company accounts for the arrangement as a service contract (hosting arrangement) and hosting costs are generally expensed as incurred.
75
Since the adoption of ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-24): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15), on July 1, 2018, the Company evaluates upfront costs including implementation, set-up or other costs (collectively, implementation costs) for hosting arrangements under the internal-use software framework. Costs related to preliminary project activities and post implementation activities are expensed as incurred, whereas costs incurred in the development stage are generally capitalized. Capitalized implementation costs are amortized on a straight-line basis over the expected term of the hosting arrangement, which includes consideration of the non-cancellable contractual term and reasonably certain renewals. As of March 31, 2020 and 2019, the net carrying value of capitalized implementation costs related to hosting arrangements that were incurred during the application development stage were $2.9 million and $1.6 million, respectively. These capitalized implementation costs will be amortized over the expected term of the arrangement and are amortized in the same line item in the consolidated statements of operations as the expense for fees for the associated hosting arrangement.
Foreign Currency Translation
The reporting currency of the Company is the U.S. dollar. The Company determines the functional currency for its non-U.S. subsidiaries by reviewing the currencies in which its respective operating activities occur. The functional currency of the Company’s non-U.S. subsidiaries is generally the local currency of each subsidiary. All assets and liabilities in the balance sheets of entities whose functional currency is a currency other than the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows: (i) asset and liability accounts at period-end rates, (ii) income statement accounts at weighted-average exchange rates for the period, and (iii) shareholders’ equity accounts at historical exchange rates. Foreign exchange transaction gains and losses are included in foreign exchange (expense) income and other, net in the accompanying consolidated statements of operations. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.
Net Loss Per Ordinary Share
The Company calculates basic and diluted net loss per ordinary share by dividing net loss by the weighted-average number of ordinary shares outstanding during the period. The Company has excluded the following potentially dilutive shares, which include share options outstanding, unvested RSUs and estimated employee share purchase plan ESPP shares, from the weighted-average number of ordinary shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses incurred (in thousands):
|
|
Year Ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Share options outstanding |
|
|
6,271 |
|
|
|
6,209 |
|
|
|
6,230 |
|
Unvested RSUs |
|
|
1,277 |
|
|
|
550 |
|
|
|
33 |
|
ESPP Shares |
|
|
82 |
|
|
|
85 |
|
|
|
76 |
|
Advertising and Promotion Costs
Expenses related to advertising and promotion of solutions is charged to sales and marketing expense as incurred. The Company incurred advertising expenses of $12.5 million, $12.5 million and $12.4 million during the years ended March 31, 2020, 2019 and 2018, respectively.
Income Taxes
The Company is subject to income tax in the United Kingdom, the United States and other international jurisdictions, and uses estimates in determining its provision for income taxes. The Company accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 is an asset and liability approach that requires recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis, and for net operating loss and tax credit carryforwards. ASC 740 requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.
76
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. As of March 31, 2020 and 2019, the Company did not have any material uncertain tax positions that would impact the Company’s tax provision if recognized.
Share-Based Compensation
The Company accounts for share-based compensation awards in accordance with the provisions of ASC 718, Compensation—Stock Compensation, which requires the recognition of expense related to the fair value of share-based compensation awards in the statements of operations. For service-based awards, the Company recognizes share-based compensation expense on a straight-line basis over the requisite service period of the award with actual forfeitures recognized as they occur.
See Note 13 for further description of the Company’s share-based compensation plans and a summary of the share-based award activity for the year ended March 31, 2020.
Share Options
The Company estimates the fair value of employee share options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. The Company estimates the expected term of share options for service-based awards utilizing the “Simplified Method,” as it does not have sufficient historical share option exercise information on which to base its estimate. The Simplified Method is based on the average of the vesting tranches and the contractual life of each grant. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the share option. Since there was no public market for the Company’s ordinary shares prior to the Company’s initial public offering and as its ordinary shares have been publicly traded for a limited time, the Company determined the expected volatility for options granted based on an analysis of reported data for a peer group of companies that issue options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies and the Company’s historical volatility. The Company uses an expected dividend rate of zero as it currently has no history or expectation of paying dividends on its ordinary shares. The fair value of the Company’s ordinary shares at the time of each share option grant is based on the closing market value of its ordinary shares on the grant date.
The fair value of each share option grant was estimated using the Black-Scholes option-pricing model that used the following weighted-average assumptions:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Expected term (in years) |
|
|
6.1 |
|
|
|
6.1 |
|
|
|
6.1 |
|
Risk-free interest rate |
|
|
2.1 |
% |
|
|
2.7 |
% |
|
|
2.2 |
% |
Expected volatility |
|
|
42.6 |
% |
|
|
41.5 |
% |
|
|
39.8 |
% |
Expected dividend yield |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Estimated grant date fair value per ordinary share |
|
$ |
46.29 |
|
|
$ |
37.15 |
|
|
$ |
26.52 |
|
The weighted-average per share fair value of share options granted to employees during the years ended March 31, 2020, 2019 and 2018 was $20.43, $16.48 and $11.12 per share, respectively.
Employee Share Purchase Plan
The Company estimates the fair value of its ESPP share options on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective estimates and assumptions. The Company estimates the expected term of ESPP share options based on the length of each offering period, which is six months. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the ESPP share option. Expected volatility is based on an average of the historical volatility measures of the peer group of companies noted above and the Company’s historical volatility. The Company uses an expected dividend rate of zero as it currently has no history or expectation of paying dividends on its ordinary shares. The grant date fair value per ordinary share is based on the closing market value of its ordinary shares on the first day of each ESPP offering period. The first authorized offering period under the ESPP commenced on July 1, 2017.
77
The fair value of each ESPP option grant was estimated using the Black-Scholes option-pricing model that used the following weighted-average assumptions:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Expected term (in years) |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Risk-free interest rate |
|
|
1.8 |
% |
|
|
2.3 |
% |
|
|
1.4 |
% |
Expected volatility |
|
|
37.4 |
% |
|
|
39.1 |
% |
|
|
29.9 |
% |
Expected dividend yield |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Grant date fair value per ordinary share |
|
$ |
45.41 |
|
|
$ |
36.69 |
|
|
$ |
27.15 |
|
The weighted-average per share fair value of ESPP share options granted to employees during the years ended March 31, 2020, 2019 and 2018, was $11.73, $9.58 and $6.41, respectively.
RSUs
For RSUs issued under the Company’s share-based compensation plans, the fair value of each grant is calculated based on the closing market value of its ordinary shares on the date of grant.
Leases
In accordance with ASU 2016-02, effective April 1, 2019, the Company classifies leases at the lease commencement date. At the commencement date, the Company will recognize a right-of-use asset (ROUA) and a lease liability on the balance sheet for all leases with the exception of facilities leases with a lease term of 12 months or less. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company has elected to account for lease and non-lease components as a single lease component.
Lease liabilities and their corresponding ROUAs are recorded based on the present value of lease payments over the expected lease term. The implicit rate within the Company’s leases are generally not determinable and therefore the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The Company determines its incremental borrowing rate for each lease based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROUA and lease liability when it is reasonably certain the Company will exercise that option. An option to terminate is considered unless it is reasonably certain the Company will not exercise the option.
Refer to Note 9 for further information.
Comprehensive Loss
Comprehensive 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 loss consists of net loss and other comprehensive (loss) income, which includes certain changes in equity that are excluded from net loss. As of March 31, 2020 and 2019, accumulated other comprehensive loss is presented separately on the consolidated balance sheets and consists of cumulative foreign currency translation adjustments and unrealized gains and losses on investments.
Recently Issued and Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date.
Recently Adopted Accounting Pronouncements
On April 1, 2019, the Company adopted ASU 2016-02, which requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to historical practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying assets for the lease term. The Company adopted ASU 2016-02 utilizing the modified retrospective transition method in the first quarter of fiscal 2020 and did not restate comparative periods. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification. Refer to Note 9 for further information on the impact of the adoption of ASU 2016-02 on the Company’s consolidated financial statements.
78
On April 1, 2019, the Company adopted ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07). ASU 2018-07 simplifies the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The adoption of this standard had no impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued 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. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 and is to be adopted on a modified retrospective basis. Early adoption is permitted. The Company has commenced its plan to adopt the new accounting standard, including its assessment of the scope of the standard and does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued 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. ASU 2017-04 is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019 and is to be applied on a prospective basis. Early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU 2017-04 on its consolidated financial statements and does not expect the adoption to have a material impact on its consolidated financial statements.
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 but does not expect it will have a material impact.
3. Revenue and Deferred Revenue
Revenue recognized during the years ended March 31, 2020 and 2019 from amounts included in deferred revenue at the beginning of the period was approximately $158.8 million and $118.7 million, respectively. Revenue recognized during the years ended March 31, 2020 and 2019 from performance obligations satisfied or partially satisfied in previous periods was not material.
Contracted revenue as of March 31, 2020 and 2019 that has not yet been recognized (contracted and not recognized) was $97.2 million and $86.0 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 54% of contracted and not recognized revenue to be recognized over the next year, 44% in years two and three, with the remaining balance recognized thereafter.
4. Balance Sheet Components
Prepaid expenses and other current assets consist of the following:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Prepaid expenses |
|
$ |
11,498 |
|
|
$ |
11,259 |
|
Research and development investment tax credits |
|
|
2,665 |
|
|
|
3,862 |
|
Lease incentive due from landlord |
|
|
— |
|
|
|
8,900 |
|
Other current assets |
|
|
1,982 |
|
|
|
1,850 |
|
Total prepaid expenses and other current assets |
|
$ |
16,145 |
|
|
$ |
25,871 |
|
79
Property and equipment, net, consists of the following:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Building and building improvements (1) |
|
$ |
— |
|
|
$ |
47,001 |
|
Computer equipment (2) |
|
|
131,920 |
|
|
|
112,277 |
|
Leasehold improvements |
|
|
34,031 |
|
|
|
8,166 |
|
Furniture and fixtures |
|
|
5,793 |
|
|
|
4,590 |
|
Office equipment |
|
|
2,084 |
|
|
|
1,345 |
|
|
|
|
173,828 |
|
|
|
173,379 |
|
Less: Accumulated depreciation and amortization (1) (2) |
|
|
(88,650 |
) |
|
|
(79,177 |
) |
Property and equipment, net |
|
$ |
85,178 |
|
|
$ |
94,202 |
|
(1) |
Includes construction costs capitalized related to build-to-suit facilities: |
|
|
As of March 31, |
|
|
|
|
2019 |
|
|
U.S. build-to-suit facility |
|
$ |
47,001 |
|
Less: Accumulated depreciation |
|
|
(5,164 |
) |
|
|
$ |
41,837 |
|
As of March 31, 2019, the U.S. build-to-suit facility includes company-funded building improvements of $5.2 million. Upon the adoption of ASU 2016-02, the Company derecognized the build-to-suit asset and related liability pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02. See Note 9 for further details.
(2) |
Includes property and equipment acquired under finance leases: |
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Computer equipment |
|
$ |
4,714 |
|
|
$ |
4,754 |
|
Less: Accumulated amortization |
|
|
(3,407 |
) |
|
|
(2,228 |
) |
|
|
$ |
1,307 |
|
|
$ |
2,526 |
|
Depreciation and amortization expense was $25.2 million, $25.2 million, and $17.5 million for the years ended March 31, 2020, 2019 and 2018, respectively. Depreciation and amortization expense in the years ended March 31, 2020, 2019 and 2018 included $1.2 million, $1.2 million and $0.9 million related to property and equipment acquired under capital leases.
Accrued expenses and other current liabilities consists of the following:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Accrued payroll and related benefits |
|
$ |
23,465 |
|
|
$ |
21,198 |
|
Accrued taxes payable |
|
|
5,809 |
|
|
|
5,305 |
|
Construction financing lease obligation |
|
|
— |
|
|
|
2,670 |
|
Restructuring liability |
|
|
— |
|
|
|
49 |
|
Other accrued expenses |
|
|
12,333 |
|
|
|
15,087 |
|
Total accrued expenses and other current liabilities |
|
$ |
41,607 |
|
|
$ |
44,309 |
|
80
Other non-current liabilities consist of the following:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Deferred rent (3) |
|
$ |
— |
|
|
$ |
10,218 |
|
Other non-current liabilities |
|
|
4,386 |
|
|
|
5,363 |
|
Total other non-current liabilities |
|
$ |
4,386 |
|
|
$ |
15,581 |
|
(3) |
Upon the adoption of ASU 2016-02 on April 1, 2019, the Company recognized a ROUA and a lease liability on the balance sheet and therefore recognizes lease expense for operating leases on a straight-line basis over the lease term. See Note 9 for further details. |
5. Restructuring
In the fourth quarter of fiscal 2018, the Company ceased use of its Watertown, Massachusetts corporate office space and recorded a restructuring charge of $0.8 million. The fair value of the restructuring liability at the cease-use date of $1.1 million was determined by discounting estimated future cash flows, which consisted of remaining lease rentals and estimated sublease rentals that could be reasonably obtained for the property and was adjusted for the effects of deferred rent liabilities recognized under the lease of $0.3 million. The Company’s estimate of sublease rentals was based on a sublease agreement executed in the first quarter of fiscal 2019. In the second quarter of fiscal 2019, the Company recorded a revision to restructuring expense of $0.2 million related to the exit of its Watertown, Massachusetts corporate office space. The restructuring liability and any future changes in the estimate will be recorded in Restructuring in the consolidated statements of operations. The fair value measurement is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs.
6. Acquisitions
The following acquisitions have been accounted for as business combinations in accordance with ASC 805. The Company has recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates.
Fiscal 2020 Acquisitions
Segasec Labs Ltd.
On January 3, 2020, the Company acquired Segasec Labs Ltd. (Segasec), a company incorporated under the laws of the State of Israel, that provides digital threat protection.
Prior to the closing of the acquisition, the Company held an ownership interest of approximately 15.4% (see Note 8). The fair value of the previously held interest at the acquisition date approximated its’ original cost of $3.0 million. The Company acquired the remaining interest in Segasec for cash consideration of $24.2 million, net of cash acquired of $4.3 million.
The preliminary purchase price allocation primarily consisted of $6.8 million of identifiable intangible assets and approximately $24.0 million of goodwill that is not deductible for tax purposes. The identifiable intangible assets primarily include developed technology of $6.7 million and customer relationships of $0.1 million, with estimated useful lives of 8.3 years and 6.3 years, respectively. The goodwill reflects the value of the synergies the Company expects to realize and the assembled workforce. The preliminary purchase price allocation is subject to finalization of amounts for potential indemnification adjustments.
The significant intangible assets identified in the purchase price allocation discussed above include developed technology and customer relationships, which are amortized over their respective useful lives on a straight-line basis when the pattern in which their economic benefits will be consumed cannot be reliably determined. To value the developed technology asset, the Company utilized the income approach, specifically a discounted cash-flow method known as the multi-period excess earnings method. Customer relationships represent the underlying relationships with certain customers to provide ongoing services for products sold. The Company utilized the income approach, specifically the distributor method, a subset of the excess-earnings method to value the customer relationships. The significant assumptions used to estimate the value of the intangible assets included the discount rates, revenue growth rates, and technology migration curves.
The Company has not presented pro forma results of operations for the Segasec acquisition because it is not material to the Company's consolidated results of operations, financial position, or cash flows.
81
DMARC Analyzer B.V.
On November 13, 2019, the Company acquired DMARC Analyzer B.V., a company organized under the laws of the Netherlands (DMARC Analyzer), for cash consideration of approximately $21.1 million, net of cash acquired of $0.4 million. DMARC Analyzer is a SaaS-based solution provider that offers user-friendly Domain-based Message Authentication, Reporting and Conformance (DMARC) setup, management and analysis. This acquisition further addresses threats at the email perimeter, inside the email network, and beyond their immediate purview.
The preliminary purchase price allocation primarily consisted of $3.4 million of identifiable intangible assets and approximately $18.9 million of goodwill that is not deductible for tax purposes. The identifiable intangible assets primarily include developed technology of $3.2 million and customer relationships of $0.2 million, with estimated useful lives of 7.5 years and 5.5 years, respectively. The goodwill reflects the value of the synergies the Company expects to realize and the assembled workforce. The preliminary purchase price allocation is subject to finalization of amounts for potential indemnification adjustments.
The significant intangible assets identified in the purchase price allocation discussed above include developed technology and customer relationships, which are amortized over their respective useful lives on a straight-line basis when the pattern in which their economic benefits will be consumed cannot be reliably determined. To value the developed technology asset, the Company utilized the income approach, specifically a discounted cash-flow method known as the multi-period excess earnings method. Customer relationships represent the underlying relationships with certain customers to provide ongoing services for products sold. The Company utilized the income approach, specifically the distributor method, a subset of the excess-earnings method to value the customer relationships. The significant assumptions used to estimate the value of the intangible assets included the discount rates, revenue growth rates, and technology migration curves.
The Company has not presented pro forma results of operations for the DMARC Analyzer acquisition because it is not material to the Company's consolidated results of operations, financial position, or cash flows.
Fiscal 2019 Acquisitions
Solebit LABS Ltd.
On July 31, 2018, the Company entered into a share purchase agreement (the Purchase Agreement) pursuant to which it acquired Solebit LABS Ltd. (Solebit), a company organized under the laws of the State of Israel, that provides security software. Solebit’s technology enhances security for the Company’s customers and adds to its ability to detect and prevent cyber-attacks, zero-day threats and malware across email and the web in real time. This acquisition further enhanced the Company’s cyber resilience platform architecture.
The total purchase price of $96.5 million included cash payments of approximately $95.7 million.
The following table summarizes the final purchase price allocation:
Purchase consideration: |
|
|
|
|
Total cash paid, net of acquired cash |
|
$ |
85,258 |
|
Cash and cash equivalents acquired |
|
|
10,410 |
|
Fair value of previously held asset |
|
|
828 |
|
Total purchase price consideration |
|
$ |
96,496 |
|
82
The significant intangible assets identified in the purchase price allocation discussed above include developed technology and customer relationships, which are amortized over their respective useful lives on a straight-line basis when the pattern in which their economic benefits will be consumed cannot be reliably determined. To value the developed technology asset, the Company utilized the income approach, specifically a discounted cash-flow method known as the multi-period excess earnings method. Customer relationships represent the underlying relationships with certain customers to provide ongoing services for products sold. The Company utilized the income approach, specifically the distributor method, a subset of the excess-earnings method to value the customer relationships.
The fair value of the assets acquired and liabilities assumed reflected in the tables above is less than the purchase price, resulting in the recognition of goodwill. The goodwill is not deductible for tax purposes and reflects the value of the synergies the Company expects to realize and the assembled workforce.
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
|
|
Amount |
|
|
Estimated Useful Life (in years) |
|
||
Developed technology |
|
$ |
16,689 |
|
|
|
10 |
|
Customer relationships |
|
|
235 |
|
|
|
7 |
|
Trade names |
|
|
40 |
|
|
|
1 |
|
Total identifiable intangible assets |
|
$ |
16,964 |
|
|
|
|
|
Pro Forma Financial Information (unaudited)
The following unaudited pro forma information presents the combined results of operations of the Company and Solebit for the years ended March 31, 2019 and 2018 as if the acquisition of Solebit had been completed on April 1, 2017. These pro forma financial results have been prepared for comparative purposes only and include certain adjustments that reflect pro forma results of operations such as fair value adjustments (step-downs) for deferred revenue, increased amortization for the fair value of acquired intangible assets and adjustments to eliminate transaction costs incurred by the Company and Solebit.
The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the operations of the Company and Solebit. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred as of April 1, 2017, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):
|
|
Year ended March 31, |
|
|
|
|
2019 |
|
|
Revenue |
|
$ |
340,824 |
|
Net loss |
|
|
(7,729 |
) |
Basic and diluted net loss per share |
|
$ |
(0.13 |
) |
Weighted average number of ordinary shares outstanding |
|
|
|
|
Basic and diluted |
|
|
59,960 |
|
ATAATA, Inc.
On July 9, 2018, the Company acquired ATAATA, Inc. (Ataata), a privately-owned company based in the United States, for cash consideration of approximately $23.2 million, net of cash acquired of $1.9 million. Ataata is a cybersecurity training and awareness platform designed to reduce human error in the workplace and help enable organizations to become more secure by changing the security culture of their employees. The acquisition allows customers to measure cyber risk training effectiveness by converting behavior observations into actionable risk metrics for security professionals. The addition of security awareness training and risk scoring and analysis strengthened the Company’s cyber resilience for email capabilities.
The purchase price allocation primarily consisted of $1.5 million of identifiable intangible assets and approximately $22.6 million of goodwill that is not deductible for tax purposes. The identifiable intangible assets primarily include developed technology of $1.4 million and customer relationships of $0.1 million, with estimated useful lives of ten years and six years, respectively. The goodwill balance is primarily attributed to the expanded market opportunities when combining Ataata's awareness training technology with the Company’s other offerings.
83
The Company has not presented pro forma results of operations for the Ataata acquisition because it is not material to the Company's consolidated results of operations, financial position, or cash flows.
Simply Migrate Ltd.
On January 25, 2019, the Company acquired Simply Migrate Ltd., a provider of archive data migration technology, for cash consideration of approximately $7.2 million, net of cash acquired of $0.1 million. With this acquisition, the Company expanded its data migration services with a rich portfolio of connectors, combined with a deeper experience in helping organizations get out of the business of managing expensive, unreliable legacy archives so they can move to a next-generation data protection strategy in the Mimecast cloud.
The purchase price allocation primarily consisted of $3.3 million of identifiable intangible assets, specifically developed technology, with an estimated useful life of eight years and approximately $4.3 million of goodwill that is not deductible for tax purposes. The goodwill balance is primarily attributed to the expanded market opportunities when combining Simply Migrate's archive data migration technology with the Company’s other offerings.
The Company has not presented pro forma results of operations for the Simply Migrate acquisition because it is not material to the Company's consolidated results of operations, financial position, or cash flows.
