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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________

 

Commission File Number: 001-37637

 

MIMECAST LIMITED

(Exact Name of Registrant as Specified in its Charter)

 

 

Bailiwick of Jersey

Not applicable

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

CityPoint, One Ropemaker Street, Moorgate

London EC2Y 9AW

United Kingdom

EC2Y 9AW

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (781) 996-5340

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

Ordinary Shares, nominal value $0.012 per share

MIME

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2019, the registrant had 61,759,379 shares of ordinary shares, $0.012 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended June 30, 2019 and 2018

3

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended June 30, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2019 and 2018

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 6.

Exhibits

54

Signatures

58

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MIMECAST LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

As of June 30,

 

 

As of March 31,

 

 

 

2019

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

174,812

 

 

$

137,576

 

Short-term investments

 

 

22,025

 

 

 

35,941

 

Accounts receivable, net

 

 

68,495

 

 

 

80,953

 

Deferred contract costs, net

 

 

8,802

 

 

 

8,140

 

Prepaid expenses and other current assets

 

 

15,621

 

 

 

25,871

 

Total current assets

 

 

289,755

 

 

 

288,481

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

65,655

 

 

 

94,202

 

Operating lease right-of-use assets

 

 

133,350

 

 

 

 

Intangible assets, net

 

 

29,154

 

 

 

30,623

 

Goodwill

 

 

108,722

 

 

 

107,575

 

Deferred contract costs, net of current portion

 

 

30,103

 

 

 

28,250

 

Other assets

 

 

6,195

 

 

 

5,156

 

Total assets

 

$

662,934

 

 

$

554,287

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,411

 

 

$

9,457

 

Accrued expenses and other current liabilities

 

 

37,438

 

 

 

44,309

 

Deferred revenue

 

 

162,814

 

 

 

163,102

 

Current portion of finance lease obligations

 

 

938

 

 

 

844

 

Current portion of operating lease liabilities

 

 

27,846

 

 

 

 

Current portion of long-term debt

 

 

4,695

 

 

 

4,059

 

Total current liabilities

 

 

241,142

 

 

 

221,771

 

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

12,309

 

 

 

12,472

 

Long-term finance lease obligations

 

 

1,122

 

 

 

1,381

 

Operating lease liabilities

 

 

121,330

 

 

 

 

Long-term debt

 

 

91,655

 

 

 

92,797

 

Construction financing lease obligations

 

 

 

 

 

36,650

 

Other non-current liabilities

 

 

4,268

 

 

 

15,581

 

Total liabilities

 

 

471,826

 

 

 

380,652

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Ordinary shares, $0.012 par value, 300,000,000 shares authorized;

   61,728,891 and 61,158,051 shares issued and outstanding as of

   June 30, 2019 and March 31, 2019, respectively

 

 

740

 

 

 

734

 

Additional paid-in capital

 

 

281,130

 

 

 

263,388

 

Accumulated deficit

 

 

(85,470

)

 

 

(83,632

)

Accumulated other comprehensive loss

 

 

(5,292

)

 

 

(6,855

)

Total shareholders' equity

 

 

191,108

 

 

 

173,635

 

Total liabilities and shareholders' equity

 

$

662,934

 

 

$

554,287

 

 

 

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

1


 

 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2019

 

 

2018

 

Revenue

 

$

99,231

 

 

$

78,404

 

Cost of revenue

 

 

25,467

 

 

 

20,976

 

Gross profit

 

 

73,764

 

 

 

57,428

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

19,385

 

 

 

13,100

 

Sales and marketing

 

 

43,370

 

 

 

34,203

 

General and administrative

 

 

15,447

 

 

 

12,214

 

Total operating expenses

 

 

78,202

 

 

 

59,517

 

Loss from operations

 

 

(4,438

)

 

 

(2,089

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

982

 

 

 

444

 

Interest expense

 

 

(1,280

)

 

 

(527

)

Foreign exchange income (expense) and other, net

 

 

956

 

 

 

(441

)

Total other income (expense), net

 

 

658

 

 

 

(524

)

Loss before income taxes

 

 

(3,780

)

 

 

(2,613

)

Provision for income taxes

 

 

230

 

 

 

858

 

Net loss

 

$

(4,010

)

 

$

(3,471

)

 

 

 

 

 

 

 

 

 

Net loss per ordinary share

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.07

)

 

$

(0.06

)

Weighted-average number of ordinary shares outstanding

 

 

 

 

 

 

 

 

Basic and diluted

 

 

61,444

 

 

 

59,175

 

 

 

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

2


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(4,010

)

 

$

(3,471

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Net unrealized gains on investments, net of tax

 

 

30

 

 

 

64

 

Change in foreign currency translation adjustment

 

