MIMECAST LTD Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
our operations should be read in conjunction with the (1) unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited
consolidated financial statements and notes thereto and management's discussion
and analysis of financial condition and results of operations for the fiscal
year ended March 31, 2021, included in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission, or the SEC, on May 27, 2021. This
Quarterly Report on Form 10-Q contains "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or
the "Exchange Act." These statements are often identified by the use of words
such as "may," "will," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue," and similar expressions or variations. In particular,
statements contained in this Quarterly Report on Form 10-Q that are not
historical facts, including, but not limited to, statements concerning our
pending acquisition by Magnesium Bidco Limited and our expectations regarding
the timing of the acquisition (as described below), our strategy and operational
and growth initiatives, the impacts of the COVID-19 pandemic and related market
and economic conditions on our business, results of operations and financial
condition, fluctuations in foreign exchange rates, the security of our network,
products and services, statements regarding the disclosed security incident and
our current understanding of the identity and likely targets of the
sophisticated threat actor, the scope and impact of the attack, and the results
of our investigation, are forward-looking statements. Such forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results and the timing of certain events to differ materially from
future results expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those identified herein, and those discussed in the section titled "Risk
Factors" in this Quarterly Report on Form 10-Q and set forth in our other SEC
filings, including our Annual Report on Form 10-K filed with the SEC on May 27,
2021. We disclaim any obligation to update any forward-looking statements to
reflect events or circumstances after the date of such statements.

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 they are exposed to through their email and
other corporate systems. 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). Additionally, our Cyber Resilience Extensions expand resilience to other
critical elements of an organization's digital infrastructure. Our primary
offerings include: email security; email continuity and sync & recover; email
archiving; awareness training; web security; DMARC analyzer; CyberGraph; brand
exploit protection; and threat intelligence and our API ecosystem.

We operate our business as a software-as-a-service, or 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
net 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 December 31, 2021, we provided our services to
approximately 40,200 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 depend on our
ability to expand our customer base, sell additional services to our existing
customers, and retain our customers.

In the nine months ended December 31, 2021, we generated 49% of our revenue
outside of the United States, with 28% generated from the United Kingdom, 10%
from South Africa and 11% from the rest of the world. In the nine months ended
December 31, 2020, we generated 48% of our revenue outside of the United States,
with 29% generated from the United Kingdom, 10% from South Africa and 9% 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.





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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 Mimecast Email Security 3.0 offerings
include Mimecast Email Security, Mimecast Targeted Threat Protection, Awareness
Training, Internal Email Protect, DMARC Analyzer, Brand Exploit Protect, and
CyberGraph. Our CyberGraph offering was launched in June of fiscal 2022. Our
Cyber Resilience Extensions include Mimecast Enterprise Information Archiving,
Mimecast Email Continuity, including Sync & Recover, Mimecast Web Security that
provides a Domain Name System, or DNS, solution alongside our core email
offerings, Mimecast Secure Messaging, Mimecast Privacy Pack, and Mimecast Large
File Send.



Pending Transaction

On December 7, 2021, we entered into a Transaction Agreement, or the Transaction
Agreement, with Magnesium Bidco Limited, or Buyer, pursuant to which we agreed
to be acquired by Buyer, an affiliate of the global private equity firm Permira
Advisors LLC, or Permira, in an all-cash transaction valued at approximately
$5.8 billion, or the Transaction. If the Transaction is completed, our
shareholders will be entitled to receive $80.00 in cash for each ordinary share
they own as of the effective time of the Transaction (subject to certain
exceptions). The Transaction is expected to close in the first half of 2022,
subject to customary closing conditions, including approval by our shareholders
and receipt of regulatory approvals. For additional information regarding the
Transaction, see Note 1 to our condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

RECENT DEVELOPMENTS

Global Covid-19 Pandemic. The global COVID-19 pandemic continues to evolve, 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
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. The widespread distribution of effective vaccines and
continued containment efforts initially helped to stabilize infection rates,
but, more recently, the rise in variants of the original virus has led to
outbreaks in many locations, including in the countries in which we operate.