7. Goodwill and Intangible Assets
The following table reflects goodwill activity in each of the periods presented:
|
|
Year ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Beginning balance |
|
$ |
107,575 |
|
|
$ |
5,631 |
|
Goodwill acquired |
|
|
42,927 |
|
|
|
101,381 |
|
Effect of foreign exchange rates |
|
|
23 |
|
|
|
563 |
|
Ending balance |
|
$ |
150,525 |
|
|
$ |
107,575 |
|
Purchased intangible assets consist of the following:
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
March 31, 2020 |
|
||||||||||
|
|
Remaining |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|||
|
|
Useful Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
(in years) |
|
|
Value |
|
|
Amortization |
|
|
Value |
|
||||
Developed technology |
|
|
8 |
|
|
$ |
33,269 |
|
|
$ |
(4,547 |
) |
|
$ |
28,722 |
|
Customer relationships |
|
|
5 |
|
|
|
771 |
|
|
|
(159 |
) |
|
|
612 |
|
Trade names |
|
N/A |
|
|
|
41 |
|
|
|
(41 |
) |
|
|
— |
|
|
Capitalized software and other (1) (2) |
|
|
3 |
|
|
|
16,849 |
|
|
|
(7,789 |
) |
|
|
9,060 |
|
|
|
|
|
|
|
$ |
50,930 |
|
|
$ |
(12,536 |
) |
|
$ |
38,394 |
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
March 31, 2019 |
|
||||||||||
|
|
Remaining |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|||
|
|
Useful Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
(in years) |
|
|
Value |
|
|
Amortization |
|
|
Value |
|
||||
Developed technology |
|
|
9 |
|
|
$ |
23,577 |
|
|
$ |
(1,707 |
) |
|
$ |
21,870 |
|
Customer relationships |
|
|
6 |
|
|
|
455 |
|
|
|
(73 |
) |
|
|
382 |
|
Trade names |
|
|
1 |
|
|
|
56 |
|
|
|
(34 |
) |
|
|
22 |
|
Capitalized software (1) |
|
|
3 |
|
|
|
12,431 |
|
|
|
(4,082 |
) |
|
|
8,349 |
|
|
|
|
|
|
|
$ |
36,519 |
|
|
$ |
(5,896 |
) |
|
$ |
30,623 |
|
(1) |
As of March 31, 2020 and 2019, the net carrying value of capitalized software and other includes $1.4 million and $0.5 million, respectively of costs capitalized related to video production costs. See Note 2 for further information. |
(2) |
As of March 31, 2020, the net carrying value of capitalized software and other includes $0.2 million of costs capitalized related to IP addresses. |
84
The Company recorded amortization expense of $7.0 million, $4.8 million and $1.5 million for the years ended March 31, 2020, 2019 and 2018, respectively. Amortization relating to developed technology and capitalized software was recorded within cost of revenue and amortization of customer relationships and trade names was recorded within sales and marketing expenses.
Future estimated amortization expense of intangible assets as of March 31, 2020 is as follows:
|
|
Purchased |
|
|
|
|
|
|
|
|
Intangible |
|
|
Capitalized |
|
||
|
|
Assets |
|
|
Software |
|
||
2021 |
|
$ |
3,827 |
|
|
$ |
3,998 |
|
2022 |
|
|
3,827 |
|
|
|
2,701 |
|
2023 |
|
|
3,827 |
|
|
|
1,676 |
|
2024 |
|
|
3,772 |
|
|
|
395 |
|
2025 |
|
|
3,701 |
|
|
|
236 |
|
Thereafter |
|
|
10,380 |
|
|
|
54 |
|
Total |
|
$ |
29,334 |
|
|
$ |
9,060 |
|
8. Fair Value Measurement
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 Company’s investments are classified as available-for-sale and reported at fair value in accordance with the market approach utilizing quoted prices that were directly or indirectly observable. The carrying amount of the remainder of the Company’s financial instruments approximated their fair values as of March 31, 2020 and 2019, due to the short-term nature of those instruments.
Strategic investments consist of non-controlling equity investments in privately held companies. As of March 31, 2020 and 2019, the Company did not hold any strategic investments (see Note 6). During the years ended March 31, 2020 and 2019, the Company held strategic investments of $3.0 million and $0.5 million, respectively, for which the Company did not have the ability to exercise significant influence. The Company elected the measurement alternative for these investments as they did not have readily determinable fair values. These non-marketable equity securities were included in other assets on the consolidated balance sheets and were carried at cost. Any adjustments resulting from impairment or observable price changes in orderly transactions for identical or similar investment of the same issuer are recorded within the consolidated statements of operations. In years ended March 31, 2020 and 2019, there were no adjustments to the carrying value of strategic investments resulting from impairments or observable price changes.
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 the Company has 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 March 31, 2020 and 2019, the Company did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
The following table summarizes financial assets measured and recorded at fair value on a recurring basis in the accompanying consolidated balance sheets as of March 31, 2020 and 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
March 31, 2020 |
|
|||||||||
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs) |
|
|
Significant Other Observable Inputs (Level 2 Inputs) |
|
|
Total |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
17,495 |
|
|
$ |
— |
|
|
$ |
17,495 |
|
85
|
|
March 31, 2019 |
|
|||||||||
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs) |
|
|
Significant Other Observable Inputs (Level 2 Inputs) |
|
|
Total |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
8,348 |
|
|
$ |
— |
|
|
$ |
8,348 |
|
U.S. treasury securities |
|
|
— |
|
|
|
1,994 |
|
|
|
1,994 |
|
Non-U.S. government securities |
|
|
— |
|
|
|
7,981 |
|
|
|
7,981 |
|
Corporate securities |
|
|
— |
|
|
|
25,966 |
|
|
|
25,966 |
|
Total assets |
|
$ |
8,348 |
|
|
$ |
35,941 |
|
|
$ |
44,289 |
|
9. Leases
The Company has operating and finance leases for data centers, facilities, and certain equipment. The leases have remaining lease terms of less than a year to 10 years, some of which include options to extend the leases for up to 10 years. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term. Variable costs, which are based on actual usage, are not included in the measurement of ROUAs and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs. Amortization expense of the ROUA for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the effective interest method using an incremental borrowing rate.
Adoption of ASU 2016-02 resulted in the recording of additional net lease ROUA and lease liabilities of approximately $141.3 million and $154.7 million, respectively, as of April 1, 2019. Incremental borrowing rates as of April 1, 2019, the date the new standard was adopted, were used to calculate the present value of the Company’s lease portfolio as of that date. As noted below, leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02. The impact of the derecognition of the build-to-suit lease was a net reduction of $2.2 million to accumulated deficit as of April 1, 2019. The Company recorded the deferred tax impact associated with the cumulative-effect adjustment of adopting ASU 2016-02 to retained earnings with an equal and offsetting adjustment to our valuation allowance. The standard did not materially impact the consolidated net earnings or operating cash flows.
The impact of the adoption of ASC 842 is as follows:
|
|
Balance as of March 31, 2019 |
|
|
Adjustments Due to Adoption of ASC 842 |
|
|
Balance as of April 1, 2019 |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
25,871 |
|
|
$ |
(939 |
) |
|
$ |
24,932 |
|
Property and equipment, net |
|
|
94,202 |
|
|
|
(30,963 |
) |
|
|
63,239 |
|
Operating lease right-of-use assets |
|
|
— |
|
|
|
141,280 |
|
|
|
141,280 |
|
Other assets |
|
|
5,156 |
|
|
|
(2,566 |
) |
|
|
2,590 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
44,309 |
|
|
|
(3,248 |
) |
|
|
41,061 |
|
Current portion of operating lease liabilities |
|
|
— |
|
|
|
27,611 |
|
|
|
27,611 |
|
Construction financing lease obligations |
|
|
36,650 |
|
|
|
(36,650 |
) |
|
|
- |
|
Operating lease liabilities |
|
|
— |
|
|
|
127,119 |
|
|
|
127,119 |
|
Other non-current liabilities |
|
|
15,581 |
|
|
|
(10,192 |
) |
|
|
5,389 |
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(83,632 |
) |
|
|
2,172 |
|
|
|
(81,460 |
) |
86
The components of lease expense were as follows:
|
|
Year ended March 31, |
|
|
|
|
2020 |
|
|
Short-term lease cost |
|
$ |
308 |
|
Variable lease cost |
|
|
4,144 |
|
Operating lease cost |
|
|
37,906 |
|
Finance lease cost: |
|
|
|
|
Amortization of lease assets |
|
|
1,179 |
|
Interest on lease liabilities |
|
|
93 |
|
Total finance lease cost |
|
$ |
1,272 |
|
Supplemental cash flow information related to leases was as follows:
Weighted-average remaining lease term and discount rate:
|
|
As of March 31, |
|
|
|
|
2020 |
|
|
Weighted-average remaining lease term (in years) |
|
|
|
|
Operating leases |
|
|
6.46 |
|
Finance leases |
|
|
1.31 |
|
Weighted-average discount rate |
|
|
|
|
Operating leases |
|
|
4.74 |
% |
Finance leases |
|
|
4.83 |
% |
Maturities of lease liabilities as of March 31, 2020 were as follows:
Year Ending March 31, |
|
Operating Leases |
|
|
Finance Leases |
|
||
2021 |
|
$ |
36,231 |
|
|
$ |
1,102 |
|
2022 |
|
|
27,653 |
|
|
|
326 |
|
2023 |
|
|
21,291 |
|
|
|
— |
|
2024 |
|
|
14,741 |
|
|
|
— |
|
2025 |
|
|
14,254 |
|
|
|
— |
|
Thereafter |
|
|
43,516 |
|
|
|
— |
|
Total lease payments |
|
|
157,686 |
|
|
|
1,428 |
|
Less: imputed interest |
|
|
(21,986 |
) |
|
|
(47 |
) |
Total lease liabilities |
|
$ |
135,700 |
|
|
$ |
1,381 |
|
As of March 31, 2020, the Company had no additional operating or finance leases that have not yet commenced.
87
Rent expense related to the Company’s office facilities was $15.3 million, $5.3 million and $4.8 million for the years ended March 31, 2020, 2019 and 2018, respectively.
As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and under the previous lease accounting standard, future minimum payments for capital leases, facility operating leases (including Lexington MA – U.S. build-to-suit lease) and data center operating leases as of March 31, 2019 were as follows:
Year Ending March 31, |
|
Capital Leases |
|
|
Facility Leases |
|
|
Data Centers |
|
|||
2020 |
|
$ |
918 |
|
|
$ |
10,649 |
|
|
$ |
21,216 |
|
2021 |
|
|
1,102 |
|
|
|
15,186 |
|
|
|
17,427 |
|
2022 |
|
|
326 |
|
|
|
14,111 |
|
|
|
13,010 |
|
2023 |
|
|
— |
|
|
|
13,825 |
|
|
|
2,774 |
|
2024 |
|
|
— |
|
|
|
13,686 |
|
|
|
356 |
|
Thereafter |
|
|
— |
|
|
|
59,502 |
|
|
|
— |
|
Total minimum lease payments |
|
|
2,346 |
|
|
$ |
126,959 |
|
|
$ |
54,783 |
|
Less: Amount representing interest |
|
|
(121 |
) |
|
|
|
|
|
|
|
|
Present value of capital lease obligations |
|
|
2,225 |
|
|
|
|
|
|
|
|
|
Less: Current portion |
|
|
(844 |
) |
|
|
|
|
|
|
|
|
Long-term portion of capital lease obligations |
|
$ |
1,381 |
|
|
|
|
|
|
|
|
|
Lexington, MA - U.S. Headquarters
Prior to the adoption of ASU 2016-02, the Company established assets and liabilities for the estimated construction costs incurred under certain lease arrangements where it was considered the owner for accounting purposes only, or build-to-suit leases, to the extent it was involved in the construction of structural improvements or took construction risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, the Company assessed whether these arrangements qualified for sales recognition under the sale-leaseback accounting guidance.
In February 2017, the Company entered into a lease agreement for a new U.S. headquarters located in a building (the Building) under construction at 191 Spring Street, Lexington, Massachusetts (191 Spring Lease) and determined that it would account for the 191 Spring Lease as a build-to-suit lease as of March 31, 2017. In the year ended March 2018, the construction of the Building was substantially completed. The Company concluded that it did not meet the sale-leaseback criteria and the Company continued to be the deemed owner of the building for accounting purposes. Upon the adoption of ASU 2016-02, the Company derecognized the build-to-suit asset and related liability with the difference recorded to accumulated deficit and recorded an operating lease right-of-use asset and operating lease liability on the condensed consolidated balance sheet for the U.S. headquarters.
10. Debt
In July 2018, the Company entered into that certain credit agreement (the Credit Agreement), dated as of July 23, 2018 by and among the Company, certain of the Company’s subsidiaries party thereto, as guarantors, certain financial institutions party thereto from time to time, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the Administrative Agent). The Credit Agreement provided the Company with a $100.0 million senior secured term loan (the Term Loan) and a $50.0 million senior secured revolving credit facility (the Revolving Facility, and together with the Term Loan, the Credit Facility). Interest under the Credit Facility accrues at a rate between LIBOR plus 1.375% and LIBOR plus 1.875%, based on the Company’s ratio of indebtedness to earnings before interest, taxes, depreciation, amortization and certain other adjustments (Consolidated EBITDA). Based on this ratio, the effective interest rate as of March 31, 2020 and 2019 under the Credit Facility is LIBOR plus 1.375% and 1.625%, respectively. The term of the Credit Facility is five years, maturing on July 23, 2023. At the time the Company entered into the Credit Agreement, there was no outstanding debt.
The Company was in compliance with all covenants as of March 31, 2020 and 2019.
The Company allocated debt issuance costs for the Credit Facility on a pro-rata basis between the Term Loan and Revolving Facility. The debt issuance costs on the Term Loan are recorded as a reduction of debt and are amortized and recognized as additional interest expense over the life of the debt instrument using the effective interest method. The debt issuance costs on the Revolving Facility are recorded in other assets and are amortized and recognized as additional interest expense over the life of the Revolving Facility on a straight-line basis. As of March 31, 2020 and 2019, the balance of debt issuance costs recorded as a reduction of debt was $0.9 million and $1.3 million, respectively and the balance of debt issuance costs recorded in other assets was $0.5 million and $0.6 million, respectively. Total interest expense under the Credit Facility for the years ended March 31, 2020 and 2019 was $3.9 million and $3.0 million, respectively.
88
As of March 31, 2020 and 2019, the Company had $93.8 million and $98.1 million, respectively outstanding on the Term Loan and had no outstanding borrowings under the Revolving Facility. As of March 31, 2020 and 2019, total availability under the Revolving Facility was reduced by outstanding letters of credit of $2.0 million and $3.9 million, respectively. As of March 31, 2020 and 2019, total availability under the Revolving Facility was $48.0 million and $46.1 million, respectively. Future minimum principal payment obligations under the Term Loan are as follows:
Year Ending March 31, |
|
Debt |
|
|
2021 |
|
|
6,875 |
|
2022 |
|
|
9,375 |
|
2023 |
|
|
10,000 |
|
2024 |
|
|
67,500 |
|
Total minimum debt payments |
|
|
93,750 |
|
Less: Debt issuance costs |
|
|
(919 |
) |
Less: Current portion of long-term debt |
|
|
(6,573 |
) |
Long-term debt |
|
$ |
86,258 |
|
11. Related Party Transactions
Certain of the Company’s shareholders and certain companies affiliated with our directors and executive officers were also customers of the Company during the periods included in the consolidated financial statements. Revenue recognized during the years ended March 31, 2020, 2019 and 2018 and accounts receivable outstanding as of March 31, 2020 and 2019 related to these transactions were not material.
12. Shareholders’ Equity
The following ordinary shares were reserved for future issuance under the 2015 Plan, Historical Plans and ESPP (as defined below in Note 13):
|
|
As of March 31, |
|
|
|
|
2020 |
|
|
Options outstanding under share option plans |
|
|
6,271,111 |
|
Unvested RSUs |
|
|
1,276,840 |
|
Options and awards available for future grant under the 2015 Plan |
|
|
9,992,607 |
|
Shares reserved for issuance under ESPP |
|
|
748,903 |
|
Total authorized ordinary shares reserved for future issuance |
|
|
18,289,461 |
|
13. Share-Based Compensation
For the years ended March 31, 2020, 2019 and 2018, all grants of share-based awards have been made under the Mimecast Limited 2015 Share Option and Incentive Plan (the 2015 Plan) and the 2015 Employee Share Purchase Plan (the ESPP). Additionally, the Company has three pre-IPO share-based compensation plans including the Mimecast Limited 2007 Key Employee Share Option Plan (the 2007 Plan), the Mimecast Limited 2010 EMI Share Option Scheme (the 2010 Plan), and the Mimecast Limited Approved Share Option Plan (the Approved Plan) (the 2007 Plan, the 2010 Plan and the Approved Plan, collectively, the Historical Plans). Subsequent to November 19, 2015, the IPO date, no further grants under the Historical Plans were permitted.
The 2015 Plan allows the compensation committee of the board of directors to make equity-based incentive awards to our officers, employees, non-employee directors and consultants. Initially a total of 5.5 million ordinary shares were reserved for the issuance of awards under the 2015 Plan. This number is subject to adjustment in the event of a share split, share dividend or other change in our capitalization. The 2015 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1st by 5% of the outstanding number of ordinary shares on the immediately preceding December 31 or such lesser number of shares as determined by the board of directors.
Under the 2015 Plan, the share option price may not be less than the fair market value of the ordinary shares on the date of grant and the term of each share option may not exceed 10 years from the date of grant. Share options typically vest over 4 years, but vesting provisions can vary based on the discretion of the board of directors. The Company settles share option exercises and RSU releases under the 2015 Plan through newly issued shares. The Company’s ordinary shares underlying any awards that are forfeited,
89
canceled, withheld upon exercise of an option, or settlement of an award to cover the exercise price or tax withholding, or otherwise terminated other than by exercise will be added back to the shares available for issuance under the 2015 Plan.
Initially, a total of 1.1 million shares of the Company's ordinary shares were reserved for future issuance under the ESPP. This number is subject to change in the event of a share split, share dividend or other change in capitalization. The ESPP may be terminated or amended by the board of directors at any time.
The ESPP permits eligible employees to purchase shares by authorizing payroll deductions from 1% to 10% of his or her eligible compensation during each six-month offering period, which starts on the first business day in January and July each year. Unless an employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares on the last day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or last business day of the offering period, whichever is lower.
Share-based compensation expense recognized under the 2015 Plan, Historical Plans and ESPP in the accompanying consolidated statements of operations was as follows:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Cost of revenue |
|
$ |
3,445 |
|
|
$ |
1,684 |
|
|
$ |
1,053 |
|
Research and development |
|
|
10,900 |
|
|
|
6,199 |
|
|
|
2,555 |
|
Sales and marketing |
|
|
13,141 |
|
|
|
7,856 |
|
|
|
4,477 |
|
General and administrative |
|
|
12,058 |
|
|
|
10,215 |
|
|
|
3,649 |
|
Total share-based compensation expense |
|
$ |
39,544 |
|
|
$ |
25,954 |
|
|
$ |
11,734 |
|
In certain situations, the board of directors has approved modifications to employee share option agreements, including acceleration of vesting or the removal of exercise restrictions for share options for which the service-based vesting has been satisfied, which resulted in additional share-based compensation expense. The total modification expense recognized in the years ended March 31, 2020, 2019 and 2018 was $0.1 million, $3.2 million and $0.5 million, respectively.
Share Options
Share option activity under the 2015 Plan and Historical Plans for the year ended March 31, 2020 was as follows:
|
|
Number of Awards |
|
|
Weighted Average Exercise Price (1) |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding as of March 31, 2019 |
|
|
6,208,964 |
|
|
$ |
23.47 |
|
|
|
7.58 |
|
|
$ |
148,313 |
|
Options granted |
|
|
2,016,318 |
|
|
$ |
46.29 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(1,359,903 |
) |
|
$ |
14.81 |
|
|
|
|
|
|
|
|
|
Options forfeited and cancelled |
|
|
(594,268 |
) |
|
$ |
35.39 |
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2020 |
|
|
6,271,111 |
|
|
$ |
31.61 |
|
|
|
7.55 |
|
|
$ |
47,621 |
|
Exercisable as of March 31, 2020 |
|
|
2,602,224 |
|
|
$ |
20.43 |
|
|
|
6.24 |
|
|
$ |
40,224 |
|
(1) |
Certain of the Company’s option grants have an exercise price denominated in British pounds. The weighted-average exercise price at the end of each reporting period was translated into U.S. dollars using the exchange rate at the end of the period. The weighted-average exercise price for the options granted, exercised, forfeited and cancelled was translated into U.S. dollars using the exchange rate at the applicable date of grant, exercise, forfeiture or cancellation, as appropriate. |
The total intrinsic value of options exercised for the years ended March 31, 2020, 2019 and 2018 was $40.0 million, $66.4 million and $74.2 million, respectively. Total cash proceeds from option exercises for the years ended March 31, 2020, 2019 and 2018 were $20.1 million, $21.4 million and $15.6 million, respectively.
As of March 31, 2020, there was approximately $53.7 million of unrecognized share-based compensation related to unvested share-based awards subject to service-based vesting conditions, which is expected to be recognized over a weighted-average period of 2.68 years.
90
ESPP
In the years ended March 31, 2020, 2019 and 2018, the Company issued 156 thousand, 130 thousand and 64 thousand shares, respectively, in connection with its ESPP offerings and received cash proceeds of $4.9 million, $3.3 million and $1.4 million, respectively. In the years ended March 31, 2020, 2019 and 2018, the Company recognized $1.8 million, $1.3 million and $0.7 million of share-based compensation expense under the ESPP, respectively.
RSUs
The Company grants RSUs to its non-employee directors and its employees. Non-employee directors receive an initial RSU grant upon joining the board of directors that vests over three years and an annual grant each year thereafter that vests fully on the one-year anniversary of the grant date. RSUs granted to employees generally vest in four equal annual installments.
RSU activity under the 2015 Plan for the year ended March 31, 2020 was as follows:
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Intrinsic Value (in thousands) (1) |
|
|||
Unvested RSUs as of March 31, 2019 |
|
|
549,853 |
|
|
$ |
37.15 |
|
|
$ |
26,036 |
|
RSUs granted |
|
|
1,015,290 |
|
|
$ |
46.17 |
|
|
|
|
|
RSUs vested |
|
|
(161,450 |
) |
|
$ |
37.04 |
|
|
|
|
|
RSUs forfeited |
|
|
(126,853 |
) |
|
$ |
44.08 |
|
|
|
|
|
Unvested RSUs as of March 31, 2020 |
|
|
1,276,840 |
|
|
$ |
43.64 |
|
|
$ |
45,072 |
|
(1) |
As of March 31, 2020 and 2019, the intrinsic value of unvested shares was calculated based on the closing price of the Company’s ordinary shares on the NASDAQ Global Select Market on March 31, 2020 and 2019, respectively, multiplied by the number of unvested RSUs. |
As of March 31, 2020, there was approximately $43.5 million of unrecognized share-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.97 years.
14. Commitments and Contingencies
Litigation
During fiscal 2019 and 2020, the Company engaged in discussions with a non-practicing patent entity (NPE) regarding the entity’s patented technology and allegations regarding the Company’s past infringement of that technology. On September 30, 2019, the Company entered into confidential global patent license agreements with the NPE and certain of its affiliates that provided patent licenses to the Company related to the NPE’s global patent portfolio, resolved all claims of past infringement and provided mutual covenants not to sue for a certain number of years. Under the terms of the patent license agreements, the Company made an aggregate payment of $5.9 million to the NPE. The Company evaluated the transaction as a multiple-element arrangement and allocated the payment of $5.9 million to each identifiable element using its relative fair value. Based on estimates of fair value, the Company determined that the primary benefit of the arrangement is the avoidance of litigation costs and the release of any potential past infringement claims, with a portion of the value attributable to future use or benefit of the global patent license. In the fiscal years ended March 31, 2020 and 2019, the Company recorded expense of $2.7 million and $1.0 million, respectively within general and administrative expenses. The remaining $2.2 million is being amortized over its expected useful life of 3.5 years.
