OREANDA-NEWS. August 09, 2016. Mimecast Limited (NASDAQ:MIME), a leading email and data security company, today announced financial results for the first quarter ended June 30, 2016.

“We are very pleased with our first quarter results,” stated Peter Bauer, CEO of Mimecast. “Organizations of all sizes across the globe are turning to Mimecast to fortify their cyber resilience, protecting employees, data and operations.”

“Mimecast performed well across our key metrics and delivered strong growth in the quarter,” said Peter Campbell, CFO of Mimecast. “We are especially pleased with new customer growth which outpaced our expectations. Our strong customer retention, track record of upselling and over 95% recurring revenue model, combined with the strength we are seeing in new customer additions will benefit our full year revenue growth.”

First Quarter 2017 Financial Highlights

  • Revenue: Revenue on a constant currency basis increased 32% compared to the first quarter of 2016.  GAAP Revenue for the first quarter of 2017 was \\$41.5 million, an increase of 24% compared to the \\$33.3 million of revenue recognized in the first quarter of 2016.
  • Customers: Added 1,900 net new customers in the first quarter of 2017.  We now serve over 19,900 organizations globally.
  • Revenue Retention Rate: Revenue retention rate was 110% in the first quarter of 2017, an increase from the 109% recognized in the prior quarter and up from the 108% in the first quarter of 2016.
  • Gross Profit Percentage: Gross profit percentage was 73% for the first quarter of 2017, an increase over the 70% realized in the first quarter of 2016.
  • Adjusted EBITDA: Adjusted EBITDA was \\$1.9 million, representing an Adjusted EBITDA margin of 4.5% up from 1% in the prior quarter.
  • GAAP Net Income:  GAAP net income was \\$0.2 million or \\$0.00 per basic and diluted share based on 54.3 million and 57.7 million weighted-average shares outstanding, respectively.
  • Non-GAAP Net Income: Non-GAAP net income was \\$2.3 million or \\$0.04 per share.
  • Cash and Free Cash Flow: Mimecast generated \\$3.7 million of free cash flow in the first quarter of 2017.  Cash and cash equivalents as of June 30, 2016 were \\$108.7 million.

Reconciliations of the non-GAAP financial measures provided in this press release to their most directly comparable GAAP financial measures are provided in the financial tables included at the end of this press release.  An explanation of these measures and how they are calculated is also included below under the heading “Non-GAAP Financial Measures.”

First Quarter Business Highlights

  • Mimecast added 1,900 customers in the first quarter, the majority of which were in the United States, our fastest growing region.
  • Sales of Targeted Threat Protection increased during the first quarter, with more than 1,200 new customers purchasing the service. A total of 23% of our customers are now using Targeted Threat Protection.
  • A total of 16% of customers are using Mimecast in conjunction with Microsoft® Office 365™ during the first quarter compared to 14% in the fourth quarter of fiscal 2016.  Office 365™ continues to be a growth driver for the Company.  More than 660 new and existing customers of all sizes chose Mimecast to enhance the security, the archive, or to provide uptime assurance for their Office 365 subscriptions.
  • We launched Mimecast Administrative Console V4.0, a significant upgrade that provides IT professionals an enhanced unified view across all Mimecast services. 
  • Mimecast joined the Coalition for Cybersecurity Policy, bringing deep email security and cyber resilience expertise.  Launched in February 2016, the Coalition has led a call-to-arms for fighting against an increasingly pervasive cyberattack landscape.

Business Outlook

Mimecast is providing guidance for the second quarter and full year 2017.

Second Quarter 2017 Guidance:
For the second quarter of 2017 constant currency revenue growth is expected to be in the range of 30% and 32% and revenue in the range of \\$41.5 million and \\$41.9 million.  Exchange rates have weakened in the period, primarily due to the strengthening of the US dollar compared to British Pound in the same period in the prior year.  Fluctuations in these rates have impacted our revenue guidance by \\$2.8 million. Approximately \\$0.5 million of this impact relates to the translation of South African Rand based revenue and \\$2.3 million relates to British Pound based revenue. We believe that constant currency revenue growth is a useful way to measure the underlying strength of our business as it excludes these short term fluctuations.  Adjusted EBITDA is expected to be in the range of \\$1.6 to \\$2.4 million.