We remain committed to supporting our employees, customers and partners, and
their communities during the pandemic. As a result of the COVID-19 pandemic we
took a number of actions, which included: (i) instituting a closure of all of
our global offices, including our global headquarters in London, United Kingdom
and our offices in the United States, 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. The expected duration of these
actions is uncertain. More recently, we have opened some of our global offices
on a limited basis and in accordance with government requirements and permitted
limited travel. We expect, however, that the transition back to normal
operations will in any event take significant time, perhaps several months.

We believe that the global 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. Additionally, the global COVID-19 pandemic and the governmental and
economic responses have impacted some industries, such as travel, hospitality
and retail, more significantly than others. Our global sales and marketing
operations have been disrupted as we moved to a remote working environment and
canceled many customer and industry events. Some customers have requested
extended payment terms, have reduced the number of seats that they purchase, or
have not increased the number of seats as they historically have, and we expect
that these trends 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. More
recently, the global COVID-19 pandemic has led to global supply chain
disruptions. We have been closely monitoring the impact of the global 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 Part II, Item 1A, "Risk
Factors - The global COVID-19 pandemic, including the related containment
efforts, has had, and will likely 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."



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Security Incident. In January 2021, we became aware of a security incident later
determined to be conducted by the same sophisticated threat actor responsible
for the SolarWinds supply chain attack. We immediately launched an internal
forensic investigation. Our investigation was supported by leading third-party
forensics and cyber incident response experts at Mandiant, a division of
FireEye, Inc., and in coordination with law enforcement to aid their
investigation into this threat actor. During our investigation, we learned that
the threat actor used the SolarWinds supply-chain compromise to gain access to
part of our production grid environment. Using this entry point, the threat
actor accessed certain Mimecast-issued certificates and related customer server
connection information. The threat actor also accessed a subset of email
addresses and other contact information, as well as encrypted and/or hashed and
salted credentials. In addition, the threat actor accessed and downloaded a
limited number of our source code repositories, but we found no evidence of any
modifications to our source code nor do we believe there was any impact on our
products. As the investigation progressed, we issued a series of advisories to
affected customers, including recommended precautionary steps to mitigate risk
and, in some cases, to address regulatory requirements. Our forensic
investigation was completed in March 2021 and we have eliminated the threat
actor's access to our environment. We have taken a number of actions to prevent
future access to our environment and we will continue to monitor for threats and
take precautionary steps as needed.



We are subject to risk and significant uncertainties as a result of this
security incident, including those described in Part II, Item 1A, "Risk Factors
- Data security and integrity are critically important to our business, and
breaches of our information and technology networks and unauthorized access to a
customer's data, including our recent security incident, could harm our business
and operating results" below. While our investigation is complete, there can be
no assurance as to what the overall impact of these events will be. These types
of events often have cascading impacts that unfold over time and may result in a
loss of revenue, a diminution of our business prospects and incremental costs,
including costs associated with litigation or investigations by regulatory
authorities, any of which may adversely impact our financial results.

We have incurred and expect to incur significant costs related to the security
incident. For the year ended March 31, 2021, we recorded $0.8 million of pre-tax
expenses related to the security incident, net of anticipated insurance
recoveries. For the three and nine months ended December 31, 2021, expenses
related to the security incident were not material. Expenses include costs of
the forensic investigation, remediation costs, and legal and other professional
services. It is also expected that we will continue to incur costs related to
our response, remediation, and investigatory efforts relating to this security
incident. While we have cyber insurance coverage, the amount of such insurance
may be insufficient to compensate us for any expenses or losses that may result
from the security incident or the insurance carrier may refuse to reimburse us
for certain costs under the terms of the policy. The full scope of the costs and
related impacts of the security incident, including the availability of
insurance to offset some of these costs, cannot be estimated at this time.