On September 10, 2019, ZapFraud, Inc. (ZapFraud), filed a complaint in the U.S. District Court for the District of Delaware against the Company’s wholly owned subsidiaries, Mimecast North America, Inc., Mimecast Services Limited and Mimecast UK Limited. The complaint alleges that certain elements of the Company’s email security technology infringe a patent held by ZapFraud. ZapFraud seeks an award for damages in an unspecified amount, attorney’s fees and injunctive relief. On November 22, 2019, the Company filed a Motion to Dismiss for Failure to State a Claim. The Company has requested that a hearing be held on this motion, but no court date has been set. On April 24, 2020, ZapFraud amended its complaint by alleging that the Company’s email security technology infringes an additional patent that was recently issued to ZapFraud. The Company plans to amend its Motion to Dismiss for Failure to State a Claim to address this additional patent. This litigation is in its very early stages. As a result, neither the ultimate outcome of this litigation nor an estimate of a probable loss or any reasonably possible losses can be assessed at this time. The Company intends to defend the lawsuit vigorously. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and potential settlement costs, diversion of management resources and other factors.
91
From time to time, the Company may be involved in legal proceedings and subject to claims in the ordinary course of business. Although the results of these proceedings and claims cannot be predicted with certainty, the Company does not believe the ultimate cost to resolve these matters would individually, or taken together, have a material adverse effect on the Company’s business, operating results, cash flows or financial condition. Regardless of the outcome, such proceedings can have an adverse impact on the Company because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Except as described above, the Company was not subject to any material legal proceedings during the years ended March 31, 2020, 2019 and 2018, and, to the best of its knowledge, except as described above, no material legal proceedings are currently pending or threatened.
Indemnification
The Company typically enters into indemnification agreements with customers in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses suffered or incurred as a result of claims of intellectual property infringement. These indemnification agreements are provisions of the applicable customer agreement. Based on when clients first sign an agreement for the Company’s service, the maximum potential amount of future payments the Company could be required to make under certain of these indemnification agreements is unlimited. Based on historical experience and information known as of March 31, 2020, the Company has not incurred any costs for the above indemnities.
In certain circumstances, the Company warrants that its services will perform in all material respects in accordance with its standard published specification documentation in effect at the time of delivery of the services to the customer for the term of the agreement. To date, the Company has not incurred significant expense under its warranties and, as a result, the Company believes the estimated fair value of these agreements is immaterial.
15. Employee Benefit Plans
The Company maintains a defined contribution savings plan under Section 401(k) of the U.S. Internal Revenue Code of 1986 (the 401(k) Plan), covering all U.S. employees who satisfy certain eligibility requirements. The 401(k) Plan allows each participant to defer a percentage of their eligible compensation subject to applicable annual limits pursuant to the limits established by the Internal Revenue Service. The Company’s matching contributions were $1.6 million and $1.2 million for the year ended March 31, 2020 and 2019, respectively. For the year ended March 31, 2018 the Company did not make any matching or profit-sharing contributions.
The Company contributes to a defined contribution savings plan for its employees in the United Kingdom who satisfy certain eligibility requirements. The plan allows each participant to defer a percentage of their compensation and the Company contributes an additional 3.5% of all wages for those employees in the scheme on a monthly basis. The Company’s contributions were $1.9 million, $1.5 million and $0.5 million for the years ended March 31, 2020, 2019, and 2018, respectively.
Beginning in fiscal year 2020, the Company contributes to defined contribution savings plans for its employees in South Africa, Germany, and the Netherlands, who satisfy certain eligibility requirements. The plans allow each participant to defer a percentage of their compensation and the Company contributes an additional 5%, 3%, and 3%, respectively of all wages for those employees in the scheme on a monthly basis. The Company’s contributions were $0.6 million for the year ended March 31, 2020.
16. Segment and Geographic Information
Disclosure requirements about segments of an enterprise and related information establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to shareholders. Operating segments are defined as components of an enterprise about which separate discrete financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one operating segment.
92
Geographic Data
The Company allocates, for the purpose of geographic data reporting, its revenue based upon the location of the contracting subsidiary. Total revenue by geographic area was as follows:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
United States |
|
$ |
219,423 |
|
|
$ |
169,286 |
|
|
$ |
128,503 |
|
United Kingdom |
|
|
123,620 |
|
|
|
103,900 |
|
|
|
81,720 |
|
South Africa |
|
|
51,549 |
|
|
|
46,275 |
|
|
|
39,425 |
|
Other |
|
|
32,371 |
|
|
|
20,916 |
|
|
|
12,249 |
|
Total revenue |
|
$ |
426,963 |
|
|
$ |
340,377 |
|
|
$ |
261,897 |
|
Property and equipment, net by geographic location consisted of the following:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
United States (1) |
|
$ |
39,193 |
|
|
$ |
62,455 |
|
United Kingdom |
|
|
29,644 |
|
|
|
17,402 |
|
South Africa |
|
|
7,093 |
|
|
|
6,170 |
|
Other |
|
|
9,248 |
|
|
|
8,175 |
|
Total |
|
$ |
85,178 |
|
|
$ |
94,202 |
|
(1) |
Includes construction costs capitalized under financing lease obligations related to the Company’s U.S. build-to-suit facility of $41.8 million as of March 31, 2019. |
17. Income Taxes
Income (loss) before income taxes consists of the following:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
United Kingdom |
|
$ |
(20,528 |
) |
|
$ |
(4,626 |
) |
|
$ |
(15,939 |
) |
Foreign |
|
|
20,687 |
|
|
|
(374 |
) |
|
|
6,258 |
|
Income (loss) before income taxes |
|
$ |
159 |
|
|
$ |
(5,000 |
) |
|
$ |
(9,681 |
) |
The provision for income taxes in the accompanying consolidated financial statements is comprised of the following:
|
|
As of March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Foreign |
|
|
2,939 |
|
|
|
3,493 |
|
|
|
2,597 |
|
Total current tax expense |
|
|
2,939 |
|
|
|
3,493 |
|
|
|
2,597 |
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
— |
|
|
|
(578 |
) |
|
|
— |
|
Foreign |
|
|
(580 |
) |
|
|
(914 |
) |
|
|
108 |
|
Total deferred tax (benefit) expense |
|
|
(580 |
) |
|
|
(1,492 |
) |
|
|
108 |
|
Total provision for income taxes |
|
$ |
2,359 |
|
|
$ |
2,001 |
|
|
$ |
2,705 |
|
93
The reconciliation of the United Kingdom statutory tax rate to the Company’s effective tax rate included in the accompanying consolidated statements of operations is as follows:
|
|
Year ended March 31, |
|
|||||||||
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|||
Tax at statutory rate |
|
|
19.0 |
% |
|
|
19.0 |
% |
|
|
19.0 |
% |
U.S. state taxes, net of federal |
|
|
558.0 |
|
|
|
31.1 |
|
|
|
14.1 |
|
Foreign rate differential |
|
|
291.5 |
|
|
|
26.3 |
|
|
|
36.8 |
|
Meals and entertainment |
|
|
432.6 |
|
|
|
(11.4 |
) |
|
|
(3.1 |
) |
Branch (income) loss |
|
|
(69.9 |
) |
|
|
(0.6 |
) |
|
|
0.4 |
|
Share-based compensation |
|
|
(2,341.9 |
) |
|
|
172.3 |
|
|
|
105.3 |
|
Tax credits |
|
|
(375.5 |
) |
|
|
7.7 |
|
|
|
8.1 |
|
Unremitted earnings |
|
|
101.3 |
|
|
|
(3.8 |
) |
|
|
(1.2 |
) |
Change in valuation allowance |
|
|
(1,456.8 |
) |
|
|
(249.9 |
) |
|
|
(110.7 |
) |
Deferred tax true-ups |
|
|
116.2 |
|
|
|
(3.5 |
) |
|
|
8.4 |
|
Tax reserves |
|
|
3,147.4 |
|
|
|
(4.9 |
) |
|
|
(21.5 |
) |
Provision to return |
|
|
37.6 |
|
|
|
(0.1 |
) |
|
|
0.4 |
|
Withholding taxes |
|
|
323.5 |
|
|
|
(2.6 |
) |
|
|
(3.5 |
) |
Non-deductible expenses |
|
|
197.7 |
|
|
|
(5.2 |
) |
|
|
(2.4 |
) |
Deferred tax rate change |
|
|
473.1 |
|
|
|
(6.3 |
) |
|
|
(77.8 |
) |
Acquisition-related costs |
|
|
91.7 |
|
|
|
(7.6 |
) |
|
|
— |
|
Foreign exchange |
|
|
(59.5 |
) |
|
|
— |
|
|
|
— |
|
Other |
|
|
(2.4 |
) |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
Effective Tax Rate |
|
|
1,483.6 |
% |
|
|
(40.0 |
)% |
|
|
(27.9 |
)% |
Although the Company’s parent entity is organized under Jersey law, our affairs are, and are intended to be, managed and controlled in the United Kingdom for tax purposes. Therefore, the Company is resident in the United Kingdom for tax purposes. The Group’s parent entity is domiciled in the United Kingdom and its earnings are subject to 19% statutory tax rates for the years ended March 31, 2020, 2019 and 2018, respectively. The Company’s effective tax rate differs from the statutory rate each year primarily due to windfall tax benefits on equity award exercises, the valuation allowance maintained against the Company’s net deferred tax assets, the jurisdictional earnings mix, tax credits, withholding taxes, tax reserves, and other permanent differences primarily related to non-deductible expenses.
94
Deferred tax assets and liabilities reflect the net tax effects of net operating loss carryovers and the temporary differences between the assets and liabilities carrying value for financial reporting and the amounts used for income tax purposes. The Company’s significant deferred tax assets (liabilities) components are as follows:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Deferred tax assets: |
|
|
|
|||||
Net operating loss carryforwards |
|
$ |
30,879 |
|
|
$ |
35,120 |
|
Share-based compensation |
|
|
9,501 |
|
|
|
5,687 |
|
Deferred revenue |
|
|
2,315 |
|
|
|
1,761 |
|
Fixed assets |
|
|
4,718 |
|
|
|
4,187 |
|
Lease liability |
|
|
30,890 |
|
|
|
11,748 |
|
Accrued compensation |
|
|
1,786 |
|
|
|
1,211 |
|
Deferred rent |
|
|
— |
|
|
|
320 |
|
Income tax credits |
|
|
2,311 |
|
|
|
1,833 |
|
Other |
|
|
2,042 |
|
|
|
1,648 |
|
Gross deferred tax assets |
|
|
84,442 |
|
|
|
63,515 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Fixed assets |
|
|
(7,414 |
) |
|
|
(13,855 |
) |
Unremitted earnings |
|
|
(362 |
) |
|
|
(320 |
) |
Intangible assets |
|
|
(6,453 |
) |
|
|
(4,818 |
) |
Capitalized commissions |
|
|
(9,751 |
) |
|
|
(7,606 |
) |
Right-of-use asset |
|
|
(26,498 |
) |
|
|
— |
|
Other |
|
|
(2,145 |
) |
|
|
(606 |
) |
Gross deferred tax liabilities |
|
|
(52,623 |
) |
|
|
(27,205 |
) |
Valuation allowance |
|
|
(34,224 |
) |
|
|
(38,318 |
) |
Deferred tax liabilities, net |
|
$ |
(2,405 |
) |
|
$ |
(2,008 |
) |
In assessing the ability to realize the Company’s net deferred tax assets, management considers various factors including taxable income in carryback years, future reversals of existing taxable temporary differences, tax planning strategies, and future taxable income projections to determine whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based on the negative evidence, including the worldwide cumulative losses that the Company has incurred, the Company has determined that the uncertainty regarding realizing its deferred tax assets is sufficient to warrant the need for a full valuation allowance against its worldwide net deferred tax assets. The $4.1 million net decrease in the valuation allowance from 2019 to 2020 is primarily due to the operating results of our entities against which a valuation allowance is maintained as well as the impact of share-based compensation including windfall tax deductions.
During the fourth quarter of fiscal 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company evaluated the provisions of the CARES Act and does not anticipate the associated impacts, if any, will have a material effect on the Company’s provision for income taxes for the year ended March 31, 2020.
As of March 31, 2020, the Company had U.K. net operating loss carryforwards of approximately $70.2 million that do not expire. As of March 31, 2020, the Company had U.S. federal net operating loss carryforwards of approximately $69.4 million. U.S. federal net operating loss carryforwards generated through March 31, 2018 of approximately $51.4 million expire at various dates through 2038, and U.S. federal net operating loss carryforwards generated in the tax years beginning after March 31, 2018 of approximately $18.0 million do not expire. As of March 31, 2020, the Company had U.S. state net operating loss carryforwards of approximately $33.9 million, substantially all of which expire at various dates through 2040. As of March 31, 2020, the Company had Australian net operating loss carryforwards of approximately $22.0 million that do not expire. As of March 31, 2020, the Company had German net operating loss carryforwards of approximately $9.9 million that do not expire. As of March 31, 2020, the Company had Israeli net operating loss carryforwards of approximately $9.7 million that do not expire. As of March 31, 2020, the Company had Dutch net operating loss carryforwards of approximately $0.8 million that expire at various dates from 2026 through 2028. As of March 31, 2020, the Company had a U.K. income tax credit carryforward of $1.4 million that does not expire. As of March 31, 2020, the Company had an Israeli income tax credit carryforward of $0.9 million that expire at various dates from 2023 through 2025.
95
Under Section 382 of the U.S. Internal Revenue Code, if a corporation undergoes an ownership change, the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change income and taxes may be limited. In general, an ownership change occurs if there is a 50 percent cumulative change in ownership of the Company over a rolling three-year period. Similar rules may apply under U.S. state tax laws. The Company believes that it has experienced an ownership change in the past and may experience ownership changes in the future resulting from future transactions in our share capital, some of which may be outside the Company’s control. The Company’s ability to utilize its net operating loss carryforwards or other tax attributes to offset U.S. federal and state taxable income in the future may be subject to future limitations. The most recent analysis of the Company’s historical ownership changes was completed through March 31, 2020. Based on the analysis, the Company does not anticipate a significant limitation on the utilization of the Company’s tax attributes.
As of March 31, 2020 and 2019, the Company had liabilities for uncertain tax positions of $10.4 million and $6.0 million, respectively, none of which, if recognized, would materially impact the Company’s effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
Year ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Beginning balance |
|
$ |
6,016 |
|
|
$ |
6,164 |
|
Additions based on tax positions related to current year |
|
|
535 |
|
|
|
164 |
|
Additions for tax positions of prior years |
|
|
4,235 |
|
|
|
231 |
|
Reductions due to change in foreign exchange rate |
|
|
(431 |
) |
|
|
(301 |
) |
Expiration of statutes of limitation |
|
|
— |
|
|
|
(165 |
) |
Reductions due to settlements with tax authorities |
|
|
— |
|
|
|
(77 |
) |
Ending balance |
|
$ |
10,355 |
|
|
$ |
6,016 |
|
Interest and penalty charges, if any, related to uncertain tax positions are classified as income tax expense in the accompanying consolidated statements of operations. As of March 31, 2020 and 2019, the Company had immaterial accrued interest or penalties related to uncertain tax positions.
The Company is subject to taxation in the United Kingdom and several foreign jurisdictions. As of March 31, 2020, the Company is no longer subject to examination by taxing authorities in the United Kingdom for years prior to March 31, 2019. The significant foreign jurisdictions in which the Company operates are no longer subject to examination by taxing authorities for years prior to March 31, 2017. In addition, net operating loss carryforwards in certain jurisdictions may be subject to adjustments by taxing authorities in future years when they are utilized.
The Company had approximately $47.8 million of unremitted foreign earnings as of March 31, 2020. Income taxes have been provided on approximately $14.2 million of the unremitted foreign earnings. Income taxes have not been provided on approximately $33.5 million of unremitted foreign earnings because they are considered to be indefinitely reinvested. The tax payable on the earnings that are indefinitely reinvested would be immaterial.
18. Subsequent Events
Share Option and RSU Grants
On April 1, 2020, the Company granted approximately 0.8 million share options and 1.6 million RSUs to its employees as part of its annual share-based award grant. The grant date fair value per share for share options and RSUs was $14.29 and $33.38, respectively.
96
19. Quarterly Results of Operations Data (unaudited)
The following tables set forth our unaudited quarterly consolidated statements of operations for each of the eight quarters in the period ended March 31, 2020. The Company has prepared the quarterly consolidated statements of operations data on a basis consistent with the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results to be expected for any future period.
|
|
Quarter ended |
|
|||||||||||||||||||||||||||||
|
|
Mar 31, |
|
|
Dec 31, |
|
|
Sep 30, |
|
|
Jun 30, |
|
|
Mar 31, |
|
|
Dec 31, |
|
|
Sep 30, |
|
|
Jun 30, |
|
||||||||
|
|
2020 |
|
|
2019 |
|
|
2019 |
|
|
2019 |
|
|
2019 |
|
|
2018 |
|
|
2018 |
|
|
2018 |
|
||||||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||||||||||||||||||
Revenue |
|
$ |
114,217 |
|
|
$ |
110,158 |
|
|
$ |
103,357 |
|
|
$ |
99,231 |
|
|
$ |
92,193 |
|
|
$ |
87,611 |
|
|
$ |
82,169 |
|
|
$ |
78,404 |
|
Gross profit |
|
|
84,891 |
|
|
|
81,703 |
|
|
|
77,223 |
|
|
|
73,764 |
|
|
|
67,491 |
|
|
|
64,353 |
|
|
|
60,231 |
|
|
|
57,428 |
|
Income (loss) from operations |
|
|
5,125 |
|
|
|
1,629 |
|
|
|
(18 |
) |
|
|
(4,438 |
) |
|
|
207 |
|
|
|
1,572 |
|
|
|
(909 |
) |
|
|
(2,089 |
) |
Net income (loss) |
|
|
2,525 |
|
|
|
206 |
|
|
|
(921 |
) |
|
|
(4,010 |
) |
|
|
(1,930 |
) |
|
|
458 |
|
|
|
(2,058 |
) |
|
|
(3,471 |
) |
Net income (loss) per ordinary share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
Diluted |
|
$ |
0.04 |
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.06 |
) |
Weighted-average number of ordinary shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
62,636 |
|
|
|
62,189 |
|
|
|
61,829 |
|
|
|
61,444 |
|
|
|
60,733 |
|
|
|
60,141 |
|
|
|
59,800 |
|
|
|
59,175 |
|
Diluted |
|
|
64,382 |
|
|
|
63,996 |
|
|
|
61,829 |
|
|
|
61,444 |
|
|
|
60,733 |
|
|
|
62,537 |
|
|
|
59,800 |
|
|
|
59,175 |
|
97
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2020 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework (2013). As permitted by the SEC, companies are allowed to exclude acquisitions from their first assessment of internal control over financial reporting following the date of acquisition. Management's assessment of the effectiveness of the Company's internal control over financial reporting excluded certain controls within certain entities acquired in fiscal 2020, Segasec Labs Ltd. and DMARC Analyzer B.V., which are listed in Note 6 of the Consolidated Financial Statements. The financial statement line items related to excluded controls represented approximately 0.2% of the Company’s total assets as of March 31, 2020 and approximately 0.1% of the Company’s revenue for the year ended March 31, 2020. Based on this assessment and those criteria, management concluded that our internal control over financial reporting was effective as of March 31, 2020.
The effectiveness of our internal control over financial reporting as of March 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the global COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.
98
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Mimecast Limited
Opinion on Internal Control over Financial Reporting
We have audited Mimecast Limited’s internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Mimecast Limited (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of DMARC Analyzer and Segasec Labs Ltd., which are included in the 2020 consolidated financial statements of the Company and constituted 0.2% of total assets as of March 31, 2020 and 0.1% of revenue for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of DMARC Analyzer and Segasec Labs Ltd.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and our report dated May 22, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 22, 2020
99
Item 9B. Other Information.
None.
100
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 will be set forth in the Definitive Proxy Statement for our 2020 Annual General Meeting of Shareholders of Mimecast Limited, or the Proxy Statement, which will be filed with the SEC pursuant to Regulation 14A not later than 120 days after March 31, 2020, and such information is incorporated into this Annual Report on Form 10-K by reference.
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of our Code of Business Conduct and Ethics is posted under Corporate Governance in the Investor Relations section of our website, www.mimecast.com. We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Current Report on Form 8-K, Item 5.05.
Item 11. Executive Compensation.
The information required by this Item 11 will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12, including the information required by Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” related to our equity plans, will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 will be set forth in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.
101
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) |
Documents Filed as Part of this Annual Report on Form 10-K |
|
(1) |
Financial Statements (included in Item 8 of this Annual Report on Form 10-K): |
|
(2) |
Financial Statement Schedules |
Financial statement schedules are omitted as they are either not required or the information is otherwise included in the consolidated financial statements.
|
(3) |
Exhibits |
The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index on the following page.