Full Year 2017 Guidance:
For the full year 2017 constant currency revenue growth is expected to be in the range of 29% to 31% and revenue to be in the range of \\$172.0 million to \\$175.6 million.  Foreign exchange rate fluctuations are impacting this guidance by \\$7.8 million of which \\$0.9 million relates to the South African Rand and \\$6.9 million relates to the British Pound.  Adjusted EBITDA is expected to be in the range of \\$9.0 to \\$11.0 million.

GAAP net income (loss) is the most comparable GAAP measure to Adjusted EBITDA.  Adjusted EBITDA differs from GAAP net income (loss) in that it excludes depreciation and amortization, share-based compensation expense, interest income and interest expense, the provision for income taxes and foreign exchange income (expense).  Mimecast is unable to predict with reasonable certainty the ultimate outcome of these exclusions without unreasonable effort.  Therefore, Mimecast has not provided guidance for GAAP net income (loss) or a reconciliation of the foregoing forward-looking Adjusted EBITDA guidance to GAAP net income (loss).

Conference Call and Webcast Information
Mimecast will host a conference call to discuss these financial results for investors and analysts at 5:00 pm EDT (UTC-05:00) on August 8, 2016.  To access the conference call, dial (844) 815-2878 for the U.S. and Canada and (615) 800-6885 for international callers and enter conference ID #46077901.  The call will also be webcast live on the investor relations section of the Company’s website at http://investors.mimecast.com.  An audio replay of the call will be available two hours after the live call ends by dialing (855) 859-2056 for U.S. and Canada or (404) 537-3406 for international callers, and entering passcode #46077901.  In addition, an archive of the webcast will be available on the investor relations section of the company’s website at http://investors.mimecast.com.

About Mimecast Limited
Mimecast Limited (NASDAQ:MIME) makes business email and data safer for more than 19,900 customers and millions of employees worldwide. Founded in 2003, the Company's next-generation cloud-based security, archiving and continuity services protect email, and deliver comprehensive email risk management in a single, fully-integrated subscription service. Mimecast reduces email risk and the complexity and cost of managing the array of point solutions traditionally used to protect email and its data. For customers that have migrated to cloud services like Microsoft® Office 365™, Mimecast mitigates single vendor exposure by strengthening security coverage, combating downtime and improving archiving.

Safe Harbor for Forward-Looking Statements
Statements in this press release regarding management’s future expectations, beliefs, intentions, goals, strategies, plans or prospects, including, without limitation, the statements relating to Mimecast’s future financial performance on both a GAAP and non-GAAP basis under the heading "Business Outlook" above, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.  All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words "predicts," "plan," "expects," "anticipates," "believes," "goal," "target," "estimate," "potential," "may," "might," "could," "see," "seek," "forecast," and similar words. Mimecast intends all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors including those risks, uncertainties and factors detailed in Mimecast’s filings with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, Mimecast’s actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. Mimecast is providing the information in this press release as of this date and assumes no obligations to update the information included in this press release or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures
We have provided in this release financial information that has not been prepared in accordance with GAAP.  We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance.  We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors. 

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.  Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures provided in the financial statement tables included below in this press release

Revenue Constant Currency Growth Rate. We believe revenue constant currency growth rate is a key indicator of our operating results. 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.  To determine projected revenue growth rates on a constant currency basis for first quarter and full year 2017, expected revenue from entities reporting in foreign currencies was translated into U.S. dollars using the comparable prior year period's monthly average foreign currency exchange rates.

Adjusted EBITDA and Adjusted EBITDA margin. We believe that Adjusted EBITDA and Adjusted EBITDA margin are key indicators of our operating results. We define Adjusted EBITDA as net income (loss), adjusted to exclude: depreciation and amortization, share-based compensation expense, interest income and interest expense, the provision for income taxes and foreign exchange income (expense) predominantly related to the elimination of intercompany balances. We define Adjusted EBITDA margin as Adjusted EBITDA over revenue in the period.