Key factors affecting our performance

We believe that the growth of our business and our future success depends on 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, particularly large, enterprise 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 twelve months ended December 31, 2021, our customer base increased by
approximately 600 organizations.

Selling of additional services to 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 have invested in and intend to continue to invest in
the expansion of our operations, headcount and software development 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 the full benefit
from such investments. For the year ending March 31, 2022, 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.

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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 nine months ended December 31, 2021, 54% of our
revenue was denominated in U.S. dollars, 26% in British pounds, 10% in South
African rand and 10% 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.

We believe that the global COVID-19 pandemic could impact some or all of these
key factors. See Part II, Item 1A, "Risk Factors - The global COVID-19 pandemic,
including the related containment efforts, has had, and will likely 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 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:



                                            Three months ended December 31,      Nine months ended December 31,
                                                  2021               2020           2021               2020
                                                                   (dollars in thousands)
Revenue constant currency growth rate (1)                 16 %            17 %           16 %                 19 %
Gross profit percentage                                   77 %            76 %           77 %                 76 %
Free cash flow (1)                          $         37,966       $  24,217     $  100,759       $       64,395
Adjusted EBITDA (1)                         $         45,876       $  34,595     $  131,263       $       93,865




                               As of December 31,
                                2021          2020
Net revenue retention rate          108 %        104 %
Total customers (2)              40,200       39,600






(1)
Adjusted EBITDA, free cash flow, and revenue constant currency growth rates are
non-GAAP financial measures. For a reconciliation of Adjusted EBITDA, free cash
flow and revenue constant currency growth rates to the nearest comparable GAAP
measures, see "Reconciliations of Non-GAAP Financial Measures" below.
(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 as
a result of our acquisition of DMARC Analyzer B.V., or DMARC Analyzer, which
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, "Reconciliations of
Non-GAAP Financial Measures" below. We expect our constant currency growth rate
will decline in the fiscal year ended March 31, 2022 as compared to the prior
fiscal year.

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 seen growth over the past three years and we expect it to remain
relatively consistent for the year ending March 31, 2022; 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.

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Free cash flow. We believe free cash flow is 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, equipment and
capitalized software, 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. We define free cash flow as net cash provided by
operating activities minus purchases of property, equipment and capitalized
software. For further explanation of the uses and limitations of this non-GAAP
measure and a reconciliation of our free cash flow to the most directly
comparable GAAP measure, net cash provided by operating activities, see
"Reconciliations of Non-GAAP Financial Measures" below.

Adjusted EBITDA. We believe that Adjusted EBITDA is a key indicator of our
operating results. We define Adjusted EBITDA as net income (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 (benefit from) income taxes and foreign
exchange income (expense). For further explanation of the uses and limitations
of this non-GAAP measure and a reconciliation of our Adjusted EBITDA to the most
directly comparable GAAP measure, net income, see "Reconciliations of Non-GAAP
Financial Measures" below. We expect that our Adjusted EBITDA will continue to
increase compared to the prior fiscal year; 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.

Net 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 net revenue retention rate is driven by our customer
renewals and upsells. We calculate our net 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.

Reconciliations of Non-GAAP Financial Measures

Revenue growth rate at constant exchange rate

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 three and nine months ended December 31, 2020 were used to
convert revenue for the three and nine months ended December 31, 2021 and the
revenue for the comparable prior period ended December 31, 2020, rather than the
actual exchange rates in effect during the respective periods. 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.



                                             Three months ended December 31,              Nine months ended December 31,
                                              2021                    2020                 2021                    2020
                                                                        (dollars in thousands)
Reconciliation of Revenue Constant
Currency Growth Rate:
Revenue, as reported                     $       151,599         $       

129,636 $441,381 $367,505
Year-over-year revenue growth rate, as reported

                                              17 %                    18 %                 20 %                    18 %
Estimated impact of foreign currency
fluctuations                                          (1 )%                   (1 )%                (4 )%                    1 %
Revenue constant currency growth rate                 16 %                    17 %                 16 %                    19 %




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.