102
EXHIBIT INDEX
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Description |
|
Schedule/ Form |
|
File Number |
|
Exhibit Number |
|
File Date (mm/dd/yyyy) |
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
8-K |
|
001-37637 |
|
2.1 |
|
07/31/2018 |
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|
|
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|
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|
|
3.1 |
|
|
F-1/A |
|
333-207454 |
|
3.2 |
|
11/06/2015 |
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|
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|
|
4.1 |
|
Specimen certificate evidencing ordinary shares of the Registrant |
|
F-1/A |
|
333-207454 |
|
4.1 |
|
11/06/2015 |
4.2* |
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10.1 |
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F-1 |
|
333-207454 |
|
10.1 |
|
10/16/2015 |
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|
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10.2# |
|
Mimecast UK 2007 Key Employee Share Option Plan and Form of Share Option Agreement |
|
F-1 |
|
333-207454 |
|
10.6 |
|
10/16/2015 |
|
|
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10.3# |
|
|
F-1 |
|
333-207454 |
|
10.7 |
|
10/16/2015 |
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|
|
10.4# |
|
Mimecast UK Approved Share Option Plan and Form of Share Option Certificate |
|
F-1 |
|
333-207454 |
|
10.8 |
|
10/16/2015 |
|
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|
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|
|
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|
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10.5# |
|
|
F-1/A |
|
333-207454 |
|
10.9 |
|
11/06/2015 |
|
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|
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|
|
|
|
|
|
|
|
10.6# |
|
German Sub-Plan to the Mimecast Limited 2015 Share Option and Incentive Plan |
|
10-K |
|
001-37637 |
|
10.6 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.7# |
|
Form of Agreements under the Mimecast Limited 2015 Share Option and Incentive Plan |
|
10-K |
|
001-37637 |
|
10.7 |
|
05/29/2018 |
|
|
|
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|
|
|
|
10.8*# |
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
10.9# |
|
German Sub-Plan to the Mimecast Limited 2015 Employee Share Purchase Plan |
|
10-K |
|
001-37637 |
|
10.9 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.10 |
|
|
F-1 |
|
333-207454 |
|
10.3 |
|
10/16/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
10.11 |
|
|
20-F |
|
001-37637 |
|
4.9.1 |
|
05/25/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
10.12 |
|
|
10-K |
|
001-37637 |
|
10.15 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.13 |
|
|
20-F |
|
001-37637 |
|
4.11 |
|
05/26/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Description |
|
Schedule/ Form |
|
File Number |
|
Exhibit Number |
|
File Date (mm/dd/yyyy) |
10.14 |
|
|
10-K |
|
001-37637 |
|
10.20 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.15# |
|
|
10-K |
|
001-37637 |
|
10.21 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.16# |
|
Offer Letter dated July 9, 2015 between Mimecast North America, Inc. and Edward Jennings |
|
10-K |
|
001-37637 |
|
10.24 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.17# |
|
Offer Letter dated July 22, 2016 between Mimecast North America, Inc. and Robert P. Nault |
|
10-K |
|
001-37637 |
|
10.25 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.18# |
|
Offer Letter dated October 12, 2017 between Mimecast North America, Inc. and Janet Bishop Levesque |
|
10-K |
|
001-37637 |
|
10.26 |
|
05/29/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.19 |
|
|
8-K |
|
001-37637 |
|
10.1 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.20 |
|
|
8-K |
|
001-37637 |
|
10.2 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.21 |
|
|
8-K |
|
001-37637 |
|
10.3 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.22 |
|
|
8-K |
|
001-37637 |
|
10.4 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.23 |
|
|
8-K |
|
001-37637 |
|
10.5 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.24 |
|
|
8-K |
|
001-37637 |
|
10.6 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Description |
|
Schedule/ Form |
|
File Number |
|
Exhibit Number |
|
File Date (mm/dd/yyyy) |
10.25 |
|
|
8-K |
|
001-37637 |
|
10.7 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.26 |
|
|
8-K |
|
001-37637 |
|
10.8 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.27 |
|
|
8-K |
|
001-37637 |
|
10.9 |
|
07/24/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.28# |
|
Israeli Sub-Plan to the Mimecast Limited 2015 Share Option and Incentive Plan |
|
10-Q |
|
001-37637 |
|
10.39 |
|
11/08/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.29# |
|
Israeli Form of Agreements under the Mimecast Limited 2015 Share Option and Incentive Plan |
|
10-Q |
|
001-37637 |
|
10.40 |
|
11/08/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.30 |
|
|
10-Q |
|
001-37637 |
|
10.41 |
|
11/08/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
10.31 |
|
|
10-Q |
|
001-37637 |
|
10.43 |
|
02/11/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.32# |
|
Offer Letter between Mimecast Limited and Rafe Brown, dated February 7, 2019 |
|
8-K |
|
001-37637 |
|
10.1 |
|
02/11/2019 |
|
|
|
|
|
|
|
|
|
|
|
10.33# |
|
|
8-K |
|
001-37637 |
|
10.1 |
|
03/19/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.34# |
|
Offer Letter between Mimecast Limited and Christina Van Houten, dated March 7, 2018 |
|
10-K |
|
001-37637 |
|
10.38 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
10.35*# |
|
Offer Letter between Mimecast Limited and Karen Anderson, dated October 2018 |
|
10-K |
|
001-37637 |
|
10.39 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
10.36 |
|
|
10-K |
|
001-37637 |
|
10.40 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.37 |
|
|
10-K |
|
001-37637 |
|
10.41 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.38 |
|
|
10-K |
|
001-37637 |
|
10.42 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.39 |
|
|
10-K |
|
001-37637 |
|
10.43 |
|
05/29/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Description |
|
Schedule/ Form |
|
File Number |
|
Exhibit Number |
|
File Date (mm/dd/yyyy) |
10.40*# |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
10.41*# |
|
|
|
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|
10.42*# |
|
|
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|
|
|
|
|
|
|
|
10.43# |
|
|
8-K |
|
001-37637 |
|
10.1 |
|
09/24/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
10.44*# |
|
Offer Letter between Mimecast Limited and Dino DiMarino, dated June 23, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45*# |
|
Offer Letter between Mimecast Services Limited and Heather Bentley, dated October 13, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.46*# |
|
Employment Contract between Mimecast Services Limited and Heather Bentley dated 25 November 2019 |
|
|
|
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|
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|
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|
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|
21.1* |
|
|
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23.1* |
|
Consent of Ernst & Young LLP, Registered Public Accounting Firm |
|
|
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|
31.1* |
|
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31.2* |
|
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32.1@ |
|
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32.2@ |
|
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|
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|
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|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
106
|
|
|
|
Incorporated by Reference |
||||||
Exhibit Number |
|
Description |
|
Schedule/ Form |
|
File Number |
|
Exhibit Number |
|
File Date (mm/dd/yyyy) |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
||||||||
104* |
|
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*) |
* |
Filed herewith. |
@ |
Furnished herewith. The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference. |
# |
Management contract or compensatory plan or arrangement. |
Item 16. Form 10-K Summary.
Not applicable.
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Mimecast Limited |
|
|
|
|
|
Date: May 22, 2020 |
|
By: |
/s/ Peter Bauer |
|
|
|
Peter Bauer |
|
|
|
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Peter Bauer |
|
Chairman and Chief Executive Officer (Principal Executive Officer) |
|
May 22, 2020 |
Peter Bauer |
|
|
|
|
|
|
|
|
|
/s/ Rafeal Brown |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
May 22, 2020 |
Rafeal Brown |
|
|
|
|
|
|
|
|
|
/s/ Aron Ain |
|
Director |
|
May 22, 2020 |
Aron Ain |
|
|
|
|
|
|
|
|
|
/s/ Alpna J. Doshi |
|
Director |
|
May 22, 2020 |
Alpna J. Doshi |
|
|
|
|
|
|
|
|
|
/s/ Christopher FitzGerald |
|
Director |
|
May 22, 2020 |
Christopher FitzGerald |
|
|
|
|
|
|
|
|
|
/s/ Neil Murray |
|
Director |
|
May 22, 2020 |
Neil Murray |
|
|
|
|
|
|
|
|
|
/s/ Robert P. Schechter |
|
Director |
|
May 22, 2020 |
Robert P. Schechter |
|
|
|
|
|
|
|
|
|
/s/ Hagi Schwartz |
|
Director |
|
May 22, 2020 |
Hagi Schwartz |
|
|
|
|
|
|
|
|
|
/s/ Stephen M. Ward |
|
Director |
|
May 22, 2020 |
Stephen M. Ward |
|
|
|
|
108
Exhibit 4.2
DESCRIPTION OF SECURITIES
The following descriptions are summaries of the material terms of the Memorandum of Association and Articles of Association (the “Articles of Association”) of Mimecast Limited, a corporation organized under the laws of Jersey, Channel Islands (Company No. 119119) (the “Company”). Reference is made to the more detailed provisions of the Articles of Association. Please note that this summary is not intended to be exhaustive. For further information, please refer to the full version of the Company’s Articles of Association, which is included as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 as filed with the Securities and Exchange Commission (the “SEC”).
General
The Company was established under the laws of Jersey, Channel Islands, on July 28, 2015 with registered number 119119. The Company’s register of members is kept at Queensway House, Hilgrove Street, St. Helier, Jersey JE1 1ES and the Company’s U.S. Branch register is held at 150 Royall Street, Canton, Massachusetts USA 02021. The Company’s registered office is 22 Grenville Street, St. Helier, Jersey JE4 8PX. The Company Secretary is Robert P. Nault and the Company’s assistant secretary is Mourant Secretaries (Jersey) Limited. Under the Company’s Articles of Association, the Company’s authorized share capital consists of 300,000,000 ordinary shares, nominal value $0.012 per share, and 5,000,000 preferred shares, nominal value $0.012 per share.
Issued Share Capital
The Company’s issued share capital as of March 31, 2020 was 62,791,691 ordinary shares with a nominal value of $0.012 per share. Each issued ordinary share is fully paid. The Company currently has no deferred shares in its issued share capital. In the future, the Company’s issued share capital can be determined by reference to Company’s Quarterly Reports on Form 10-Q and Annual Report on Form 10-K filed from time to time with the SEC.
Ordinary Shares
The holders of ordinary shares are entitled to receive dividends in proportion to the number of ordinary shares held by them. Holders of ordinary shares are entitled, in proportion to the number of ordinary shares held by them, to share in any surplus in the event of the Company’s winding up. The holders of ordinary shares are entitled to receive notice of, attend either in person or by proxy or, being a corporation, by a duly authorized representative, and vote at general meetings of shareholders.
Preferred Shares
Pursuant to Jersey law and the Company’s Articles of Association, the Company’s board of directors by resolution may establish one or more classes of preferred shares having such number of shares, designations, dividend rates, relative voting rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be fixed by the board without any further shareholder approval. Such rights, preferences, powers and limitations as may be established would be preferential to the rights attaching to the Company’s ordinary shares and could also have the effect of discouraging an attempt to obtain control of the Company.
Share Options and Restricted Share Units
As of March 31, 2020, there were options to purchase 6,271,111 ordinary shares outstanding and 1,276,840 unvested restricted share units outstanding. In the future, information on the Company’s outstanding share options and restricted share units can be determined by reference to Company’s Quarterly Reports on Form 10-Q and Annual Report on Form 10-K filed from time to time with the SEC.
1
Foreign Ownership of Ordinary Shares
Neither Jersey law nor the Company’s Articles of Association places limitations on the right of nonresident or foreign owners to vote or hold ordinary shares.
Anti-Takeover Effects of Certain Provisions of the Company’s Articles of Association
General
The Company’s Articles of Association contain provisions that could have the effect of delaying, deterring or preventing another party from acquiring or seeking to acquire control of the Company. These provisions, as well as the Company’s ability to issue preferred shares, are designed to discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also intended to encourage anyone seeking to acquire control of the Company to negotiate first with the Company’s board of directors. However, these provisions may also delay, deter or prevent a change in control or other takeovers of the Company that shareholders might consider to be in their best interests, including transactions that might result in a premium being paid over the market price of the Company’s ordinary shares and also may limit the price that investors are willing to pay in the future for the Company’s ordinary shares. These provisions may also have the effect of preventing changes in the Company’s management. The Company believes that the benefits of increased protection give the Company the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company, and that the benefits of this increased protection outweigh the disadvantages of discouraging those proposals, because negotiation of those proposals could result in an improvement of their terms. A description of these provisions is set forth below.
Staggered Board of Directors
The Company’s Articles of Association provide for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of the Company’s directors are elected by the Company’s shareholders. Shareholders elect directors for three-year terms upon the expiration of their current terms. Shareholders elect only one class of directors each year. The Company believes that classification of the Company’s board of directors helps to ensure the continuity and stability of the Company’ s business strategies and policies as determined by the board of directors. There is no cumulative voting in the election of directors. As such, this classified board provision could have the effect of making the replacement of incumbent directors more time-consuming and difficult. At least two annual general meetings of shareholders, instead of one, will generally be required to effect a change in a majority of the board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors also may delay, defer or prevent a tender offer or an attempt to change control of the Company, even though a tender offer or change in control might be believed by shareholders to be in their best interest.
Issuance of Preferred Shares
The ability to authorize and issue preferred shares is vested in the Company’s board of directors, which makes it possible for the board of directors to issue preferred shares with voting or other rights or preferences that could impede the success of any attempt to change control of the Company. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company.
No Shareholder Action by Written Consent
The Company’s Articles of Association provide that all shareholder actions are required to be taken by a vote of the shareholders at an annual or special meeting, and that shareholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take shareholder actions and would prevent the amendment of the Company’s Articles of Association or removal of directors by shareholders without holding a meeting of shareholders.
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The Company’s Articles of Association provide an advance notice procedure for shareholders to nominate director candidates for election, including proposed nominations of persons for election to the board of directors. Subject to the rights of the holders of any series of preferred shares, only persons nominated by, or at the direction of, the Company’s board of directors or by a shareholder who has given proper and timely notice to the Company’s secretary prior to the meeting, will be eligible for election as a director. In addition, any proposed business other than the nomination of persons for election to the board of directors must constitute a proper matter for shareholder action pursuant to the notice of meeting delivered to the Company. For notice to be timely, it must be received by the Company Secretary not less than 90 nor more than 120 calendar days prior to the first anniversary of the previous year’s annual meeting (or if the date of the annual meeting is advanced more than 30 calendar days or delayed by more than 60 calendar days from such anniversary date, not earlier than the 120th calendar day nor more than 90 days prior to such meeting or the 10th calendar day after public announcement of the date of such meeting is first made). These advance notice provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of the Company
Limitation of Liability of Directors and Officers
The Company’s Articles of Association include provisions that indemnify, to the fullest extent allowable under Jersey law, the personal liability of directors or officers for monetary damages for actions taken as the Company’s director or officer, or for serving at the Company’s request as a director or officer or another position at another corporation or enterprise, as the case may be. However, exculpation does not apply if they acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from their actions as directors. The Company is expressly authorized to advance certain reasonable expenses (including attorneys’ fees and disbursements and court costs) to the Company’s directors and officers and to carry directors’ and officers’ insurance to protect the Company, the Company’s directors, officers and certain employees for some liabilities.
The Company believes that the limitation of liability and indemnification provisions in the Articles of Association facilitates the Company’s ability to continue to attract and retain qualified individuals to serve as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Other Jersey Law Considerations
Purchase of Company Ordinary Shares
As with declaring a dividend, the Company may not buy back or redeem its shares unless the board of directors have made a statutory solvency statement that, immediately following the date on which the buyback or redemption is proposed, the Company will be able to discharge its liabilities as they fall due and, having regard to prescribed factors, the Company will be able to continue to carry on business and discharge its liabilities as they fall due for the 12 months immediately following the date on which the buyback or redemption is proposed (or until the Company is dissolved on a solvent basis, if earlier).
If the above conditions are met and the approvals described below are received, the Company may purchase shares in the manner described below.
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The Company may purchase on a stock exchange its own fully paid shares pursuant to a special resolution of the Company’s shareholders. The resolution authorizing the purchase must specify:
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the maximum number of shares to be purchased; |
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the maximum and minimum prices which may be paid; and |
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a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire. |
The Company’s shareholders adopted such a resolution on November 13, 2015.
The Company may purchase its own fully paid shares otherwise than on a stock exchange pursuant to a special resolution of the Company’s shareholders, but only if the purchase is made on the terms of a written purchase contract which has been approved by an ordinary resolution of the Company’s shareholders. The shareholder from whom the Company proposes to purchase or redeem shares is not entitled to take part in such shareholder vote in respect of the shares to be purchased.
The Company may fund a redemption or purchase of its own shares from any source. The Company cannot purchase its shares if, as a result of such purchase, only redeemable or treasury shares would remain in issue.
If authorized by a resolution of the Company’s shareholders, any shares that the Company redeems or purchases may be held as treasury shares. Any shares held as treasury shares may be cancelled, sold, transferred for the purposes of or under an employee share scheme or held without cancelling, selling or transferring them. Shares redeemed or purchased by the Company are cancelled where the Company has not been authorized to hold these as treasury shares.
Mandatory Purchases and Acquisitions
The Companies (Jersey) Law 1991 (the "Jersey Companies Law") provides that where a person has made an offer to acquire all the Company’s outstanding shares or a class of all of the Company’s outstanding shares not already held by the person and has as a result of such offer acquired or contractually agreed to acquire 90% or more of such outstanding shares, that person is then entitled (and may be required) to acquire the remaining shares of such shares. In such circumstances, a holder of any such remaining shares may apply to the Jersey court for an order that the person making such offer not be entitled to purchase the holder’s shares or that the person purchase the holder’s shares on terms different to those under which the person made such offer.
Other than as described above (and to the extent the U.K. City Code on Takeovers and Mergers were deemed to apply to the Company), the Company is not subject to any regulations under which a shareholder that acquires a certain level of share ownership is then required to offer to purchase all of the Company’s remaining shares on the same terms as such shareholder’s prior purchase.
Compromises and Arrangements
Where the Company and the Company’s creditors or shareholders or a class of either of them propose a compromise or arrangement between the Company and the Company’s creditors or shareholders or a class of either of them (as applicable), the Jersey court may order a meeting of the creditors or class of creditors or of the Company’s shareholders or class of shareholders (as applicable) to be called in such a manner as the court directs. Any compromise or arrangement approved by a majority in number representing 75% or more in value of the creditors or 75% or more of the voting rights of shareholders or class of either of them (as applicable) if sanctioned by the court, is binding upon the Company and all the creditors, shareholders or members of the specific class of either of them (as applicable).
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Whether the capital of the company is to be treated as being divided into a single or multiple class(es) of shares is a matter to be determined by the court. The court may in its discretion treat a single class of shares as multiple classes, or multiple classes of shares as a single class, for the purposes of the shareholder approval referred to above taking into account all relevant circumstances, which may include circumstances other than the rights attaching to the shares themselves.
Rights of Minority Shareholders
Under Article 141 of the Jersey Companies Law, a shareholder may apply to court for relief on the grounds that the conduct of the Company’s affairs, including a proposed or actual act or omission by the Company, is “unfairly prejudicial” to the interests of the Company’s shareholders generally or of some part of the Company’s shareholders, including at least the shareholder making the application. What amounts to unfair prejudice is not defined in the Jersey Companies Law. There may also be common law personal actions available to the Company’s shareholders.
Under Article 143 of the Jersey Companies Law (which sets out the types of relief a court may grant in relation to an action brought under Article 141 of the Jersey Companies Law), the court may make an order regulating the Company’s affairs, requiring it to refrain from doing or continuing to do an act complained of, authorizing civil proceedings and providing for the purchase of shares by the Company or by any of the Company’s other shareholders
Meetings of Shareholders
Shareholders holding 10% or more of the Company’s voting rights and entitled to vote at the relevant meeting may legally require the Company’s directors to call a meeting of shareholders. If the directors do not call the special meeting within 21 days and that meeting is not held within 2 months, the shareholders who requested the meeting may themselves call a meeting.
If an annual general meeting is not held in accordance with the requirements of the Jersey Companies Law, the Jersey Financial Services Commission, or JFSC, may, at the request of any officer, secretary or shareholder, call or direct the calling of an annual general meeting. Failure to call an annual general meeting in accordance with the requirements of the Jersey Companies Law is a criminal offense on the part of a Jersey company and its directors and secretary.
Jersey Tax Considerations
The following summary of the anticipated tax treatment in Jersey of the holders of ordinary shares (other than holders of ordinary shares resident in Jersey) is based on Jersey taxation law as it is understood to apply at the date of this document. It does not constitute legal or tax advice. Holders of ordinary shares should consult their professional advisers on the implications of acquiring, holding or disposing of ordinary shares under the laws of the jurisdictions(s) in which they may be liable to taxation. Holders of ordinary shares should also be aware that tax laws, rules and practice and their interpretation may change.
The Company’s affairs are, and are intended to continue to be, managed and controlled in the United Kingdom for tax purposes and therefore the Company is resident in the United Kingdom for U.K. and Jersey tax purposes.
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Under Article 123(1) of the Income Tax (Jersey) Law 1961 (the Income Tax Law), the Company will not be regarded as tax resident in Jersey if:
(i)its business is centrally managed and controlled outside Jersey in a country or territory where the highest rate at which any company may be charged to tax on any part of its income is ten per cent or higher; and
(ii)the company is resident for tax purposes in that country or territory (under the tax legislation of that jurisdiction).
On that basis, as the Company is not resident in Jersey the Company is not subject to income tax in Jersey. However, if the Company derives any income from the ownership, exploitation or disposal of land in Jersey or the importation and supply of hydrocarbon oil to or in Jersey, such income will be subject to income tax at the rate of 20%. Also, id the Company qualifies as a large corporate retailer with an income in excess of £500,000 such income will be subject to income tax at the rate of up to 20%. It is not expected that the Company will derive any such income.
Withholding Tax
Dividends on ordinary shares may be paid by the Company without withholding or deduction for or on account of Jersey income tax and holders of ordinary shares (unless they are tax resident in Jersey) will not be subject to any tax in Jersey in respect of the holding, sale or other disposition of such ordinary shares.
Goods and Services Tax
Jersey charges a tax on goods and services supplied in the Island (“GST”). The Company is an “international services entity” for the purposes of the Goods and Services Tax (Jersey) Law 2007 (the “GST Law”) and consequently, the Company is not required to:
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register as a taxable person pursuant to the GST Law; |
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charge goods and services tax in Jersey in respect of any supply made by the Company; or |
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subject to limited exceptions that are not expected to apply to the Company, pay goods and services tax in Jersey in respect of any supply made to the Company. |
Stamp Duty
In Jersey, no stamp duty is levied on the issue or transfer of the ordinary shares except that stamp duty is payable on Jersey grants of probate and letters of administration, which will generally be required to transfer ordinary shares on the death of a holder of such ordinary shares to the extent such ordinary shares are deemed to be movable property in Jersey. In the case of a grant of probate or letters of administration, stamp duty is levied according to the size of the estate (wherever situated in respect of a holder of ordinary shares domiciled in Jersey to the extent the estate exceeds £10,000, or situated in Jersey in respect of a holder of ordinary shares domiciled outside Jersey where the net value of the estate situated in Jersey exceeds £10,000) and is payable on a sliding scale at a rate of up to 0.75% of such estate (subject to a maximum of £100,000).
Jersey does not otherwise levy taxes upon capital, inheritances, capital gains or gifts nor are there other estate duties.
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Exhibit 10.8
MIMECAST LIMITED
2015 EMPLOYEE SHARE PURCHASE PLAN
The purpose of the Mimecast Limited 2015 Employee Stock Purchase Plan (“the Plan”) is to provide eligible employees of Mimecast Limited (the “Company”) and each Designated Subsidiary (as defined in Section 11) with opportunities to purchase ordinary shares of the Company (the “Ordinary Shares”). 1,100,000 Ordinary Shares have been approved and reserved for this purpose. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose. The Administrator has authority at any time to: (i) adopt, alter and repeal such rules, guidelines and practices for the administration of the Plan and for its own acts and proceedings as it shall deem advisable; (ii) interpret the terms and provisions of the Plan; (iii) make all determinations it deems advisable for the administration of the Plan; (iv) decide all disputes arising in connection with the Plan; and (v) otherwise supervise the administration of the Plan. All interpretations and decisions of the Administrator shall be binding on all persons, including the Company and the Participants. No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.