 

1,533

 

 

 

(2,168

)

Total other comprehensive income (loss)

 

 

1,563

 

 

 

(2,104

)

Comprehensive loss

 

$

(2,447

)

 

$

(5,575

)

 

 

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


3


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of March 31, 2019

 

 

61,158

 

 

$

734

 

 

$

263,388

 

 

$

(83,632

)

 

$

(6,855

)

 

$

173,635

 

Cumulative effect adjustment ASU 2016-02 (1)

 

 

 

 

 

 

 

 

 

 

 

2,172

 

 

 

 

 

 

2,172

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,010

)

 

 

 

 

 

(4,010

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,533

 

 

 

1,533

 

Unrealized gains on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Issuance of ordinary shares

 

 

571

 

 

 

6

 

 

 

8,864

 

 

 

 

 

 

 

 

 

8,870

 

Share-based compensation

 

 

 

 

 

 

 

 

10,015

 

 

 

 

 

 

 

 

 

10,015

 

Tax withholding on vesting of restricted share units

 

 

 

 

 

 

 

 

(1,137

)

 

 

 

 

 

 

 

 

(1,137

)

Balance as of June 30, 2019

 

 

61,729

 

 

$

740

 

 

$

281,130

 

 

$

(85,470

)

 

$

(5,292

)

 

$

191,108

 

 

 

 

Three months ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of March 31, 2018

 

 

58,950

 

 

$

707

 

 

$

212,839

 

 

$

(106,507

)

 

$

(5,347

)

 

$

101,692

 

Cumulative effect of adjustment ASU 2014-09 (2)

 

 

 

 

 

 

 

 

 

 

 

29,876

 

 

 

 

 

 

29,876

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,471

)

 

 

 

 

 

(3,471

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,168

)

 

 

(2,168

)

Unrealized gains on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64

 

 

 

64

 

Issuance of ordinary shares

 

 

650

 

 

 

8

 

 

 

5,896

 

 

 

 

 

 

 

 

 

5,904

 

Share-based compensation

 

 

 

 

 

 

 

 

5,156

 

 

 

 

 

 

 

 

 

5,156

 

Balance as of June 30, 2018

 

 

59,600

 

 

$

715

 

 

$

223,891

 

 

$

(80,102

)

 

$

(7,451

)

 

$

137,053

 

 

(1)Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02 or ASC 842)

(2) ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09 or ASC 606)

 

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

 

4


 

MIMECAST LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Three months ended June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(4,010

)

 

$

(3,471

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,442

 

 

 

6,926

 

Share-based compensation expense

 

 

10,034

 

 

 

5,181

 

Amortization of deferred contract costs

 

 

2,116

 

 

 

1,386

 

Amortization of debt issuance costs

 

 

157

 

 

 

 

Amortization of operating lease right-of-use assets

 

 

7,677

 

 

 

 

Other non-cash items

 

 

(42

)

 

 

(19

)

Unrealized currency gains on foreign denominated transactions

 

 

(856

)

 

 

(111

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

11,927

 

 

 

6,079

 

Prepaid expenses and other current assets

 

 

8,856

 

 

 

1,569

 

Deferred contract costs

 

 

(4,806

)

 

 

(3,835

)

Other assets

 

 

(638

)

 

 

(98

)

Accounts payable

 

 

(808

)

 

 

108

 

Deferred revenue

 

 

1,295

 

 

 

2,521

 

Operating lease liabilities

 

 

(5,145

)

 

 

 

Accrued expenses and other liabilities

 

 

(4,675

)

 

 

398

 

Net cash provided by operating activities

 

 

28,524

 

 

 

16,634

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of strategic investments

 

 

(3,025

)

 

 

 

Maturities of investments

 

 

14,000

 

 

 

17,000

 

Purchases of property, equipment and capitalized software

 

 

(9,161

)

 

 

(7,575

)

Net cash provided by investing activities

 

 

1,814

 

 

 

9,425

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares

 

 

8,870

 

 

 

5,904

 

Withholding taxes related to net share settlement of restricted share units

 

 

(1,137

)

 

 

 

Payments on debt

 

 

(625

)

 

 

 

Payments on finance lease obligations

 

 

(166

)

 

 

(203

)

Payments on construction financing lease obligations

 

 

 

 

 

(413

)

Net cash provided by financing activities

 

 

6,942

 

 

 

5,288

 

Effect of foreign exchange rates on cash

 

 

(44

)

 

 

(2,156

)

Net increase in cash and cash equivalents

 

 

37,236

 

 

 

29,191

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

137,576

 

 

 

78,339

 

Cash and cash equivalents at end of period

 

$

174,812

 

 

$

107,530

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

1,075

 

 

$

517

 

Cash paid during the period for income taxes

 

$

73

 

 

$

37

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Unpaid purchases of property, equipment and capitalized software

 

$

5,086

 

 

$

1,168

 

Construction costs capitalized under financing lease obligations

 

$

 

 

$

2,991

 

Operating lease right-of-use assets exchanged for lease obligations

 

$

1,195

 

 

$

 

 

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

5


 

MIMECAST LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data, unless otherwise noted)

(unaudited)

1. Summary of Business and Significant Accounting Policies

Description of Business

Mimecast Limited (Mimecast or the Company) is a public limited company organized under the laws of the Bailiwick of Jersey on July 28, 2015 and is headquartered in London, England.