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We believe that presenting this non-GAAP financial measure in this Quarterly
Report on Form 10-Q 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.

Free movement of capital

Free cash flow is a non-GAAP financial measure that we define as net cash
provided by operating activities minus purchases of property, equipment and
capitalized software. We believe free cash flow provides investors and other
users of our financial information useful information about the amount of cash
generated by the business that, after the acquisition of property, equipment and
capitalized software, 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 "Liquidity and
Capital Resources" section below.

We do not place undue reliance on free cash flow 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, limiting the
usefulness of those measures for comparative purposes.

The following table presents a reconciliation of net cash flow generated by operating activities with free cash flow:

                                           Three months ended December 31,  

End of nine months the 31st of December,

                                                2021               2020             2021                  2020
Reconciliation of Free Cash Flow:
Net cash provided by operating
activities                                 $       46,327       $   34,978     $       130,160       $        95,326
Purchases of property, equipment and
capitalized software                               (8,361 )        (10,761 )           (29,401 )             (30,931 )
Free cash flow                             $       37,966       $   24,217     $       100,759       $        64,395


Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net income,
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 (benefit from) income taxes and
foreign exchange income (expense).

We believe that Adjusted EBITDA provides investors and other users of our financial information with consistency and comparability with our past financial performance, facilitates operating comparisons from period to period, and facilitates comparisons with our companies. counterparts, many of whom use a similar non-GAAP financial system. 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, and to communicate with
our board of directors concerning our financial performance.

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.

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



                                             Three months ended December 31,        Nine months ended December 31,
                                               2021                  2020              2021               2020
                                                                       (in

thousands)

Reconciliation of Adjusted EBITDA:
Net income                                $        13,818       $        10,789     $   41,473       $       23,977
Depreciation, amortization and
disposals of long-lived assets                     10,041                 9,950         29,850               28,298
Interest expense, net                                 383                   317          1,184                1,639
Provision for income taxes                          1,705                 1,155          4,884                2,350
Share-based compensation expense                   14,619                13,792         47,365               41,064
Foreign exchange expense (income)                   1,057                (1,408 )        2,254               (4,130 )
Acquisition-related expenses (1)                    4,253                     -          4,253                  667
Adjusted EBITDA                           $        45,876       $        34,595     $  131,263       $       93,865






(1)
Acquisition-related expenses relate primarily to legal and other professional
fees incurred for acquisition activity in each respective period, including with
respect to the Transaction. See Note 1 and Note 10 to the unaudited condensed
consolidated financial statements, included elsewhere in this Quarterly Report
on Form 10-Q for further information.



Significant Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations
is based upon our condensed consolidated financial statements, which have been
prepared in accordance with principles generally accepted in the United States.
The preparation of these condensed consolidated financial statements requires us
to use 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 the estimates and assumptions involved in revenue recognition,
deferred revenue, goodwill and long-lived asset impairment assessments,
accounting for income taxes and share-based compensation have the greatest
potential impact on our condensed consolidated financial statements and consider
these to be our critical accounting policies. Historically, our estimates and
assumptions relative to our critical accounting policies have not differed
materially from actual results. For further information on our critical and
other significant accounting policies, see the notes to the condensed
consolidated financial statements appearing elsewhere in this Quarterly Report
on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on May 27,
2021. There have been no changes to our significant accounting policies since
March 31, 2021.

Recent accounting pronouncements

There have been no recent accounting pronouncements or changes in accounting
pronouncements during the nine months ended December 31, 2021 that are of
significance or potential significance to us as compared to the recent
accounting pronouncements described in our Annual Report on Form 10-K filed with
the SEC on May 27, 2021.