2. Offerings The Company may make one or more offerings to eligible employees to purchase Ordinary Shares under the Plan (“Offerings”). Unless otherwise determined by the Administrator, an Offering will begin on the first business day occurring on or after each January 1 and July 1 and will end on the last business day occurring on or before the following June 30 and December 31, respectively. The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed six months in duration or overlap any other Offering.
3. Eligibility. All individuals classified as employees on the payroll records of the Company and each Designated Subsidiary are eligible to participate in any one or more of the Offerings under the Plan, provided that as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Subsidiary for more than 20 hours a week. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary for purposes of the Company’s or applicable Designated Subsidiary’s payroll system are not considered to be eligible employees of the Company or any Designated Subsidiary and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as employees of the Company or a Designated Subsidiary for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation. Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Subsidiary on the Company’s or Designated Subsidiary’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.
4. Participation.
(a) Participants. An eligible employee who is not a Participant on any Offering Date may participate in such Offering by submitting an enrollment form to his or her appropriate payroll location at least 15 business days before the Offering Date (or by such other deadline as shall be established by the Administrator for the Offering).
(b) Enrollment. The enrollment form will (a) state a whole percentage to be deducted from an eligible employee’s Compensation (as defined in Section 11) per pay period, (b) authorize the purchase of Ordinary Shares in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which Ordinary Shares purchased for such individual are to be issued pursuant to Section 10. An employee who does not enroll in accordance with these procedures will be deemed to have waived the right to participate. Unless a Participant files a new enrollment form or withdraws from the Plan, such Participant’s deductions and purchases will continue at the same percentage of Compensation for future Offerings, provided he or she remains eligible.
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(c) Notwithstanding the foregoing, participation in the Plan will neither be permitted nor be denied contrary to the requirements of the Code.
5. Employee Contributions. Each eligible employee may authorize payroll deductions at a minimum of one percent up to a maximum of ten percent of such employee’s Compensation for each pay period. The Company will maintain book accounts showing the amount of payroll deductions made by each Participant for each Offering. No interest will accrue or be paid on payroll deductions.
6. Deduction Changes. Except as may be determined by the Administrator in advance of an Offering, a Participant may not increase or decrease his or her payroll deduction during any Offering, but may increase or decrease his or her payroll deduction with respect to the next Offering (subject to the limitations of Section 5) by filing a new enrollment form at least 15 business days before the next Offering Date (or by such other deadline as shall be established by the Administrator for the Offering). The Administrator may, in advance of any Offering, establish rules permitting a Participant to increase, decrease or terminate his or her payroll deduction during an Offering.
7. Withdrawal. A Participant may withdraw from participation in the Plan by delivering a written notice of withdrawal to his or her appropriate payroll location. The Participant’s withdrawal will be effective as of the next business day. Following a Participant’s withdrawal, the Company will promptly refund such individual’s entire account balance under the Plan to him or her (after payment for any Ordinary Shares purchased before the effective date of withdrawal). Partial withdrawals are not permitted. Such an employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to each eligible employee who is then a Participant in the Plan an option (“Option”) to purchase on the last day of such Offering (the “Exercise Date”), at the Option Price hereinafter provided for, the lowest of (a) a number of Ordinary Shares determined by dividing such Participant’s accumulated payroll deductions on such Exercise Date by the Option Price (as defined herein), (b) 550,000 shares, or (c) such other lesser maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth below. Each Participant’s Option shall be exercisable only to the extent of such Participant’s accumulated payroll deductions on the Exercise Date. The purchase price for each share purchased under each Option (the “Option Price”) will be 85 percent of the Fair Market Value of the Ordinary Shares on the Offering Date or the Exercise Date, whichever is less.
Notwithstanding the foregoing, no Participant may be granted an option hereunder if such Participant, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary (as defined in Section 11). For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of a Participant, and all stock which the Participant has a contractual right to purchase shall be treated as stock owned by the Participant. In addition, no Participant may be granted an Option which permits his or her rights to purchase stock under the Plan, and any other employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined on the option grant date or dates) for each calendar year in which the Option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted.
9. Exercise of Option and Purchase of Shares. Each employee who continues to be a Participant in the Plan on the Exercise Date shall be deemed to have exercised his or her Option on such date and shall acquire from the Company such number of whole Ordinary Shares reserved for the purpose of the Plan as his or her accumulated payroll deductions on such date will purchase at the Option Price, subject to any other limitations contained in the Plan. Any amount remaining in a Participant’s account at the end of an Offering solely by reason of the inability to purchase a fractional share will be carried forward to the next Offering; any other balance remaining in a Participant’s account at the end of an Offering will be refunded to the Participant promptly.
10. Issuance of Certificates. Certificates representing Ordinary Shares purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, her or their, nominee for such purpose.
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The term “Compensation” means the amount of base pay, plus incentive pay, and commissions.
The term “Designated Subsidiary” means any present or future Subsidiary (as defined below) that has been designated by the Board to participate in the Plan. The Board may so designate any Subsidiary, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders. The current list of Designated Subsidiaries is attached hereto as Appendix A.
The term “Fair Market Value of the Ordinary Shares” on any given date means the fair market value of the Ordinary Shares determined in good faith by the Administrator; provided, however, that if the Ordinary Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to the closing price on such date. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price.
The term “Initial Public Offering” means the first underwritten, firm commitment public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale by the Company of its equity securities, or such other event as a result of or following which the Company’s Ordinary Shares shall be publicly held.
The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.
The term “Participant” means an individual who is eligible as determined in Section 3 and who has complied with the provisions of Section 4.
The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a Participant’s employment terminates for any reason before the Exercise Date for any Offering, no payroll deduction will be taken from any pay due and owing to the Participant and the balance in the Participant’s account will be paid to such Participant or, in the case of such Participant’s death, to his or her designated beneficiary as if such Participant had withdrawn from the Plan under Section 7. An employee will be deemed to have terminated employment, for this purpose, if the corporation that employs him or her, having been a Designated Subsidiary, ceases to be a Subsidiary, or if the employee is transferred to any corporation other than the Company or a Designated Subsidiary. An employee will not be deemed to have terminated employment for this purpose if the employee is on an approved leave of absence for military service or sickness or for any other purpose approved by the Company, if the employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise provides in writing.
13. Special Rules. Notwithstanding anything herein to the contrary, the Administrator may adopt special rules applicable to the employees of a particular Designated Subsidiary, whenever the Administrator determines that such rules are necessary or appropriate for the implementation of the Plan in a jurisdiction where such Designated Subsidiary has employees; provided that such rules are consistent with the requirements of Section 423(b) of the Code. Any special rules established pursuant to this Section 13 shall, to the extent possible, result in the employees subject to such rules having substantially the same rights as other Participants in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to a Participant nor the deductions from his or her pay shall constitute such Participant a holder of the Ordinary Shares covered by an Option under the Plan until such shares have been purchased by and issued to him or her.
15. Rights Not Transferable. Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during the Participant’s lifetime only by the Participant.
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16. Application of Funds. All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose.
17. Adjustment in Case of Changes Affecting Ordinary Shares. In the event of a subdivision of outstanding Ordinary Shares, the payment of a dividend in Ordinary Shares or any other change affecting the Ordinary Shares, the number of shares approved for the Plan and the share limitation set forth in Section 8 shall be equitably or proportionately adjusted to give proper effect to such event.
18. Amendment of the Plan. The Board may at any time and from time to time amend the Plan in any respect, except that without the approval within 12 months of such Board action by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.
19. Insufficient Shares. If the total number of Ordinary Shares that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Ordinary Shares on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by the Board. Upon termination of the Plan, all amounts in the accounts of Participants shall be promptly refunded.
21. Governmental Regulations. The Company’s obligation to sell and deliver Ordinary Shares under the Plan is subject to obtaining all governmental approvals required in connection with the authorization, issuance, or sale of such stock.
22. Governing Law. This Plan and all Options and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.
23. Issuance of Shares. Shares may be issued upon exercise of an Option from authorized but unissued Ordinary Shares, from shares held in the treasury of the Company, or from any other proper source.
24. Tax Withholding. Participation in the Plan is subject to any minimum required tax withholding on income of the Participant in connection with the Plan. Each Participant agrees, by entering the Plan, that the Company and its Subsidiaries shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant, including shares issuable under the Plan.
25. Notification Upon Sale of Shares. Each Participant agrees, by entering the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased.
26. Effective Date and Approval of Shareholders. The Plan shall take effect on the date of the Company’s Initial Public Offering, subject to approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present or by written consent of the stockholders.
Amended May 26, 2017
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Designated Subsidiaries1
Mimecast North America, Inc.
Mimecast Services Ltd.
Mimecast South Africa Pty. Ltd.
Mimecast Australia Pty. Ltd.
Mimecast Germany GmbH
Mimecast Israel Ltd.
Mimecast Netherlands B.V.
Segasec Labs Limited
Mimecast Canada Ltd.
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Designated Subsidiary List effective as of February 5, 2020. |
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Exhibit 10.40
NON-QUALIFIED SHARE OPTION AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
Name of Optionee: |
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No. of Share Options: |
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Option Exercise Price per Share: |
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Grant Date: |
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Expiration Date: |
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Pursuant to the Mimecast Limited 2015 Share Option and Incentive Plan as amended through the date hereof (the “Plan”), Mimecast Limited (the “Company”) hereby grants to the Optionee named above an option (the “Share Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of Ordinary Shares of the Company (the “Shares”) specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth in this Non-Qualified Share Option Agreement, including any special terms and conditions for Optionees in the countries set forth in Appendix B hereto (Appendix B, together with Appendix A as identified below, and, collectively with the Non-Qualified Share Option Agreement, the “Agreement”) and in the Plan. This Share Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1.Exercisability Schedule. No portion of this Share Option may be exercised until such portion shall have become exercisable. Except as set forth in Appendix A, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Share Option shall be exercisable with respect to the number of Share Options on the dates indicated on Appendix A so long as Optionee remains an employee of the Company or a Subsidiary on such dates:
Once exercisable, this Share Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2.Manner of Exercise.
(a)The Optionee may exercise this Share Option only in the following manner: from time to time on or prior to the Expiration Date of this Share Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Share Options purchasable at the time of such notice. This notice shall specify the number of Share Options to be purchased.
(b)Payment of the exercise price for the Share Options may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) if permitted by the Administrator, through the delivery (or attestation to the ownership) of Shares that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option exercise price, provided that in the event the Optionee chooses to pay the option exercise price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) if permitted by the Administrator, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.
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(c)The transfer to the Optionee on the records of the Company or of the transfer agent of the Share Options will be contingent upon (i) the Company’s receipt from the Optionee of the full exercise price for the Share Options, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Shares to be purchased pursuant to the exercise of Share Options under the Plan and any subsequent resale of the Shares will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the exercise price by previously-owned Shares through the attestation method, the number of Shares transferred to the Optionee upon the exercise of the Share Option shall be net of the Shares attested to.
(d)The Shares purchased upon exercise of this Share Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Shares subject to this Share Option unless and until this Share Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the Shares to the Optionee, and the Optionee’s name shall have been entered as the shareholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares.
(e)The minimum number of Shares with respect to which this Share Option may be exercised at any one time shall be 100 Shares, unless the number of shares with respect to which this Share Option is being exercised is the total number of Shares subject to exercise under this Share Option at the time.
(f)Notwithstanding any other provision hereof or of the Plan, no portion of this Share Option shall be exercisable after the Expiration Date hereof.
3.Termination of Employment. If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Shares Option may be subject to earlier termination as set forth below.
(a)Termination Due to Death. If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Share Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Share Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b)Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Share Option outstanding on such date, to the extent exercisable on the date of such termination of employment, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Share Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c)Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Share Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.
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(d)Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Share Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Share Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
For purposes of the Share Options, the Optionee’s employment will be considered terminated as of the date the Optionee is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any). The Administrator shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of the Optionee’s Share Option grant. The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Share Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5.Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the applicable laws of descent and distribution. This Share Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6.Responsibility for Taxes.
(a)Regardless of any action the Company or, if different, the Subsidiary that employs the Optionee (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”), the Optionee hereby acknowledges that the ultimate liability for all Tax-Related Items is and remains the Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Share Option grant, including, but not limited to, the grant, vesting or exercise of the Share Option, the issuance of Shares pursuant to such exercise, the subsequent sale of Shares and the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Share Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Optionee is subject to tax in more than one jurisdiction, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b)Prior to any relevant taxable or tax withholding event, as applicable, the Optionee shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer or their respective agents, in their sole discretion and without any notice or authorization by the Optionee, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following (i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Employer; (ii) withholding from the proceeds of the sale of Shares acquired at exercise of the Share Option either through a voluntary sale or through a mandatory sale arranged by the Company; and/or or (iii) withholding from the Shares to be issued upon exercise of the Share Options.
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(c)The Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum rates applicable in the Optionee’s jurisdiction, in which case the Optionee may receive a refund of any over-withheld amount in cash (with no entitlement to the Share equivalent) or, if not refunded, the Optionee may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding Shares, for tax purposes, the Optionee is deemed to have been issued the full number of Shares subject to the exercised Share Options, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
(d)Finally, the Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds from the sale of Shares, if the Optionee fails to comply with the Optionee’s obligations in connection with the Tax-Related Items.
7.No Obligation to Continue Employment. Neither the Company, the Employer nor any other Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Employer to terminate the employment of the Optionee at any time.
8.Nature of the Grant. In accepting the grant of this Share Option, the Optionee acknowledges, understands and agrees as follows:
(a)The Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)The grant of this Share Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past;
(c)All decisions with respect to future share option grants, if any, will be at the sole discretion of the Administrator;
(d)The Optionee is voluntarily participating in the Plan;
(e)The Share Option and Shares subject to the Share Option, and the income from and value of same, are not intended to replace any pension rights or compensation;
(f)The grant of the Share Options and the Optionee’s participation in the Plan shall not create a right to, or be interpreted as forming an employment or service contract with the Company;
(g)The Share Option and Shares subject to the Share Option, and the income from and value of same, are not part or normal or expected compensation or salary for any purpose, including, but limited to, calculating any severance, resignation, termination, payment in lieu of notice, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related payments, pension or retirement or welfare benefits or similar mandatory payments;
(h)The future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(i)If the underlying Shares subject to the Share Option do not increase in value, the Share Option will have no value;
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(j)If the Optionee exercises the Share Option and acquires Shares, the value of such shares may increase or decrease, even below the exercise price;
(k)No claim or entitlement to compensation or damages shall arise from forfeiture of Share Options resulting from the termination of the Optionee’s employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any);
(l)Unless otherwise agreed with the Company, the Share Option and the Shares subject to the share Option, and the income from and value of same, are not granted as consideration for, or in connection with, the service the Optionee may provide as a director of a Subsidiary; and
(m)Neither the Company, the Employer nor any other Subsidiary shall be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of the Share Option or of any amounts due to the Optionee pursuant to the exercise of this Share Option or the subsequent sale of any Shares acquired upon exercise.
9.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Share Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10.Insider Trading/Market Abuse Laws. The Optionee acknowledges that, depending on the Optionee’s country, the broker’s country, or the country in which Shares are listed, the Optionee may be subject to insider trading and/or market abuse laws which may affect the Optionee’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to such Shares (e.g., Share Options) or rights linked to the value of Shares under the Plan during such times as the Optionee is considered to have “material nonpublic information” or “insider information” regarding the Company (as defined by the laws or regulations in the relevant jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Optionee places before the Optionee possessed inside information. Furthermore, the Optionee could be prohibited from (i) disclosing inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Note that third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy, and the requirements of applicable laws may or may not be consistent with the terms of the Company’s insider trading policy. The Optionee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and that the Optionee should speak to his or her personal advisor on this matter.
11.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, on this Share Option and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
12.Appendix B. Notwithstanding any provisions in this Non-Qualified Share Option Agreement, the Share Option grant shall be subject to any special terms and conditions for the Optionee’s country set forth in Appendix B hereto, including, but not limited to, data processing and international data transfers. Moreover, if the Optionee relocates to one of the countries included in Appendix B, the terms and conditions for such country will apply to the Optionee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix B constitutes part of this Non-Qualified Share Option Agreement.
13.Foreign Asset/Account Reporting. The Optionee acknowledges that there may be certain foreign asset and/or account reporting requirements which may affect the Optionee’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage or bank account outside the Optionee’s country. The Optionee may be required to report such accounts, assets or transactions to the tax or other authorities in the Optionee’s country. The Optionee also may be required to repatriate sale proceeds from the sale of Shares or other funds received as a result of participation in the Plan to the Optionee’s country through a designated bank or broker within a certain time after receipt. The Optionee acknowledges that it is his or her responsibility to be compliant with such regulations, and should consult his or her personal legal advisor for any details.
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14.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan or his or her acquisition or sale of the underlying Shares. The Optionee should consult with his or her own personal tax, legal and financial advisors regarding the Optionee’s participation in the Plan before taking any action related to the Plan.
15.Governing Law and Choice of Venue. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Massachusetts, U.S.A., without giving effect to its principles of conflicts of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of any state or U.S. federal court located in the Commonwealth Massachusetts, U.S.A., and no other courts, where the grant is made and/or to be performed.
16.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
17.Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan by electronic means or to request the Optionee’s consent to participate in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
18.Language. The Optionee acknowledges that he or she is proficient in the English language and understands the provisions in this Agreement and the Plan. Further, if the Optionee has received this Agreement or any other documents related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
19.Waiver. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other person who holds an outstanding Share Option.
20.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
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MIMECAST LIMITED |
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Title: Chief Executive Officer |
I hereby certify that I have read the Agreement set forth above and acknowledge receipt of the Mimecast Limited 2015 Share Option and Incentive Plan Summary and Prospectus. The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
Dated: |
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Optionee’s Signature |
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Optionee’s Name and Address: |
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APPENDIX A
TO THE
NON-QUALIFIED SHARE OPTION AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
Vesting Schedule
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APPENDIX B
TO THE
NON-QUALIFIED SHARE OPTION AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
Capitalized terms used but not defined in this Appendix B have the meanings set forth in the Plan and the Non-Qualified Share Option Agreement.
Terms and Conditions
This Appendix B includes special terms and conditions applicable to the Optionee if the Optionee is in one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth in the Non-Qualified Share Option Agreement. If the Optionee is a citizen or resident of a country other than the one in which he or she is currently residing and/working, transfers employment and/or residency to another country after the Share Option is granted or is considered a resident of another country for local law purposes, the Company, in its discretion, will determine the extent to which the terms and conditions set forth in this Appendix B will apply to the Optionee.
Notifications
This Appendix B also includes information relating to exchange control, foreign asset / account reporting requirements and other issues of which the Optionee should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of March 2020. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Optionee not rely on the information herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the Share Option is exercised or the Shares acquired under the Plan are sold.
In addition, the information is general in nature and may not apply to the Optionee’s particular situation. The Company is not in a position to assure the Optionee of any particular result. Accordingly, the Optionee should seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation. Finally, if the Optionee is a citizen or resident of a country other than the one in which he or she is currently residing and/or working, transfers employment and/or residency to another country after the Share Option is granted or is considered a resident of another country for local law purposes, the information contained herein may not be applicable to the Optionee in the same manner.
DATA PRIVACY PROVISIONS
Data Privacy Consent for Optionees outside the European Union (“EU”) / European Economic Area (“EEA”) / United Kingdom (“UK”))
Data Collection and Usage. The Company and the Employer may collect, process and use certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, details of all share options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“Data”), for the purposes of implementing, administering and managing the Plan. The legal basis, where required, for the processing of Data is the Optionee’s consent.
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Stock Plan Administration Service Providers. The Company may transfer Data to third parties which assist the Company with the implementation, administration and management of the Plan. The Company may select different service providers or additional service providers and share Data with such other provider serving in a similar manner. The Optionee may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.
International Data Transfers. Certain of the Company’s operations, including its internal stock plan administration, and its service providers are based in the United States, which means that it will be necessary for Data to be transferred to, and processed in, the United States. The Optionee’s country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis, where required, for the transfer of Data is the Optionee’s consent.
Data Retention. The Company will hold and use the Data only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax and security laws.
Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and the Optionee is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke the Optionee’s consent, the Optionee’s salary from or service with the Employer will not be affected; the only consequence of refusing or withdrawing consent is that the Company would not be able to grant share options or other equity awards to the Optionee or administer or maintain such awards.
Data Subject Rights. The Optionee may have a number of rights under data privacy laws in the Optionee’s jurisdiction. Depending on where the Optionee is based, such rights may include the right to (i) request access or copies of Data the Company processes, (ii) rectification of incorrect Data, (iii) deletion of Data, (iv) restrictions on processing of Data, (v) portability of Data, (vi) lodge complaints with competent authorities in the Optionee’s jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, the Optionee can contact the Optionee’s local human resources representative.
By accepting the Share Options and indicating consent via the Company’s acceptance procedure, the Optionee is declaring that the Optionee agrees with the data processing practices described herein and consent to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned above, including recipients located in countries which do not adduce an adequate level of protection from a European (or other non-U.S.) data protection law perspective, for the purposes described above.
Data Privacy Notification for Optionees inside the EU / EEA/ UK
Purposes and Legal Bases of Processing. The Company processes the EU/UK Data (as defined below) for the purpose of administering and managing the Optionee’s participation in the Plan and facilitating compliance with applicable tax, exchange control, securities and labor law. The legal basis for the processing of the EU/UK Data by the Company and the third-party service providers described below is the necessity of the data processing for the Company to perform its contractual obligations under this Agreement and for the Company’s legitimate business interests of managing the Plan and generally administering employee equity awards.
EU/UK Data Collection and Usage. The Company and the Employer may collect, process and use the following types of personal information about the Optionee: the Optionee’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, details of all share options or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“EU/UK Data”).
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Stock Plan Administration Service Providers. The Company may transfer EU/UK Data to third parties which assist the Company with the implementation, administration and management of the Plan. The Optionee may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.
International Data Transfers. Certain of the Company’s operations, including its internal stock plan administration, and its service providers are based in the United States, which means that it will be necessary for EU/UK Data to be transferred to, and processed in, the United States. The Optionee understands and acknowledges that the United States is not subject to an unlimited adequacy finding by the European Commission even though the Company has registered for the EU-U.S. Privacy Shield program, and that the EU/UK Data may not have an equivalent level of protection as compared to the Optionee’s country. The Company’s non-exclusive legal basis, where required, for the transfer of EU/UK Data is the Optionee’s consent.
Data Retention. The Company will hold and use the EU/UK Data only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax, exchange control, securities and labor law. This means EU/UK Data may be retained after the Optionee's employment is terminated.