Non-GAAP net income (loss). We define non-GAAP net income (loss) as net income (loss) less share-based compensation expense. We consider this non-GAAP financial measure to be a useful metric for management and investors because it excludes the effect of share-based compensation expense so that our management and investors can compare our recurring core business net results over multiple periods. There are a number of limitations related to the use of non-GAAP net income (loss) versus net income (loss) calculated in accordance with GAAP. For example, as noted above, non-GAAP net income (loss) excludes share-based compensation expense. In addition, the components of the costs that we exclude in our calculation of non-GAAP net income (loss) may differ from the components that our peer companies exclude when they report their non-GAAP results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income (loss) and evaluating non-GAAP net income (loss) together with net income (loss) calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, and strengthening the balance sheet. Analysis of free cash flow facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating our company is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Management compensates for this limitation by providing information about our capital expenditures on the face of the cash flow statement and in the "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" section of our reports filed with the SEC.

  
MIMECAST LIMITED 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(in thousands, except per share amounts) 
(unaudited) 
  
  Three months ended June 30, 
  2016  2015 
Revenue \\$41,460  \\$33,328 
Cost of revenue  11,339   9,876 
Gross profit  30,121   23,452 
Operating expenses        
Research and development  5,149   3,530 
Sales and marketing  21,463   13,121 
General and administrative  6,456   4,691 
Total operating expenses  33,068   21,342 
(Loss) income from operations  (2,947)  2,110 
Other income (expense)        
Interest income  67   17 
Interest expense  (107)  (177)
Foreign exchange income (expense)  4,096   (3,841)
Total other income (expense), net  4,056   (4,001)
Income (loss) before income taxes  1,109   (1,891)
Provision for income taxes  865   358 
Net income (loss) \\$244  \\$(2,249)
Net income (loss) available to ordinary shareholders - basic and diluted \\$244  \\$(2,249)
Net income (loss) per ordinary share:        
Basic \\$0.00  \\$(0.07)
Diluted \\$0.00  \\$(0.07)
Weighted-average number of ordinary shares outstanding:        
Basic  54,287   33,066 
Diluted  57,655   33,066 
MIMECAST LIMITED 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(in thousands, except share and per share amounts) 
(unaudited) 
  
  At June 30,  At March 31, 
  2016  2016 
Assets        
Current assets        
Cash and cash equivalents \\$108,658  \\$106,140 
Accounts receivable, net  30,708   33,738 
Prepaid expenses and other current assets  5,976   7,362 
Total current assets  145,342   147,240 
         
Property and equipment, net  28,971   24,806 
Other assets  2,547   3,081 
Total assets \\$176,860  \\$175,127 
         
Liabilities and shareholders' equity        
Current liabilities        
Accounts payable \\$6,234  \\$2,891 
Accrued expenses and other current liabilities  15,067   15,110 
Deferred revenue  60,433   60,889 
Current portion of long-term debt  3,966   4,910 
Total current liabilities  85,700   83,800 
         
Deferred revenue, net of current portion  9,443   9,151 
Long-term debt  1,296   1,981 
Other non-current liabilities  2,047   2,121 
Total liabilities  98,486   97,053 
         
Contingencies        
         
Shareholders' equity        
Ordinary shares, \\$0.012 par value, 300,000,000 shares authorized;
  54,476,620 and 54,216,738 shares issued and outstanding at
  June 30, 2016 and March 31, 2016, respectively		  654   651 
Additional paid-in capital  172,553   169,037 
Accumulated deficit  (88,332)  (88,576)
Accumulated other comprehensive loss  (6,501)  (3,038)
Total shareholders' equity  78,374   78,074 
Total liabilities and shareholders' equity \\$176,860  \\$175,127 
MIMECAST LIMITED 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands) 
(unaudited) 
  
  Three months ended June 30, 
  2016  2015 
Operating activities        
Net income (loss) \\$244  \\$(2,249)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization  2,764   2,536 
Share-based compensation expense  2,043   843 
Provision for doubtful accounts  20   25 
Loss on disposal of fixed assets  2   3 
Non-cash interest expense  25   27 
Excess tax benefits related to exercise of share options  (466)  (289)
Unrealized currency (gain) loss on foreign denominated intercompany transactions  (3,817)  3,367 
Changes in assets and liabilities:        
Accounts receivable  2,128   1,949 
Prepaid expenses and other current assets  1,496   1,524 
Other assets  —   192 
Accounts payable  1,993   (548)
Deferred revenue  2,450   1,152 
Accrued expenses and other liabilities  425   (721)
Net cash provided by operating activities  9,307   7,811 
Investing activities        
Purchases of property and equipment  (5,586)  (4,769)
Net cash used in investing activities  (5,586)  (4,769)
Financing activities        
Proceeds from exercises of share options  1,014   414 
Excess tax benefits related to exercise of share options  466   289 
Payments on debt  (1,293)  (1,373)
Net cash provided by (used in) financing activities  187   (670)
Effect of foreign exchange rates on cash  (1,390)  1,248 
Net increase in cash and cash equivalents  2,518   3,620 
         