The principal activity of the Company is the provision of email management services. Mimecast delivers a software-as-a-service (SaaS) enterprise email management service for archiving, continuity, and security, as well as web security and awareness training. 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 North America, Europe, 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.

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited. These financial statements and notes should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2019 and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on May 29, 2019.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended March 31, 2019 contained in the Company’s Annual Report on Form 10-K and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position as of June 30, 2019, and for the three months ended June 30, 2019 and 2018. These interim periods are not necessarily indicative of the results to be expected for any other interim period or the full year.

Principles of Consolidation

The condensed 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 condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period.

Significant estimates relied upon in preparing these condensed 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, construction financing lease obligations, 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.

6


 

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.

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 income (loss), which includes certain changes in equity that are excluded from net loss. As of June 30, 2019 and March 31, 2019, accumulated other comprehensive loss is presented separately on the condensed consolidated balance sheets and consists of cumulative foreign currency translation adjustments and unrealized gains and losses on investments.

Accounting Policies

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As of June 30, 2019, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K, have not changed, except as discussed below.

Lease Policy

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 the 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 6 for further information.

Recently Issued and Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (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 6 for further information on the impact of the adoption of ASU 2016-02 on the Company’s consolidated financial statements.

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

7


 

nonemployees 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 Financial Accounting Standards Board (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 is currently in the process of evaluating the impact and timing of adoption of the ASU 2016-13 on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 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 and timing of adoption of the ASU 2017-04 on its consolidated financial statements.

2. Revenue and Deferred Revenue

Revenue recognized during the three months ended June 30, 2019 from amounts included in deferred revenue at the beginning of the respective periods was approximately $67.2 million. Revenue recognized during the three months ended June 30, 2019 from performance obligations satisfied or partially satisfied in previous periods was not material.

Contracted revenue as of June 30, 2019 that has not yet been recognized (contracted and not recognized) was $90.5 million, 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 51% of contracted and not recognized revenue to be recognized over the next twelve months, 47% in years two and three, with the remaining balance recognized thereafter.

3. 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.

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 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 June 30, 2019 and March 31, 2019, no individual customer represented more than 10% of the Company’s accounts receivable. During the three months ended June 30, 2019 and 2018, no individual customer represented more than 10% of the Company’s revenue.

As of June 30, 2019, the Company’s investments consisted primarily of investment-grade fixed income corporate debt securities with remaining maturities ranging from one month to four months, non-U.S. government securities with maturities in approximately six months and U.S. treasury securities with maturities in approximately two months. The Company diversifies its investment portfolio by investing in multiple types of investment-grade securities and attempts to mitigate a risk of loss by using a third-party investment manager.

4. 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

8


 

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.

 

The Company has classified all of its investments as of June 30, 2019, as available-for-sale pursuant to Accounting Standard Codification (ASC) 320, Investments – Debt Securities. The Company 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. Realized gains and losses are recorded in the condensed consolidated statements of operations and comprehensive loss based on the specific-identification method. There were no realized gains or losses on investments for the three months ended June 30, 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 condensed 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 June 30, 2019, the Company did not hold any investments in an unrealized loss position for less than twelve months. As of June 30, 2019, the Company determined that no other-than-temporary impairments were required to be recognized in the condensed consolidated statements of operations.

The following is a summary of cash, cash equivalents and investments as of June 30, 2019 and March 31, 2019:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents due in 90 days or less

 

$

174,812

 

 

$

 

 

$

 

 

$

174,812

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities due in one year or less

 

 

1,998

 

 

 

7

 

 

 

 

 

 

2,005

 

Non-U.S. government securities due in one year

   or less

 

 

5,987

 

 

 

20

 

 

 

 

 

 

6,007

 

Corporate securities due in one year or less

 

 

13,982

 

 

 

31

 

 

 

 

 

 

14,013

 

Total investments

 

 

21,967

 

 

 

58

 

 

 

 

 

 

22,025

 

Total cash, cash equivalents and investments

 

$

196,779

 

 

$

58

 

 

$

 

 

$

196,837

 

 

 

 

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