Data Subject Rights. The Optionee may have a number of rights under data privacy laws in the Optionee’s jurisdiction. Depending on where the Optionee is based, such rights may include the right to (i) request access or copies of EU/UK Data the Company processes, (ii) rectification of incorrect EU/UK Data, (iii) deletion of EU/UK Data, (iv) restrictions on processing of EU/UK Data, (v) portability of EU/UK Data, (vi) lodge complaints with competent authorities in the Optionee’s jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of EU/UK Data. To receive clarification regarding these rights or to exercise these rights, the Optionee can contact the Optionee’s local human resources representative.
Contractual Requirement. Where necessary, the Optionee’s provision of EU/UK Data and its processing as described above is a contractual requirement for the Optionee to participate in the Plan. The Optionee’s participation in the Plan and his or her acceptance of the Share Options is purely voluntary. The Optionee can refuse to provide EU/UK Data, as a result of which the Optionee will not be able to participate in the Plan, but the Optionee’s career and salary will not be affected in any way.
By accepting the Share Options and indicating consent via the Company’s acceptance procedure, the Optionee is declaring that the Optionee agrees with and consents to the transfer of EU/UK Data to the recipients mentioned above, including recipients located in countries which do not adduce an adequate level of protection from a European/UK data protection law perspective, for the purposes described above.
CANADA
Terms and Conditions
Manner of Exercise. Notwithstanding Sections 6(e)(ii) and (iv) of the Plan, the Optionee is not permitted to pay the exercise price by surrendering Shares or with a net exercise arrangement.
Termination of Employment. The following provision replaces the last paragraph of Paragraph 3 (“Termination of Employment”) of the Non-Qualified Share Option Agreement:
The Optionee’s termination of employment (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed, or the terms of the Optionee’s employment agreement, if any) will be deemed to have occurred as of the date that is the earliest of: (a) the date that the Optionee’s employment relationship with the Company or any of its Subsidiaries is terminated; (b) the date that the Optionee receives notice of termination of the Optionee’s employment relationship; and (c) the date that the Optionee is no longer actively providing services to the Company or any of its Subsidiaries. The Optionee will not earn or be entitled to any pro-rated vesting for that portion of time before the date on which the Optionee’s right to vest terminates, nor will the Optionee be entitled to any compensation for lost vesting. The
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Administrator shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of this Agreement. Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires continued entitlement to vesting (and/or a continued right to exercise the Share Options) during a statutory notice period, the Optionee’s right to vest in the Share Options under the Plan, if any, will terminate effective as of the last day of the Optionee’s minimum statutory notice period (and the Optionee’s right to exercise the Share Options after his or her employment terminates, if any, will be measured by reference to such date and in accordance with the applicable post-termination exercise period set forth in the Plan), but the Optionee will not earn or be entitled to pro-rated vesting if the vesting date falls after the end of such statutory notice period, nor will the Optionee be entitled to any compensation for lost vesting.
The following provision applies if the Optionee resides in Quebec:
Language Consent. The parties acknowledge that it is their express wish that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Consentement Relatif à la Langue. Les parties reconnaissent avoir expressement souhaité que la convention «Agreement » ainsi que tous les documents, avis et procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
Notifications
Securities Law Information. Shares acquired under the Plan may not be sold or otherwise disposed of within Canada. The Optionee may sell the Shares acquired under the Plan only through any third party stock plan service provider selected by the Company either now or in the future, provided the sale of Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are traded. The Shares are currently traded on the Nasdaq Global Select Market.
Foreign Asset/Account Reporting Information. Specified foreign property, including shares and rights to receive shares (e.g., stock options) of a non-Canadian company held by a Canadian resident must generally be reported annually on a Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign property exceeds C$100,000 at any time during the year. Thus, the Share Option must be reported (generally at a nil cost) if the C$100,000 cost threshold is exceeded because of other specified foreign property held by the Optionee. When Shares are acquired, their cost generally is the adjusted cost base (“ACB”) of the Shares. The ACB would ordinarily equal the fair market value of the Shares at the time of acquisition, but if the Optionee owns other Shares, this ACB may have to be averaged with the ACB of the other Shares. The Optionee should consult a personal tax advisor to ensure compliance with applicable reporting obligations.
NETHERLANDS
Terms and Conditions
Labor Law Acknowledgment. By accepting this Award, the Optionee acknowledges that: (i) the Share Options are intended as an incentive to remain employed with the Employer and are not intended as remuneration for labor performed; and (ii) the Share Options are not intended to replace any pension rights or compensation.
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UNITED ARAB EMIRATES
Notifications
Securities Law Information. The Share Options are available only for select employees of the Company and its Subsidiaries and are in the nature of providing employee incentives in the United Arab Emirates. The Agreement, the Plan and other incidental communication materials are intended for distribution only to eligible employees for the purposes of an employee incentive scheme, and must not be delivered to, or relied on, by any other person.
The Dubai Creative Clusters Authority, Emirates Securities and Commodities Authority and/or the Central Bank of the United Arab Emirates have no responsibility for reviewing or verifying any documents in connection with the Share Options. Further, neither the Ministry of Economy nor the Dubai Department of Economic Development have approved this Agreement nor taken steps to verify the information set out in it, and have no responsibility for it.
The securities to which this Agreement relate may be illiquid and/or subject to restrictions on their resale. Individuals should conduct their own due diligence on the securities.
Residents of the United Arab Emirates who do not understand or have questions regarding this Agreement (including this Appendix B) or the Plan should consult an authorized financial adviser.
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Exhibit 10.41
RESTRICTED SHARE UNIT AWARD AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
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No. of Restricted Share Units: |
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Pursuant to the Mimecast Limited 2015 Share Option and Incentive Plan as amended through the date hereof (the “Plan”) and this Restricted Share Unit Award Agreement, including any special terms and conditions for Grantees in the countries set forth in Appendix B hereto (Appendix B, together with Appendix A identified below, and, collectively with the Restricted Share Unit Award Agreement, the “Agreement”), Mimecast Limited (the “Company”) hereby grants an award of the number of Restricted Share Units listed above (an “Award”) to the Grantee named above. Each Restricted Share Unit shall relate to one Ordinary Share of the Company (the “Shares”).
1.Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any Shares issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Share Units have vested as provided in Paragraph 2 of this Agreement and (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2.Vesting of Restricted Share Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in Appendix A hereto so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Share Units specified as vested on such date.
The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3.Termination of Employment. If the Grantee’s employment with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Share Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Share Units.
For purposes of the Restricted Share Units, the Grantee’s employment will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). The Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Grantee’s Restricted Share Unit grant.
4.Issuance of Shares. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Share Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a shareholder of the Company with respect to such Shares.
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5.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6.Responsibility for Taxes.
(a)Regardless of any action the Company or, if different, the Subsidiary that employs the Grantee (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”), the Grantee hereby acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Share Unit grant, including, but not limited to, the grant, vesting or settlement of the Restricted Share Units, the issuance of Shares pursuant to such settlement, the subsequent sale of Shares and the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Share Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Grantee is subject to tax in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b)Prior to any relevant taxable or tax withholding event, as applicable, the Grantee shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer or their respective agents, in their sole discretion and without any notice or authorization by the Grantee, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, (ii) withholding from the proceeds of the sale of Shares acquired upon settlement of the Restricted Share Units, either through a voluntary sale or through a mandatory sale arranged by the Company; and/or (iii) withholding from the Shares to be issued upon settlement of the Restricted Share Units.
(c)The Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum rates applicable in the Grantee’s jurisdiction, in which case the Grantee may receive a refund of any over-withheld amount in cash (with no entitlement to the Share equivalent) or, if not refunded, the Grantee may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding Shares, for tax purposes, the Grantee is deemed to have been issued the full number of Shares subject to the vested Restricted Share Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
(d)Finally, the Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds from the sale of Shares, if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items.
7.Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
8.No Obligation to Continue Employment. Neither the Company, the Employer nor any other Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Employer to terminate the employment of the Grantee at any time.
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9.Nature of the Grant. In accepting the grant of these Restricted Share Units, the Grantee acknowledges, understands and agrees as follows:
(a)The Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)The grant of these Restricted Share Units is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of restricted share units, or benefits in lieu of restricted share units, even if restricted share units have been granted in the past;
(c)All decisions with respect to future restricted share unit grants, if any, will be at the sole discretion of the Administrator;
(d)The Grantee is voluntarily participating in the Plan;
(e)The Restricted Share Units and Shares subject to the Restricted Share Units, and the income from and value of same, are not intended to replace any pension rights or compensation;
(f)The grant of the Restricted Share Units and the Grantee’s participation in the Plan shall not create a right to, or be interpreted as forming an employment or service contract with the Company;
(g)The Restricted Share Units and Shares subject to the Restricted Share Units, and the income from and value of same, are not part or normal or expected compensation or salary for any purpose, including, but limited to, calculating any severance, resignation, termination, payment in lieu of notice, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related payments, pension or retirement or welfare benefits or similar mandatory payments;
(h)The future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
(i)No claim or entitlement to compensation or damages shall arise from forfeiture of Restricted Share Units resulting from the termination of the Grantee’s employment (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any);
(j)Unless otherwise agreed with the Company, the Restricted Share Units and Shares subject to the Restricted Share Units, and the income from and value of same, are not granted as consideration for, or in connection with, the service the Grantee may provide as a director of a Subsidiary; and
(k)Neither the Company, the Employer nor any other Subsidiary shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Restricted Share Units or of any amounts due to the Grantee pursuant to the settlement of the Restricted Share Units or the subsequent sale of any Shares acquired upon vesting.
10.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
11.Insider Trading/Market Abuse Laws. The Grantee acknowledges that, depending on the Grantee’s country, the broker’s country, or the country in which Shares are listed, the Grantee may be subject to insider trading and/or market abuse laws which may affect the Grantee’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to such Shares (e.g., Restricted Share Units) or rights linked to the value of Shares under the Plan during such times as the Grantee is considered to have “material nonpublic information” or “insider information” regarding the Company (as defined by the laws or regulations in the relevant jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Grantee places before the Grantee possessed
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inside information. Furthermore, the Grantee could be prohibited from (i) disclosing inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Note that third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy, and the requirements of applicable laws may or may not be consistent with the terms of the Company’s insider trading policy. The Grantee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and that the Grantee should speak to his or her personal advisor on this matter.
12.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Restricted Share Units and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
13.Appendix B. Notwithstanding any provisions in this Restricted Share Unit Award Agreement, the Restricted Share Unit grant shall be subject to any special terms and conditions for the Grantee’s country set forth in the Appendix B hereto, including, but not limited to, data processing and international data transfers. Moreover, if the Grantee relocates to one of the countries included in Appendix B, the terms and conditions for such country will apply to the Grantee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix B constitutes part of this Restricted Share Unit Award Agreement.
14.Foreign Asset/Account Reporting. The Grantee acknowledges that there may be certain foreign asset and/or account reporting requirements which may affect the Grantee’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage or bank account outside the Grantee’s country. The Grantee may be required to report such accounts, assets or transactions to the tax or other authorities in the Grantee’s country. The Grantee also may be required to repatriate sale proceeds from the sale of Shares or other funds received as a result of participation in the Plan to the Grantee’s country through a designated bank or broker within a certain time after receipt. The Grantee acknowledges that it is his or her responsibility to be compliant with such regulations, and should consult his or her personal legal advisor for any details.
15.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or his or her acquisition or sale of the underlying Shares. The Grantee should consult with his or her own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.
16.Governing Law and Choice of Venue. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Massachusetts, U.S.A., without giving effect to its principles of conflicts of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of any state or U.S. federal court located in the Commonwealth of Massachusetts, U.S.A., and no other courts where the grant is made and/or to be performed.
17.Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
18.Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan by electronic means or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
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19.Language. The Grantee acknowledges that he or she is proficient in the English language and understands the provisions in this Agreement and the Plan. Further, if the Grantee has received this Agreement or any other documents related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
20.Waiver. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other person who holds outstanding Restricted Share Units.
21.Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
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MIMECAST LIMITED |
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Title: Chief Executive Officer |
I hereby certify that I have read the Agreement set forth above and acknowledge receipt of the Mimecast Limited 2015 Share Option and Incentive Plan Summary and Prospectus. The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
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6
TO THE
RESTRICTED SHARE UNIT AWARD AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
Vesting Schedule
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TO THE
RESTRICTED SHARE UNIT AWARD AGREEMENT
FOR COMPANY EMPLOYEES OUTSIDE THE UNITED STATES
UNDER THE MIMECAST LIMITED
2015 SHARE OPTION AND INCENTIVE PLAN
Capitalized terms used but not defined in this Appendix B have the meanings set forth in the Plan and the Restricted Share Unit Award Agreement.
Terms and Conditions
This Appendix B includes special terms and conditions applicable to the Grantee if the Grantee is in one of the countries listed below. These terms and conditions supplement or replace (as indicated) the terms and conditions set forth in the Restricted Share Unit Award Agreement. If the Grantee is a citizen or resident of a country other than the one in which he or she is currently residing and/or working, transfers employment and/or residency to another country after the Restricted Share Units are granted or is considered a resident of another country for local law purposes, the Company, in its discretion, will determine the extent to which the terms and conditions set forth in this Appendix B will apply to the Grantee.
Notifications
This Appendix B also includes information relating to exchange control, foreign asset / account reporting requirements and other issues of which the Grantee should be aware with respect to his or her participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of March 2020. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Grantee not rely on the information herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the Restricted Share Units vest or the Shares acquired under the Plan are sold.
In addition, the information is general in nature and may not apply to the Grantee’s particular situation. The Company is not in a position to assure the Grantee of any particular result. Accordingly, the Grantee should seek appropriate professional advice as to how the relevant laws in his or her country may apply to his or her situation. Finally, if the Grantee is a citizen or resident of a country other than the one in which he or she is currently residing and/or working, transfers employment and/or residency to another country after the Restricted Share Units are granted or is considered a resident of another country for local law purposes, the information contained herein may not be applicable to the Grantee in the same manner.
DATA PRIVACY PROVISIONS
Data Privacy Consent for Grantees outside the European Union (“EU”) / European Economic Area (“EEA”) / United Kingdom (“UK”)
Data Collection and Usage. The Company and the Employer may collect, process and use certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, details of all restricted share units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the purposes of implementing, administering and managing the Plan. The legal basis, where required, for the processing of Data is the Grantee’s consent.
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Stock Plan Administration Service Providers. The Company may transfer Data to third parties which assist the Company with the implementation, administration and management of the Plan. The Company may select different service providers or additional service providers and share Data with such other provider serving in a similar manner. The Grantee may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.
International Data Transfers. Certain of the Company’s operations, including its internal stock plan administration, and its service providers are based in the United States, which means that it will be necessary for Data to be transferred to, and processed in, the United States. The Grantee’s country or jurisdiction may have different data privacy laws and protections than the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent companies register for the EU-U.S. Privacy Shield program. The Company’s legal basis, where required, for the transfer of Data is the Grantee’s consent.
Data Retention. The Company will hold and use the Data only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax and security laws.
Voluntariness and Consequences of Consent Denial or Withdrawal. Participation in the Plan is voluntary and the Grantee is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke the Grantee’s consent, the Grantee’s salary from or service with the Employer will not be affected; the only consequence of refusing or withdrawing consent is that the Company would not be able to grant restricted share units or other equity awards to the Grantee or administer or maintain such awards.
Data Subject Rights. The Grantee may have a number of rights under data privacy laws in the Grantee’s jurisdiction. Depending on where the Grantee is based, such rights may include the right to (i) request access or copies of Data the Company processes, (ii) rectification of incorrect Data, (iii) deletion of Data, (iv) restrictions on processing of Data, (v) portability of Data, (vi) lodge complaints with competent authorities in the Grantee’s jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of Data. To receive clarification regarding these rights or to exercise these rights, the Grantee can contact the Grantee’s local human resources representative.
By accepting the Restricted Share Units and indicating consent via the Company’s acceptance procedure, the Grantee is declaring that the Grantee agrees with the data processing practices described herein and consents to the collection, processing and use of Data by the Company and the transfer of Data to the recipients mentioned above, including recipients located in countries which do not adduce an adequate level of protection from a European (or other non-U.S.) data protection law perspective, for the purposes described above.
Data Privacy Notification for Grantees inside the EU / EEA / UK
Purposes and Legal Bases of Processing. The Company processes the EU/UK Data (as defined below) for the purpose of administering and managing the Grantee’s participation in the Plan and facilitating compliance with applicable tax, exchange control, securities and labor law. The legal basis for the processing of the EU/UK Data by the Company and the third-party service providers described below is the necessity of the data processing for the Company to perform its contractual obligations under this Agreement and for the Company’s legitimate business interests of managing the Plan and generally administering employee equity awards.
EU/UK Data Collection and Usage. The Company and the Employer may collect, process and use the following types of personal information about the Grantee: the Grantee’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, details of all restricted share units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“EU/UK Data”).
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Stock Plan Administration Service Providers. The Company may transfer EU/UK Data to third parties which assist the Company with the implementation, administration and management of the Plan. The Grantee may be asked to agree on separate terms and data processing practices with the service provider, with such agreement being a condition to the ability to participate in the Plan.
International Data Transfers. Certain of the Company’s operations, including its internal stock plan administration, and its service providers are based in the United States, which means that it will be necessary for EU/UK Data to be transferred to, and processed in, the United States. The Grantee understands and acknowledges that the United States is not subject to an unlimited adequacy finding by the European Commission even though the Company has registered for the EU-U.S. Privacy Shield program, and that the EU/UK Data may not have an equivalent level of protection as compared to the Grantee’s country. The Company’s non-exclusive legal basis, where required, for the transfer of EU/UK Data is the Grantee’s consent.
Data Retention. The Company will hold and use the EU/UK Data only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan, or as required to comply with legal or regulatory obligations, including under tax, exchange control, securities and labor law. This means EU/UK Data may be retained after the Grantee's employment is terminated.
Data Subject Rights. The Grantee may have a number of rights under data privacy laws in the Grantee’s jurisdiction. Depending on where the Grantee is based, such rights may include the right to (i) request access or copies of EU/UK Data the Company processes, (ii) rectification of incorrect EU/UK Data, (iii) deletion of EU/UK Data, (iv) restrictions on processing of EU/UK Data, (v) portability of EU/UK Data, (vi) lodge complaints with competent authorities in the Grantee’s jurisdiction, and/or (vii) receive a list with the names and addresses of any potential recipients of EU/UK Data. To receive clarification regarding these rights or to exercise these rights, the Grantee can contact the Grantee’s local human resources representative.
Contractual Requirement. Where necessary, the Grantee’s provision of EU/UK Data and its processing as described above is a contractual requirement for the Grantee to participate in the Plan. The Grantee’s participation in the Plan and his or her acceptance of the Restricted Share Units is purely voluntary. The Grantee can refuse to provide EU/UK Data, as a result of which the Grantee will not be able to participate in the Plan, but the Grantee’s career and salary will not be affected in any way.
By accepting the Restricted Share Units and indicating consent via the Company’s acceptance procedure, the Grantee is declaring that the Grantee agrees with and consents to the transfer of EU/UK Data to the recipients mentioned above, including recipients located in countries which do not adduce an adequate level of protection from a European/UK data protection law perspective, for the purposes described above.
CANADA
Terms and Conditions
Issuance of Shares. Notwithstanding any discretion in the Plan, the Restricted Share Units shall be settled only in Shares. The Grantee shall not be entitled to receive a cash payment in settlement of the Restricted Share Units.
Termination of Employment. The following provision replaces the second paragraph of Paragraph 3 (“Termination of Employment”) of the Restricted Share Unit Award Agreement:
The Grantee’s termination of employment (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed, or the terms of the Grantee’s employment agreement, if any) will be deemed to have occurred as of the date that is the earliest of: (a) the date that the Grantee’s employment relationship with the Company or any of its Subsidiaries is terminated; (b) the date that the Grantee receives notice of termination of the Grantee’s employment relationship; and (c) the date that the Grantee is no longer actively providing services to the Company or any of its Subsidiaries. The Grantee will not earn or be entitled to any pro-rated vesting for that portion of time before the date on which the Grantee’s right to vest terminates, nor will the Grantee be entitled to any compensation for lost vesting. The
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Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of this Agreement. Notwithstanding the foregoing, if applicable employment standards legislation explicitly requires continued entitlement to vesting during a statutory notice period, the Grantee’s right to vest in the Restricted Share Units under the Plan, if any, will terminate effective as of the last day of the Grantee’s minimum statutory notice period, but the Grantee will not earn or be entitled to pro-rated vesting if the vesting date falls after the end of such statutory notice period, nor will the Grantee be entitled to any compensation for lost vesting.
The following provision applies if the Grantee resides in Quebec:
Language Consent. The parties acknowledge that it is their express wish that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Consentement Relatif à la Langue. Les parties reconnaissent avoir expressement souhaité que la convention «Agreement » ainsi que tous les documents, avis et procédures judiciaries, éxecutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
Notifications
Securities Law Information. Shares acquired under the Plan may not be sold or otherwise disposed of within Canada. The Grantee may sell the Shares acquired under the Plan only through any third-party stock plan service provider selected by the Company either now or in the future, provided the sale of Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are traded. The Shares are currently traded on the Nasdaq Global Select Market.
Foreign Asset/Account Reporting Information. Specified foreign property, including shares and rights to receive shares (e.g., stock options, restricted stock units) of a non-Canadian company held by a Canadian resident must generally be reported annually on a Form T1135 (Foreign Income Verification Statement) if the total cost of the foreign property exceeds C$100,000 at any time during the year. Thus, the Restricted Share Units must be reported (generally at a nil cost) if the C$100,000 cost threshold is exceeded because of other specified foreign property held by the Grantee. When Shares are acquired, their cost generally is the adjusted cost base (“ACB”) of the Shares. The ACB would ordinarily equal the fair market value of the Shares at the time of acquisition, but if the Grantee owns other Shares, this ACB may have to be averaged with the ACB of the other Shares. The Grantee should consult a personal tax advisor to ensure compliance with applicable reporting obligations.
NETHERLANDS
Terms and Conditions
Labor Law Acknowledgment. By accepting this Award, the Grantee acknowledges that: (i) the Restricted Share Units are intended as an incentive to remain employed with the Employer and are not intended as remuneration for labor performed; and (ii) the Restricted Share Units are not intended to replace any pension rights or compensation.
UNITED ARAB EMIRATES
Notifications
Securities Law Information. The Restricted Share Units are available only for select employees of the Company and its Subsidiaries and are in the nature of providing employee incentives in the United Arab Emirates. The Agreement, the Plan and other incidental communication materials are intended for distribution only to eligible employees for the purposes of an employee incentive scheme, and must not be delivered to, or relied on, by any other person.
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The Dubai Creative Clusters Authority, Emirates Securities and Commodities Authority and/or the Central Bank of the United Arab Emirates have no responsibility for reviewing or verifying any documents in connection with the Restricted Share Units. Further, neither the Ministry of Economy nor the Dubai Department of Economic Development have approved this Agreement nor taken steps to verify the information set out in it, and have no responsibility for it.