Components of Consolidated Statements of Income

Income

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.

                                       26

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Amounts billed are recognized in accounts receivable and in revenue or deferred revenue, depending on whether or not the revenue recognition criteria are 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 accounted for based on performance performance measures.

We serve approximately 40,200 customers in multiple industries, and our revenue
is not concentrated with any single customer or industry. For the nine months
ended December 31, 2021 and 2020, 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.

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 remain relatively consistent for the
year ending March 31, 2022 and 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 costs

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 remain relatively consistent in the year ending March 31, 2022
as a result of the expected investments noted above. The full scope of the costs
and related impacts of our recent security incident, including the availability
of insurance to offset some of these costs, cannot be estimated at this time.

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. We
expect that our sales and marketing expenses will continue to increase in
absolute dollars in the year ending March 31, 2022 but remain relatively
consistent as a percentage of revenue as compared to fiscal 2021. 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, and as we continue to focus on sales to large,
enterprise prospects, which will increase these expenses in absolute dollars.
Over the longer 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. The full scope of the costs and related impacts of our
recent security incident, including the availability of insurance to offset some
of these costs, cannot be estimated at this time.

                                       27

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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 longer
term, we believe that general and administrative expenses as a percentage of
revenue will decrease. The full scope of the costs and related impacts of our
recent security incident, including the availability of insurance to offset some
of these costs, cannot be estimated at this time. In connection with the
Transaction, we expect to incur material non-recurring expenses, including
financial advisory fees and legal fees, most of which are contingent on the
consummation of the Transaction.

Other income (expenses)

Other income (expenses) includes 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. We expect interest expense in fiscal 2022
associated with our long-term debt to decrease compared to fiscal 2021 primarily
due to lower principal balances associated with our long-term debt and the
current interest rate environment.

Foreign exchange income (expenses) 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.

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. It is possible that within the next 12
months, there may be sufficient positive evidence to release a portion or all of
the valuation allowance currently recorded against our deferred tax assets.
Release of the valuation allowance would result in a benefit to income tax
expense for the period the release is recorded, which could have a material
impact on net earnings. The timing and amount of the potential valuation
allowance release are subject to significant management judgment.

Our provision for income taxes for the three and nine months ended December 31,
2021 was primarily attributable to the tax provision recorded on the earnings of
our profitable entities, partially offset by the discrete tax benefit of $1.3
million and $3.4 million, respectively, related to excess tax benefits on
share-based compensation realized by U.S. and U.K. employees.

                                       28

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Our provision for income taxes for the three and nine months ended December 31,
2020 was primarily attributable to the tax provision recorded on the earnings of
our profitable entities, partially offset by the discrete tax benefit of $1.4
million and $4.5 million, respectively related to excess tax benefits on
share-based compensation realized by U.S. and U.K. employees. In addition,
during the nine months ended December 31, 2020, we recorded a discrete tax
benefit of $0.6 million for the release of a portion of our pre-existing U.S.
valuation allowance as a result of the eTorch Inc., or MessageControl, business
combination.

Comparison of operating results from period to period

The following table sets forth data from our condensed consolidated statements of earnings for each of the periods indicated:



                                          Three months ended December
                                                      31,                   

End of nine months the 31st of December,

                                             2021             2020             2021                  2020
                                                                     (in thousands)
Revenue                                   $  151,599       $  129,636     $       441,381       $       367,505
Cost of revenue                               34,408           31,572             101,433                89,783
Gross profit                                 117,191           98,064             339,948               277,722
Operating expenses
Research and development                      26,305           25,408              83,025                70,497
Sales and marketing                           49,738           45,187             146,775               133,224
General and administrative                    24,199           16,649              60,373                50,400
Total operating expenses                     100,242           87,244             290,173               254,121
Income from operations                        16,949           10,820              49,775                23,601
Other income (expense)
Interest income                                   82              261                 351                   612
Interest expense                                (465 )           (578 )            (1,535 )              (2,251 )
Foreign exchange (expense) income and
other, net                                    (1,043 )          1,441              (2,234 )               4,365
Total other income (expense), net             (1,426 )          1,124              (3,418 )               2,726
Income before income taxes                    15,523           11,944              46,357                26,327
Provision for income taxes                     1,705            1,155               4,884                 2,350
Net income                                $   13,818       $   10,789     $        41,473       $        23,977