Cash and cash equivalents at beginning of period  106,140   32,890 
Cash and cash equivalents at end of period \\$108,658  \\$36,510 
         

Key Performance Indicators

In addition to traditional financial metrics, such as revenue and revenue growth trends, we monitor several other non-GAAP financial measures and non-financial metrics 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:

  Three months ended June 30, 
  2016  2015 
         
  (dollars in thousands) 
Gross profit percentage  73%  70%
Revenue constant currency growth rate (1)  32%  32%
Revenue retention rate (2)  110%  108%
Total customers (3)  19,900   14,500 
Adjusted EBITDA (1) \\$1,860  \\$5,489 
 (1) Adjusted EBITDA and revenue constant currency growth rates are non-GAAP measures. For a reconciliation of Adjusted EBITDA and revenue constant currency growth rates to the nearest comparable GAAP measures, see “Reconciliation of Non-GAAP Financial Measures” below.
 (2) 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. 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 the trailing twelve months. The revenue on a constant currency basis is based on the average exchange rates in effect during the respective period.
 (3) 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.
  

Reconciliation of Non-GAAP Financial Measures

  Three months ended June 30, 
  2016  2015 
         
  (dollars in thousands) 
Reconciliation of Revenue Constant Currency Growth Rate:        
Revenue, as reported \\$41,460  \\$33,328 
Revenue year-over-year growth rate, as reported  24%  24%
Estimated impact of foreign currency fluctuations  8%  8%
Revenue constant currency growth rate  32%  32%
         

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:

  Three months ended June 30, 
  2016  2015 
         
  (in thousands) 
Reconciliation of Adjusted EBITDA:        
Net income (loss) \\$244  \\$(2,249)
Depreciation and amortization  2,764   2,536 
Interest expense, net  40   160 
Provision for income taxes  865   358 
Share-based compensation expense  2,043   843 
Foreign exchange (income) expense  (4,096)  3,841 
Adjusted EBITDA \\$1,860  \\$5,489 
         

The following table presents a reconciliation of Net income (loss) to Non-GAAP net income (loss) (in thousands, except per share amounts):

  Three months ended June 30, 
  2016  2015 
Reconciliation of Non-GAAP Net Income (Loss):        
Net income (loss) \\$244  \\$(2,249)
Share-based compensation expense  2,043   843 
Non-GAAP net income (loss) \\$2,287  \\$(1,406)
Non-GAAP net income (loss) per ordinary share - basic \\$0.04  \\$(0.04)
Weighted-average number of ordinary shares used in computing
   Non-GAAP net income (loss) per ordinary share - basic		  54,287   33,066 
         

The following table presents a reconciliation of Net cash provided by operating activities to Free Cash Flow (in thousands):

  Three months ended June 30, 
  2016  2015 
Reconciliation of Free Cash Flow:        
Net cash provided by operating activities \\$9,307  \\$7,811 
Purchases of property and equipment  (5,586)  (4,769)
Free Cash Flow \\$3,721  \\$3,042 
         

Share-based compensation expense for three months ended June 30, 2016 and 2015 (in thousands):

  Three months ended June 30, 
  2016  2015 
Cost of revenue \\$170  \\$22 
Research and development  372   29 
Sales and marketing  973   83 
General and administrative  528   709 
Total share-based compensation expense \\$2,043  \\$843 
         

Revenue Constant Currency Growth Rate reconciliation (dollars in millions):

  Three months ended June 30, 
  2016A  2015A  % Change 
Total revenue as reported \\$41.5  \\$33.3   24%
Estimated impact of foreign currency fluctuations          8%
Total revenue constant currency growth rate          32%
             
Exchange rate for period            
USD  1.000   1.000     
ZAR  0.067   0.083     
GBP  1.434   1.532     
AUD  0.746   0.778