The securities to which this Agreement relate may be illiquid and/or subject to restrictions on their resale. Individuals should conduct their own due diligence on the securities.
Residents of the United Arab Emirates who do not understand or have questions regarding this Agreement (including this Appendix B) or the Plan should consult an authorized financial adviser.
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FY 2021 Executive Incentive Plan Mimecast Limited I Effective: April 1, 2020 Exhibit 10.42
FY 2021 Executive Incentive Plan Metrics & Weighting: 75% Net New ARR / 25% Non-GAAP Operating Income. Awards are interpolated between achievement percents (e.g., 102.5% NNARR achievement results in award of 105%). Each metric is capped at 150% of award quarterly; overall quarterly award payments are capped at 100% with any overachievement earned to be reconciled at year end. If the full year metric target is achieved, then any quarters that were paid at less than 100% will be paid out at target for that missed quarter and included in the Q4 award. Subject to the Mimecast Limited Policy for Recoupment of Executive Incentive Compensation (Clawback Policy). FY21 Payout Scale Net New ARR (NN ARR)- 75% of Incentive Achievement Award 75% 75% 80% 80% 85% 85% 90% 90% 95% 95% FY21 Target 100% 100% 105% 110% 110% 120% 115% 130% 120% 140% 125% 150% Non-GAAP Operating Income (OI)- 25% of Incentive Achievement Award 85% 50% 90% 67% 95% 83% FY21 Target 100% 100% 105% 117% 110% 133% 115% 150%
Exhibit 10.44
June 23, 2016
Dino DiMarino
Dear Dino,
Mimecast is pleased to offer you the position of Senior Vice President of North American Sales with a start date of August 15, 2016 contingent on successful background and reference check. You will work from the Watertown office and report to Ed Jennings, Chief Operating Officer.
Our offer of employment is as follows:
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i. |
Your semi-monthly salary will be $11,458.34 ($275,000.16 annualized), to be paid on a semi-monthly basis; |
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You will be eligible for a variable compensation component of $275,000 based on meeting individual and company targets which. This variable component will be pro- rated based on your start date and the measurements will be agreed to by you and I; |
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iii. |
Subject to approval by the Company’s Board of Directors, you will be awarded 250,000 options which will be issued on the first trading day in September 2016 and priced as of the close of that day. Vesting for this award will commence on the vesting commencement date stated in the Option Agreement. Unless otherwise specified in the schedule in the Option Agreement, the vesting schedule shall be as follows: 25% of the Options shall be vested on the first anniversary of the vesting commencement date and thereafter 6.25% of the Option Shares shall vest quarterly until the Option Shares are fully vested on the fourth anniversary of the vesting commencement date; |
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If your employment is terminated for reasons other than cause, such as a reduction-in-force or a material change in job requirements, and upon signing a customary release of claims, the Company will pay you 6 months of base salary as severance and continue your medical benefits throughout this period; |
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If there is a Change In Control, defined as another company purchasing more than fifty percent (50%) of the issued and outstanding equity in the company, fifty percent (50%) of any of your then unvested outstanding options will immediately become vested and exercisable. In addition, if within one (1) year after a Change of Control you are required to assume a position with materially different job duties or responsibilities, your base salary or total on target compensation is reduced by more than 5%, or your employment is terminated without “Cause” or a change in the location of your employment of more than fifty miles (50) from the then-current location, unless such relocation is within fifty (50) miles of your principal residence, then the remainder of your unvested options will become immediately vested and exercisable. For the avoidance of doubt, “Change of Control” means the sale of all or substantially all the assets of Company through a merger, consolidation or acquisition of the Company with, by or into another corporation, entity or person; or any change in the ownership of more than fifty percent (50%) of the voting capital stock of Company in one or more related transactions. A merger or consolidation of the company means that the shareholders of the Company hold less than 50% of the shares in the resulting entity on completion of the transaction. |
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You will be eligible for three weeks of vacation annually in addition to other benefits available to employees for sick and holiday time which will be pro-rated for the remainder of the fiscal year. |
Your employment relationship with Mimecast will be ‘at-will’, meaning that you are free to resign from, and Mimecast is free to terminate, your employment at any time for any reason, with or without notice. Nothing in this offer letter shall be construed to alter this ‘at-will’ employment relationship.
Your acceptance of this offer (‘Offer Letter’) is subject to your signature on a ‘Confidentiality and Non-Disclosure (Agreement), which will be provided to you under separate cover. No prior promises, discussions, representations, or other understandings relative to terms or conditions of your employment are to be considered part of this agreement unless expressed in writing in this Offer Letter and the Agreement.
Mimecast reserves the right to conduct background and reference checks and your employment is contingent on satisfactory results of those checks. Upon acceptance, we will provide you with the new hire paperwork and an I-9 form, which is required by the government to verify employment eligibility. Noted on the back of the I-9 are lists of acceptable documents for this purpose. The appropriate documents must be presented when you report to work, since we will be unable to process your employment paperwork without them.
Please sign this offer letter below and confirm acceptance by email reply to Joe Freitas at jfreitas@mimecast.com. On your first day, please bring the original signed document and identification needed for proof of eligibility to work in the United States.
Mimecast Ltd – Corporate Headquarters
CityPoint, One Ropemaker Street, Moorgate, London EC2Y 9AW
tel: +44 (0)207 843 2300 email: info@mimecast.com
www.mimecast.com
© 2009 Mimecast.. Mimecast is a company registered in England and Wales. Registered Office number:4698693 VAT number:GB 832 5179 29
Dino, we are very pleased to have you join our growing team. We believe your association with Mimecast will be mutually rewarding and beneficial. If you have any questions, please call me .
Sincerely,
/s/ Ed Jennings
Ed Jennings
Chief Operating Officer
Accepted by: |
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/s/ Dino DiMarino |
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Date: |
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June XX, 2016 |
Exhibit 10.45
mimecast
Heather Bentley
12/10/2019
Dear Heather,
Offer of Employment at Mimecast Services Limited (the "Company")
Following your interviews with Mimecast, it is with pleasure that we offer you the position of a Senior Vice President, of Customer Operations (COPS), to be located in our London UK office.
Your employment will be on the terms set out in our standard UK Employment Contract which will be sent to you early next week. However, some of the basic terms are set out below for ease.
This is a full-time position working five days per week on Monday to Friday. Benefits include annual leave of 25 days plus the usual UK bank and public holidays, Private Medical Insurance, Pension and Life coverage. Your annual salary will be per £225,000.00 per annum.
In addition to your salary, you shall be eligible to participate in the Company's bonus scheme, benefit is based on your achievement of certain, pre-agreed criteria, which will be determined in advance and discussed with you. The target bonus for which you will be eligible is 50% of your salary per annum. The scheme is non-contractual and the Company reserves the right to vary, replace or withdraw the scheme at any time.
Subject to approval by the Company's Board of Directors, you will be given an option to purchase 75,000 options which will be issued on the first trading day after the month that you are hired and priced as of the close of that day. The vesting schedule for the options will be as follows: 25% of the options will vest on the first anniversary of the vesting commencement date and thereafter 6.25% of the options will vest quarterly until the options are fully vested on the fourth anniversary of the vesting commencement date.
In addition, subject to the approval by the Company's Board of Directors, you will be granted 25000 restricted share units ("RSUs") which will be issued on the first trading day in the month following your start date and priced as of the close of that day, vesting 25% annually over a period of . four years.
If your employment is terminated for reasons other than cause, such as a reduction- in-force or a material change in job requirements, and upon signing a customary release of claims, the Company will pay you 6 months of base salary as severance and continue your benefits throughout this period.
If there is a Change In Control, defined as another company purchasing more than fifty percent (50%) of the issued and outstanding equity in the company, fifty percent (50%) of any of your then unvested outstanding options will immediately become vested and exercisable. In addition, if within one (1) year after a Change of Control you are required to assume a position with materially different job duties or responsibilities, your base salary or total on target compensation is reduced by more than 5%, or your employment is terminated without "Cause" or a change in the location of your employment of more than fifty miles (50) from the the current location , unless such relocation is within fifty (50) miles of your principal residence, then the remainder of your unvested options will become immediately vested and exercisable. For the avoidance of doubt, "Change of Control" means
the sale of all or substantially all the assets of Company through a merger, consolidation or acquisition of the Company with, by or into another corporation, entity or person; or any change in the ownership of more than fifty percent (50%) of the voting capital stock of Company in one or more related transactions. A merger or consolidation of the company means that the shareholders of the Company hold less than 50% of the shares in the resulting entity on completion of the transaction.
The offer is subject, at the Company's discretion to the following:
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The Company receiving two references from former employers (one of which must be from your current employer) which it considers satisfactory. Please provide the names and contact details of your referees when you accept the offer. We will not take up references until you have accepted the offer. |
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2. |
The Company reserves the right to conduct background and reference checks and your continued employment is contingent on satisfactory results of those checks. |
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3. |
You entering into an Employment Contract on the Company's standard terms and conditions on or before commencing employment. Please let us know if you require any further information in this regard. |
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You showing the Company your passport (which we will then copy and return to you). If you do not hold a British passport, a passport from a country within the European Economic Area (EEA), or a passport from a non-EEA country which gives you the right to work in the UK. |
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This offer may be withdrawn or, if you have started employment with the Company, your employment shall be terminated with immediate effect, if any of the above conditions are not satisfied.
By accepting this offer, you confirm that you are able to accept this job and carry out the work that it would involve without breaching any legal restrictions on your activities, including (but not limited to) any restrictions imposed by a current or by a former employer. Please review and sign back this offer letter. If you have questions please do not hesitate to contact Karen Anderson, CHRO (kanderson@mimecast.com).
Heather, we are excited for you to join Mimecast and believe you will make a significant contribution to the leadership team. We look forward to hearing from you and hope to be able to welcome you to the Company shortly!
Best regards,
/s/ Peter Bauer
Peter Bauer
Chief Executive Officer
Accepted by:/s/ Heather Bentley
Exhibit 10.46
Dated:
2019
Mimecast Services Limited (1)
and
Heather Bentley (2)
Employment Contract
PARTIES
(1) MIMECAST SERVICES LIMITED incorporated and registered in England and Wales with company number 04901524 whose registered office is at 1 Finsbury Avenue, London, EC2M 2PF (the "Company"); and
(2) Heather Bentley of
{the
"Employee" or "you")
AGREED TERMS
1. COMMENCEMENT AND TERM
1.1. The Company shall employ you and you shall serve the Company on the terms of this agreement
("Agreement").
1.2. This Agreement will commence on 25 November 2019 and will continue in force unless and until terminated by either party in accordance with the remaining terms of this Agreement.
1.3. No previous employment counts as part of your continuous employment with the Company.
2. JOB TITLE AND DUTIES
2.1. You are employed as SVP Customer Success and Support. Your job title may be changed from time to time where the Company considers it reasonable or necessary to do so.
2.2. Your duties include all work normally associated with your job title and any specific duties which are assigned to you from time to time or contained in any job description which may be issued to you. Your duties may be reasonably modified as necessary to meet the needs of the Company's business. The Company has the right at any time and for any reason to reasonably vary, replace or extend your job description and to change the person to whom you report.
2.3. You will initially report to Peter Bauer ("Line Manager") however, you may be given instructions from any superior or director or other person as the Company from time to time deems appropriate. It is a condition of your employment that you are prepared to undertake reasonable duties other than those for which you have been specifically engaged.
2.4. You shall not, without the Company's prior written consent:
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be employed or engaged in any other business during the course of your employment with the |
Company; or
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directly or indirectly, be concerned or interested in any trade, ousmess or organisation insofar as such concern or interest may conflict with your duties to the Company. |
If you think you may be in breach of lhis clause in respect of any commilmenl or interests you must disclose this to the Company al lhe earliest available opportunity. Consent will not be unreasonably withheld.
2.5. You agree to familiarise yourself and comply with the rules, policies and procedures of me Company from time to lime in force (including, for the avoidance of doubt, those mcludeo in your induction programme via our Learning Management System as well as those on the Company's Intranet), although these do not form part of your contract of employment, unless slated otherwise. /\ll rules, policies and procedures can be found on the Company's intranet and are also available from Human Resources. The Company has the right at any time and for any reason lo withdraw, replace or change any rules, policies and procedures that may be in place from lime lo lime. Breaching any rules, policies and procedures may result in disciplinary action being taken against you. To the extent that there is any conflict between lhe terms of this Agreement and any rule, policy or procedure then lhe terms of this Agreement shall prevail.
2.6. All documents, manuals, hardware and software provided for your l!Se by the Company, and any data or documents (including copies) proouced, maintained or stored on the Company's computer systems or other electronic equipment (including mobile phones and laptop computers), remain the property of the Company.
3. HOURS AND PLACE OF WORK
3.1. Your normal working hours are 9 a.m. to s.o.m. Monday to Friday (with an hour for lunch}, together with such additional hours as may be necessary for the proper performance of your duties. However, start and finish times may be varied by the Company to meet local operating requirements. You acknowledge that you shall not receive further remuneration in respect of such additional hours of work.
3.2. Your normal place of work is the Company's office at 1 Finsbury Avenue, London, EC2M 2PF, out the Company may require you to work at any place within Greater London on either a temporary or an indefinite basis for the proper performance and exercise of your duties.
3.3. You agree to travel on any Company business (both within the United Kingdom or abroad) as may be required for the proper performance of your duties, however, you shall not be required to work outside of the United Kingdom for any continuous period of more than a month.
3.4. You consent to the transfer of your employment under this Agreement to an Associated Employer at any time during your employment, which may entail reasonable relocation of your place of work.
3.5. You agree that you may work for more than an average of 48 hours a week unless you notify the Company in writing at the time of signing this Agreement that you do not wish to do so. If you change your mind about the agreement to work for more than an average of 48 hours a week, you must give the Company three months' notice in writing.
4. PROBATIONARY PERIOD
4.1. The first three months of your employment is a probationary period and your employment may be terminated by either party during this period at any time by giving one week's notice or by payment in lieu of such notice. The Company may, at its discretion. extend the probationary period for up to a further three months and if it shall fail to notify you either verbally or in writing that you have successfully completed your probationary period, it will be treated as having been extended for a further three months.
5. SALARY, BENEFITS & DEDUCTIONS
5.1. You are paid a gross salary of £225,000 per annum.
5.2. Your salary shall accrue from day to day and will be paid in twelve equal monthly instalments. in arrears, on or about the last Friday of each calendar month. This will be paid by way of bank credit transfer directly into your bank or building society, after the deduction of tax and National Insurance contributions and any other such deductions which are agreed or which the Company is required by law to deduct. Although the Company will make all reasonable, necessary arrangements to ensure that salaries are paid by their due date, it cannot be held responsible for late payment of salaries in the event of bank transfer delays.
5.3. Your salary may be reviewed annually at the sole discretion of the Company but a salary increase is not a contractual entitlement. The Company is under no obligation to award an increase following a salary review. There will be no review of salary after notice has been given by either party to terminate your employment nor will salaries be reviewed when employees are still within their probationary period.
5.4. You will be eligible to participate in the Company's discretionary corporate bonus scheme in accordance with the rules of the scheme as amended from time lo time. The objective of the bonus scheme is to attract, motivate and retain talented and effective staff. The maximum potential bonus for which you will be eligible is 50% of your annum base salary, pro rated if you join part was through a fiscal year. The Company will have absolute discretion over your maximum potential bonus, targets set for each bonus period and the amount that you would receive. The Company will inform you of the targets once they have been set and of the amount you would receive if those targets were met. In considering payment of any bonus the Company will take account of whatever factors it considers appropriate which will include (but will not necessarily be limited to) targets being met, company performance and your own individual contribution and performance. If the Company makes any bonus payments to you during your employment it shall not become obliged to make bonus payments in future years. In any event, you will not, unless otherwise agreed at the sole discretion of the Company, be eligible to receive a bonus if your employment has terminated (for any reason) or if you are serving a period of notice (whether given by you or the Company) at lhe lime that bonuses are paid. The Company reserves the right to withdraw, replace or vary the scheme at any time.
5.5. You authorise the Company at any time during your employment or in any event on the termination of your employment, to deduct from your salary payment and any sums the Company is liable to pay lo you, any amount from lime to time which you owe to the Company including but not limited to any outstanding loans, advances, payments for excess holiday and overpayment of wages and you expressly consent to any such deductions pursuant to Part 11 of the Employment Rights Act 1996.
5.6. You are eligible for membership of the Company's non contributory Private Medical Insurance Scheme subject always to the rules of the scheme in place from time to lime, and subject to you being eligible to participate in or benefit from the scheme. The Company reserves the right to terminate its participation in any private medical insurance scheme or substitute another scheme or alter the benefits available under the scheme. This is a taxable benefit.
5. 7. All eligible employees will be automatically enrolled into the Group Personal Pension Plan set up by the Company. New members of staff will be automatically enrolled, providing they are eligible, after three months service with the Company, but can elect to opt in sooner should they wish to do so. Employees are required to contribute a minimum of 3.5% of their total pay and the company will also pay 3.5% into their pension Plan. Entry to the Plan is by default on the basis of salary exchange unless you opt out of
the salary exchange arrangements. Details can be obtained from HR and are available on the Company's intranet.
6. HOLIDAYS
6.1. You shall be entitled to 25 days' paid holiday in each holiday year together with the usual public holidays in England and Wales. The Company's holiday year runs between 1 April and 31 March. If you work part-time, this entitlement will be pro-rated as appropriate. If your employment commences or terminates part way through a holiday year, your entitlement during that holiday year shall be calculated
on a pro-rata basis rounded to the nearest half day.
6.2. You must give reasonable notice of proposed holiday dales which must be agreed in advance with your Line Manager and in accordance with the Company's holiday request procedures, in place from time to time. You may carry rorward any unused holiday entitlement into the next holiday year, this is known as overdue holiday. Any such overdue holiday carried forward must be taken within the first 6 months of the following holiday year or such leave will be forfeited. There will be no payment in lieu of overdue leave in any circumstances.
6.3. You shall have no entitlement to any payment in lieu of accrued but untaken holiday save on termination of your employment. If you have taken more than your accrued entitlement, you will be required
to reimburse the Company in respect of the excess days taken and the Company is authorised to deduct the appropriate amount from any sums due to you. Subject to clause 6.4 the amount of such payment in lieu shall be based on your entitlement under clause 6. 1 for the leave year in which termination takes place and shall be paid at the rate of 1/26Dth of your salary for each untaken day.
6.4. On termination of your employment, the Company may either require you lo take any unused and accrued holiday entitlement during any notice period by giving you at least one day's notice or make a payment in lieu of that entitlement.
7. ABSENCE
7.1. If you are absent from work for any reason, you must notify your line Manager of your absence and the reason for your absence by 9.15 a. m. or as soon as possible on the first day of absence. If the absence is due to illness you are required to give details of the nature of the illness and any indication that can be given of your anticipated length of absence. Failure to do so may result in disciplinary action or the withholding of sick pay.
7.2. In all cases of absence a self-certification form, which is available on the Company's intranet or from Human Resources, must be completed on your return to work and supplied to Human Resources. You must also register your absence on the Intranet. The Company may take whatever steps it considers reasonably necessary to verify that a self-certification form is accurate and valid.
7.3. For any period of incapacity due to sickness or injury which lasts for seven consecutive days or more. a doctor's certificate stating the reason for absence must be obtained at your own cost and supplied lo Human Resources. Further certificates must be obtained if the absence continues for longer than the period of the original certificate.
7.4. You agree to consent to a medical examination (at the Company's expense) by a doctor or specialist nominated by the Company should the Company so require. You agree that any report produced in connection with any such examination be disclosed to the Company and the Company may discuss \he contents of the report with the relevant doctor/specialist. Alternatively, you may be asked to obtain a medical report from your GP or another person responsible for your clinical care and to provide this lo the Company and to give permission to the Company to discuss the report with your GP or other person. The purpose of this report is to ascertain medical opinion as to \he effects of any condition on your ability to undertake your role and to highlight any reasonable adjustments for consideration.
7.5. While the Employer will normally be sympathetic to cases of genuine sickness, illness or accident, prolonged, persistent or regular absence may be dealt with through the Company's Sickness and Health and/or disciplinary procedure(s), in place from time to time. The Company reserves the right to terminate employment on grounds of ill-health if you are no longer capable of fulfilling the requirements of the role.
7.6. You shall abide by the Company's policies on sickness and incapacity as communicated and as amended from time to time. Any abuse of the Company's sickness and incapacity policies will result in disciplinary action being taken against you. All policies referred to in this section can be found on the Company's intranet ano are not incorporated into this Agreement by reference.
8. SICK PAY
8.1. You will be entitled to Company Sick Pay (being normal basic salary) for a total of 10 days over 3 instances of sickness in any 12 month rolling period. Thereafter, you will be entitled to Statutory Sick Pay ("SSP") in accordance with the rules laid down by law subject to meeting any qualifying conditions. Company Sick Pay and SSP are paid conditional upon your compliance with the Company's sickness absence procedures. Company sick pay is inclusive of any SSP to which you may be entitled for those days.
8.2. Qualifying days for SSP purposes are defined as those days of the week on which you are contracted to work. Should the Company, in its absolute judgement make any discretionary payment in times of sickness. this includes any entitlement to SSP.
8.3. You will forfeit your entitlement to Company Sick Pay if you refuse to attend a medical examination pursuant to clause 7.4 or if your incapacity has been caused by participation in dangerous sports or activities. You may also forfeit your entitlement to SSP if you fail to comply with the notification procedures or if you make or produce any misleading or untrue statement or document concerning your fitness for work.
8.4. You agree to repay the Company on request such sums as you may receive by way of sick pay if you recover compensation and/or damages from any third party including the Company as a consequence of your suffering illness and/or injury.
9. CONFIDENTIAL INFORMATION
9.1. Without prejudice to your common law duties, you shall not (except in the proper course of your duties, as authorised or required by law or as authorised by the Company) either during your employment or at any time after termination of your employment (howsoever arising):
9.1.1. use any Confidential Information; or
9.1.2. make or use any Copies; or
9.1.3. disclose any Confidential tnformation to any person, company or other organisation whatsoever.
9.2. The restriction in clause 9.1 does not apply to any Confidential Information which is or becomes in the public domain other than through your or any unauthorised disclosure.
9.3. You must familiarise yourself with any policy or procedure relating to the Company's information and its security and you shall be responsible for protecting the confidentiality of the Confidential Information and shall:
9.3.1. use your best endeavours to prevent the use or communication of any Confidential Information by any person. company or organisation (except in the proper course of your duties, as required by law or as authorised by the Company); and
9.3.2. inform the Company immediately on becoming aware, or suspecting, that any such person, company or organisation knows or has used any Confidential Information.
9.4. All Confidential Information and Copies shall be the property of the Company and on termination of your employment. or at the request of the Company, you agree that you will:
9.4.1. hand over all Confidential Information or Copies to the your Line Manager or Human Resources;
9.4.2. forward a copy to us and then irretrievably delete any Confidential Information stored on any magnetic or optical disk or memory, including personal computer networks, personal e-mail accounts or personal accounts on websites, and all matter derived from such sources which is in his possession or under your control outside the Company's premises; and
9.4.3. provide a signed statement that you have complied fully with your obligations under this clause 9.
9.5. Any breaches of this clause 9 will render you subject to disciplinary action, including, but not limited to summary dismissal. However, nothing in this clause 9 shall prevent you from disclosing information which you are entitled to disclose under the Public Interest Disclosure Act 1998, provided that the disclosure is made in accordance with the provisions of that Act and you have complied with the Company's policy from time to time in force regarding such disclosures.
10. INTELLECTUAL PROPERTY
10.1. You acknowledge that all Employment IPRs. Employment Inventions and all materials embodying them shall automatically belong to the Company to the fullest extent permitted by law.
10.2. You hereby assign as appropriate and to the fullest extent permitted by law all existing and future rights {including Employment IPRs), titles and interests in all Employment Inventions to the Company. To the extent that they do not vest in the Company automatically, you hold them on trust for the Company.
10.3. You undertake to use your best endeavours to execute all documents and do all acts both during and after your employment by the Company as may, in the opinion of the Company, be necessary or desirable to vest the Employment I PRs in the Company, to register them in the name of the Company and to protect and maintain the Employment IPRs and the Employment Inventions anywhere in the world. Such documents may, at the Company's request, include waivers of all and any statutory moral rights relating to any copyright works which form part of the Employment IPRs. The Company agrees to reimburse your reasonable expenses of complying with this clause 10. 3.
10.4. You agree to give all necessary assistance to the Company to enable it to enforce its Intellectual Property Rights against third parties, to defend claims for infringement of third party Intellectual Property Rights and to apply for registration of Intellectual Property Rights, where appropriate throughout the world, and for the full term of those rights.
10.5. Notwithstanding the foregoing, this Agreement does not obligate you to assign to the Company any invention which, in the Company's reasonable judgment is: (i) developed entirely on your own time; (ii) developed without the use of any Company resources; and (iii) unrelated to the business efforts or research and development efforts in which the Company is engaged or reasonably could be expected to engage in during your employment with the Company. However. you will promptly disclose to the Company any such inventions for the purpose of determining whether they qualify for such exclusion.
10.6. To preclude any possible uncertainty, you agree that you have set forth on Exhibit A attached hereto a complete list of inventions (including any issued or pending patents for which you are named as an inventor) that you (alone or jointly with others) have conceived or developed or began developing prior to your employment with the Company which you consider to be your property or the property of third parties and that you wish to have excluded from the scope of this Agreement ("Prior Inventions"). If, in the course of your employment with the Company, you incorporate a Prior Invention into a Company product, service, process, machine, or other work done for the Company, you hereby grant to the Company a nonexclusive, royalty-free, paid-up, irrevocable, worldwide license to make, have made, modify, use, sell,
offer for sale and import such Prior Invention. Notwithstanding the foregoing, you will not incorporate, or permit to be incorporate Prior Inventions in any Employment Invention.
11. TERMINATION OF EMPLOYMENT
11.1. During your probationary period (including any period by which your probationary period is extended), your employment may be terminated at any time by the Company giving one week's notice in writing.
11.2. Subject to the provisions regarding earlier termination contained in this Agreement and following successful completion of your probationary period, this Agreement shall continue until terminated by either party giving one months' notice in writing to the other in the first 4 years of employment and thereafter one week's notice for each complete year of employment up to a maximum of 12 weeks after
12 or more complete years of employment.
11.3. Notwithstanding clause 11.2, the Company may (in its sole and absolute discretion) terminate your employment al any lime and with immediate effect by making you a payment in lieu of all or part of your notice period consisting your basic salary only, less the usual tax and national insurance contributions.
11.4. You will have no right to receive a payment in lieu of notice unless the Company has exercised its discretion in clause 11.3 above. Nothing in this clause 11 shall prevent the Company from terminating your employment and electing not to make you any payment in lieu of notice.
11.5. If at any lime either you or the Company gives notice of termination of this Agreement then the Company may in its absolute discretion place you on garden leave during your notice period. During any period of garden leave the Company will be under no obligation to provide any work for you and you will have no right to perform any duties or services for the Company or any member of the Group. The Company will be entitled to exclude you from any premises of the Company or any other member of the Group and to require you lo resign from any or all offices of the Company and of any member of the Group. You must also comply with any conditions laid down by the Company including but not limited to the prohibition of any contact and/or dealings between you and the customers, clients, suppliers, employees, agents, distributors and/or consultants of the Company or any member of the Group but for the avoidance of doubt you will remain an employee and remain bound by all your obligations (except those from which you are explicitly released) and be entitled to all your remuneration and benefits in this Agreement.
11.6. The Company may also terminate your employment at any time with immediate effect without notice and without payment in lieu of notice if you:-
11.6.1. are guilty of gross misconduct or commit any material or (after warning) repeated or continued breach or non-observance of your obligations to the Company (whether under this Agreement or otherwise) or if you refuse or neglect to comply with any reasonable and lawful directions of the Company; and/or if you
11.6.2. are guilty of any fraud or dishonesty or act in a manner which in the opinion of the Company
brings or is likely lo bring you or the Company into disrepute or is materially adverse to the interests of the
Company; and/or if you
11.6.3. are found guilty of having committed a criminal offence other than minor road traffic offences for which no custodial penalty is imposed.
11.7. The rights of the Company under clause 11.6 are without prejudice to any other rights that it might have at law to terminate your employment or to accept any breach by you of this Agreement as having brought this Agreement to an end. Any delay by the Company in exercising its rights to terminate shall not constitute a waiver thereof.
12. OBLIGATIONS UPON TERMINATION
12.1. On termination of your employment (howsoever arising) you will:
12.1.1. immediately deliver to the Company all documents, books, materials, records, correspondence, papers and information (on whatever media and wherever located and including any copies or notes relating to it) relating to the business or affairs of ils business contacts, any keys or keycards, and any other property of the Company including any laptop computer, mobile phone, blackberry or other electronic device which is in your possession or under your control;
12.1.2. forward a copy to us and then irretrievably delete any information relating to the business of the Company stored on any magnetic or optical disk or memory and all matter derived from such sources which is in your possession or under your control outside the Company's premises;
12.1.3. provide us with details on request of any passwords or passcodes used by you; and
12.1.4. if requested to do so by the Company provide a signed statement that you have complied fully with your obligations under this clause 12. 1.
12.2. On termination of your employment howsoever arising you shall not be entitled to any compensation for the loss of any rights or benefits under any share option, bonus, long-term incentive plan or other profit sharing scheme operated by the Company in which you may participate.
12.3. If your employment is terminated at any time in connection with any reconstruction or amalgamation of the Company whether by winding up or otherwise and you receive an offer of employment (on terms no less favourable overall than the terms of this Agreement) from an undertaking involved in or resulting from such reconstruction or amalgamation you will have no claim whatsoever against the Company arising out of or connected with such termination.
13.1. Subject to the provisions regarding earlier termination contained in this Agreement, this Agreement shall terminate on the date that you reach age 65 (subject to any statutory procedures applicable on retirement and in accordance with any applicable Retirement Policy set out by the Company from time to time) or such age as may from time to time be determined by the Company as the normal retirement age.
14. DISCIPLINARY AND GRIEVANCE PROCEDURES
14.1. You are subject to the Company's Disciplinary and Grievance procedures, copies of which are available from Human Resources and on the Company's Intranet. These procedures do not form part of your contract of employment and the Company reserves the right to replace or amend these procedures from time lo lime lo improve clarity, reflect best practice or keep in line with changing legislation.
14.2. If you wish to appeal against a disciplinary decision you may appeal in writing in accordance with the Company's Disciplinary procedure in place from lime to time.
14.3. You may be suspended al any time during any period in which the Company is carrying out a disciplinary investigation into any alleged acts or defaulls. During any period of suspension you shall continue to receive your salary and contractual benefits for a period of up to 20 working days, or such longer period as shall reasonably be necessary to conclude the investigation.
14.4. If you wish to raise a grievance, you may apply in writing to your Line Manager in accordance with the Company's Grievance procedure.
15. COLLECTIVE AGREEMENT
15.1. There is no collective agreement in force which directly affects your employment.
16. HEALTH AND SAFETY
16.1. The Company will take all reasonable steps to ensure your health and safety and welfare while al work. You must comply with any rules or regulations made from time to time by the Company for Ille health safety and welfare of its employees and familiarise yourself with such rules or regulations including the Health and Safety Policy and the Company's Health and Safety Manual which is available on the Company's Intranet. This policy/manual is for information purposes and does not incorporate into this agreement by reference.
16.2. You must also take care of your own health and safely and that of your colleagues or others who may be affected by your acts or omissions at work. You must inform your Line Manager or a member of Human Resources if you feel that your health is affected by any work-related issue.
16.3. Wilful breaches of U1e Company's Health and Safely policies will be dealt with through the
Company's Disciplinary procedure.
17. STATUTORY LEAVE ENTITLEMENT
17.1. Employees who are eligible for maternity, paternity, parental or adoption leave will be given those statutory rights which are, from time to time, in force.
17.2. Should you be eligible for, and wish to take, maternity, paternity, parental or adoption leave, please consult the Company's policies and procedures for further details. These can be found on the Company's intranet and provide information and guidance, in place from time to time, but is not legally binding.
18.1. Telephone calls made and received by you using the Company's equipment, use of the email system to send or receive business or personal correspondence and use of the Internet may be monitored andlor recorded by the Company for the purposes of ensuring appropriate use, including
(without limitation) compliance with the Company's policies, assisting in the investigation of wrongful acts, complying with legal obligations and finding or retrieving lost messages. You acknowledge that the
content of any communications using the Company's systems or anything stored on such systems will not be private and confidential to you but will belong to the Company and that such systems should be used for business purposes.
18.2. Further details are contained in the Company's policies regarding email and internet usage, copies of which can be found on the Company's intranet. Any breach of the Company's email and internet policies will resu It in disciplinary action being taken against you.
19. DATA PROTECTION
19.1. You consent lo the Company processing data relating to you for legal, personnel, administrative and management purposes and in particular to the processing of any sensitive personal data (as defined in the Data Protection Act 1998) relating to you including, as appropriate:
19.1.1. information about your physical or mental health or condition in order to monitor sick leave and take decisions as to your fitness for work;
19.1.2. your racial or ethnic origin or religious or similar beliefs in order to monitor compliance with equal opportunities legislation;
19.1.3. information relating to any criminal proceedings in which you have been involved for insurance purposes and in order to comply with legal requirements and obligations to third parties.
19.2. If the Company deems it necessary it may make such information available lo those who provide products or services to the Company (such as advisers and payroll administrators), regulatory authorities, potential or future employers, governmental or quasi-governmental organisations and potential
purchasers of the Company or the business in which you work.
19.3. You consent to the transfer of such information to the Company's business contacts outside the European Economic Area in order to further its business interests even where the country or territory in question does not maintain adequate data protection standards.
19.4. You are responsible for informing the Company of all changes to your personal data, including but not limited to your name, address, marital status, contact details and next of kin. You shall also use reasonable endeavours to ensure that any personal data of other employees, including that which you may use or access during the Employment or in accordance with your duties and responsibilities, is kept secure from unauthorised access or disclosure and must not be discussed or disclosed except in accordance with the Company's Data Protection Policy and the Data Protection Act 1998 and as amended.
19.5. Please familiarise yourself with the Company's Data Protection Policy which contains furtller details relating to data protection. All Company polices can be found on the Company's intranel and are not incorporated by references into this agreement.
20. RESTRICTIVE COVENANTS
20.1. In this clause:
"Client" means any Person who at any time during the Relevant Period was a client of the Company or any Relevant Group Company:
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With whom you had material dealings or for whom you had responsibility on behalf of the Company or any Relevant Group Company at any time during the Relevant Period; or |
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in respect of whom you obtained or otherwise received confidential information; |
"Directly or Indirectly" means directly or indirectly on either your own account or in conjunction with or on behalf of any other Person;
"Key Person" means any individual:
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who at any time during tile Relevant Period was engaged or employed as an employee, director or consultant by the Company or any Relevant Group Company (other than an individual in business on his/her own account providing professional independent advisory services to us or any Relevant Group Company); |
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with whom you worked to a material extent or for whom you had managerial responsibility at any time during the Relevant Period; and |
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who was employed or engaged during the Relevant Period in a senior. sales, marketing, financial, managerial, professional or equivalent capacity; |
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"Materially Involved" means Directly or Indirectly employed or engaged by or interested in, other than as a shareholder of up to 3% of the issued shares of any company listed on any recognised investment exchange for the purposes of investment only, where recognised investment exchange has the meaning given in section 285 of the Financial Services and Markets Act 2000;
"Person" means individual, firm, company, association, corporation or other organisation;
"Prospective Client" means any Person who at any time during the Relevant Period had Relevant Discussions in which you were materially involved, for which you had responsibilities or about which you obtained or otherwise received confidential information;
"Relevant Discussions" mean any discussion, pitch, tender, presentation, negotiation or invitation to enter into or participate in any discussion, pitch, tender, presentation or negotiation, with the Company or any Relevant Group Company, with a view to receiving services from us or any Relevant Group Company;
"Relevant Group Company" means any Group Company for which you carried out work or had responsibility during the Relevant Period;
"Relevant Period" means the period of 12 months prior to the Termination Date;
"Restricted Arca" means the United Kingdom and any other territories or countries for which you had responsibility or in respect of which your duties for the Company or any Relevant Group Company were materially involved at any time in the 24 months immediately prior to the Termination Date;
"Restricted Products and Services" means any products or services which compete with or are of the same or similar kind as any products or services:
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provided by the Company or any Relevant Group Company in the ordinary course of its or their business during the Relevant Period; and |
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in respect of which you were directly concerned, were materially involved or had responsibility during the Relevant Period or about which you obtained or otherwise received confidential information; |
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20.2 In order to protect the Company's and any Relevant Group Company's confidential information, trade secrets, goodwill, customer/client base, potential customer/client base, other business connections and stable workforce, you agree to be bound by the restrictions set out below.
20.3 For a period of 6 months immediately following the Termination Date you will not either Directly or Indirectly without written consent from the Company:
20.3.1 in competition with the Company or any Relevant Group Company be Materially Involved with any Person providing Restricted Products and Services within the Restricted Area;
20.3.2 encourage or try to encourage any Client or any Prospective Client either not to give custom or to take custom away from the Company or any Relevant Group Company;
20.3.3 in competition with the Company or any Relevant Group Company either:
20.3.3.1 solicit or try to solicit the custom of any Client or any Prospective Client with a view to supplying that Client or Prospective Client with Restricted Products and Services; and/or
20.3.3.2 supply Restricted Products and Services to any Client or any Prospective Client;
20.3.4 entice away or try to entice away from the Company or any Relevant Group Company any KeyPerson and/or;
20.3.5 employ or enter into partnership or association with or retain the services of any Key Person or offer to do so;
20.4 You undertake that if you receive an offer of employment or engagement with a Person other than the Company or any Group Company during lhe period for which the restrictions set out above remain in force, you will immediately provide that Person with a complete copy of this clause and the relevant definitions.
20.5 You agree that the Company is entering into lhe above restrictions and all relevant definitions for its own benefit and as trustee for each Relevant Group Company.
20.6 Any period during which you are required by the Company to remain on garden leave shall be deducted from each of the period of restriction referred in clause 20. 3 above.
21. AMENDMENTS
21.1. The Company is entitled to introduce or make reasonable changes to your tenns of employment from time to time by notifying you of such in writing either by way of an individual notice or a general notice to all employees.
22. THIRD PARTY RIGHTS
22.1. Any Group Company may enjoy the benefit and enforce the terms of this Agreement in accordance with the Contracts (Rights of Third Parties) Act 1999 (lhe "Act"), but otherwise the Act shall not apply lo this Agreement. No person other than you and the Company shall have any rights under this Agreement and this Agreement shall not be enforceable by any person other than you and the Company.
23. ENTIRE AGREEMENT
23.1. This Agreement supersedes all previous agreements and discussions between you and the Company and forms the entire agreement between you and the Company in respect of your terms of employment save for the offer letter from the Company to you dated 11/1 0/2019 which shall be read in conjunction with this Agreement (although in the event of a conflict the terms of this Agreement shall prevail).
24.1. Any notice to be given under this Agreement shall be in writing. Notices may be given by either party by personal delivery or post or by fax addressed to the other party at (in the case of lhe Company) its registered office for the time being and {in your case) either to your address shown in this Agreement or to your last known address and shall be deemed to have been served at the lime at which it was delivered personally or transmitted or, if sent by post, would be delivered in the ordinary course of post. For the avoidance of doubt, no notices may be served by email except with the written consent of the other party.
25. GOVERNING LAW
25.1. This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be govemed by and construed in accordance with English law.
25.2. The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this Agreement or its subject matter or formation (including non-contractual disputes or claims).
26. MISCELLANEOUS
26. 1. Unless otherwise specified, references to any enactment shall be construed as references to such enactment as, from time to time. amended or re-enacted or as its application is modified by other provisions (whether before or after the date of this Agreement) and to any previous enactment consolidated in it and to any regulation or order made under il.
26.2. Unless the context otherwise requires in this Agreement words denoting the singular shall include the plural, and vice versa, and words denoting any gender shall include all genders.
26.3. Unless otherwise stated any phrase introduced by the terms "including", "include", "in particular" or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.
26.4. The clause headings in this Agreement are for the convenience of the parties only and shall not affect its interpretation in any way.
27. DEFINITIONS
27.1. In this Agreement the following terms have the following meaning:
"Associated Employer" |
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has the meaning given to it in the Employment Rights Act 1996. |
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118oard11 |
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means the board of directors of the Company (including any committee of the board duly appointed by it). |
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"Confidential Information" |
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means information in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever located) relating to the business, clients, customers, prospective clients and customers, products, affairs, business plans, marketing strategies and finances of the Company or any Group Company which is confidential to the Company or any Group Company and trade secrets including, without limitation, technical data and know-how relating to the business of the Company or of any Group Company or any of its suppliers, clients, customers, agents, distributors, shareholders or management, including (but not limited to) that you create, develop, receive or obtain in connection with your employment, whether or not such information (if in anything other than oral form) is marked confidential. |
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means copies or records of any Confidential Information in whatever form (including, without limitation, in written, oral, visual or electronic form or on any magnetic or optical disk or memory and wherever located) including, without limitation, extracts, analysis, studies, plans, compilations or any other way of representing or recording and recalling information which contains, reflects or is derived or generated from Confidential Information. |
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"Employment Inventions" |
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means any Invention which is made wholly or partially by you al any time during lhe course of your employment with the Company (whether or not during working hours or using Company premises or resources, and whether or not recorded in material form). |
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"Employment IPRs" |
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means Intellectual Property Rights created by you in lhe course of your employment with the Company (whether or not during working hours or using Company premises or resources). |
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"Group Company" |
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means the Company, any company of which it is a subsidiary (its holding company) from time lo time and any subsidiaries of the Company or of any such holding company from time lo time. Subsidiary and holding company shall have the meanings given in s.1159 of the Companies Act 2006. |
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"Incapacity" "Intellectual Property Rights" |
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means any sickness or injury which prevents you from carrying out your duties. means patents, petty patents. rights to inventions, copyright and related rights, trade marks, service marks, brand and trade names and domain names, rights in get-up, rights in goodwill or to sue for passing off, rights in any compilation of data, unfair competition rights, rights in designs, rights in computer software, database rights. topography rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world. |
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"Invention": |
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means any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and whether or not recorded in any medium. |
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"Termination" |
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means the termination of your employment with the Company however caused including, without limitation, termination by the Company in repudiatory breach of contract. |
Vice President, Talent Acquisition
SIGNED for and on behalf of the Mimecast Services Limited: Oate:4 November 2019
SIGNED and Acknowledged by Employee:
I acknowledge that I have read and accept the terms and conditions detailed in this Agreement as being my contract of employment with the Company.
I consent to the deductions from my pay referred to in section 5 of this Agreement.
I consent to the Company processing my personal and sensitive data for the purposes set out in section
19 of this Agreement.
Name |
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Heather Bentley |
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Exhibit A: Prior Inventions |
Exhibit 21.1
Subsidiaries of the Registrant
Name of Subsidiary |
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Jurisdiction of Incorporation or Organization |
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Mimecast UK Limited |
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England & Wales |
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Mimecast Services Limited |
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England & Wales |
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Mimecast North America, Inc. |
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Delaware |
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Mimecast South Africa Pty Ltd. |
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South Africa |
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Mimecast Australia Pty Ltd. |
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Australia |
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Mimecast Offshore Ltd. |
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Jersey, Channel Islands |
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Mimecast Germany GbmH |
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Germany |
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Mimecast Israel Ltd. |
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Israel |
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Segasec Labs Ltd. |
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Israel |
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Mimecast Netherlands B.V. |
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Netherlands |
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Mimecast Canada Ltd. |
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Canada |
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
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(1) |
Registration Statement (Form S-8 No. 333-208384) pertaining to the Mimecast Limited 2007 Key Employee Share Option Plan, the Mimecast Limited 2010 EMI Share Option Scheme, the Mimecast Limited Approved Share Option Plan, the Mimecast Limited 2015 Share Option and Incentive Plan, and the Mimecast Limited 2015 Employee Share Purchase Plan, and |
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(2) |
Registration Statements (Form S-8 Nos. 333-218286, 333-225260 and 333-231792) pertaining to the Mimecast Limited 2015 Share Option and Incentive Plan; |
of our reports dated May 22, 2020, with respect to the consolidated financial statements of Mimecast Limited and the effectiveness of internal control over financial reporting of Mimecast Limited included in this Annual Report (Form 10-K) of Mimecast Limited for the year ended March 31, 2020.
/s/ Ernst & Young LLP
Boston, Massachusetts
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter Bauer, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Mimecast Limited; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 22, 2020 |
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By: |
/s/ Peter Bauer |
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Peter Bauer |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rafeal Brown, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of Mimecast Limited; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 22, 2020 |
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By: |
/s/ Rafeal Brown |
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Rafeal Brown |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Mimecast Limited (the “Company”) for the year ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Bauer, Chief Executive Officer of the Company, certify to the best of my knowledge on the date hereof, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: May 22, 2020 |
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By: |
/s/ Peter Bauer |
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Peter Bauer |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Mimecast Limited (the “Company”) for the year ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rafeal Brown, Chief Financial Officer of the Company, certify to the best of my knowledge on the date hereof, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: May 22, 2020 |
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By: |
/s/ Rafeal Brown |
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Rafeal Brown |
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Chief Financial Officer |