The following table sets forth the data in our condensed consolidated statements of earnings as a percentage of sales for each of the periods indicated:



                                            Three months ended December 31,             Nine months ended December 31,
                                             2021                     2020              2021                     2020
Revenue                                            100 %                    100 %             100 %                    100 %
Cost of revenue                                     23 %                     24 %              23 %                     24 %
Gross profit                                        77 %                     76 %              77 %                     76 %
Operating expenses
Research and development                            17 %                     20 %              19 %                     19 %
Sales and marketing                                 33 %                     35 %              33 %                     36 %
General and administrative                          16 %                     13 %              14 %                     14 %
Total operating expenses                            66 %                     67 %              66 %                     69 %
Income from operations                              11 %                      8 %              11 %                      6 %
Other income (expense)
Interest income                                      - %                      - %               - %                      - %
Interest expense                                     - %                      - %               - %                     (1 )%
Foreign exchange (expense) income and
other, net                                          (1 )%                     1 %              (1 )%                     1 %
Total other income (expense), net                   (1 )%                     1 %              (1 )%                     1 %
Income before income taxes                          10 %                      9 %              11 %                      7 %
Provision for income taxes                           1 %                      1 %               1 %                      1 %
Net income                                           9 %                      8 %               9 %                      7 %




                                       29
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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 condensed
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:



                                                Three months ended December 31,             Nine months ended December 31,
                                                2021                      2020                2021                   2020
                                                                              (in millions)
Revenue                                    $           7.3           $           6.1     $         21.8         $         16.7
Cost of revenue                                        2.0                       1.9                5.9                    5.3
Research and development                               2.0                       1.8                6.1                    4.9
Sales and marketing                                    2.2                       1.9                6.4                    5.5
General and administrative                             0.6                       0.5                1.7                    1.5





Comparison of the three months ended December 31, 2021 and 2020

Revenue



              Three months ended December 31,             Period-to-period change
                2021                   2020               Amount             % Change
                                     (dollars in thousands)
Revenue   $        151,599       $        129,636     $        21,963               17 %




Revenue increased $22.0 million in the three months ended December 31, 2021
compared to the three months ended December 31, 2020. The increase in revenue
was primarily attributable to new customers, including approximately 600 new
customers added since December 31, 2020, a full quarter of revenue related to
new customers added during the third quarter of fiscal 2021 and additional
revenue from customers that existed as of December 31, 2020. Revenue for the
three months ended December 31, 2021 compared to the three months ended December
31, 2020 was positively impacted by approximately $0.9 million as a result of
the weakening of the U.S. dollar relative to the British pound.

Cost of revenue



                                             Three months ended December 31,               Period-to-period change
                                               2021                  2020                Amount                % Change
                                                                      (dollars in thousands)
Cost of revenue                           $        34,408       $        31,572     $          2,836                    9 %




Cost of revenue increased $2.8 million in the three months ended December 31,
2021 compared to the three months ended December 31, 2020, which was primarily
attributable to increases in personnel-related costs of $1.3 million and data
center costs of $1.3 million. Cost of revenue expenses for the three months
ended December 31, 2021 as compared to the three months ended December 31, 2020,
were negatively impacted by approximately $0.3 million primarily as a result of
the weakening of the U.S. dollar relative to the British pound.
Personnel-related costs increased primarily as a result of an increase in
headcount and data center costs increased primarily as a result of the increase
in our customer base and expanding infrastructure.



As a result of changes in foreign currency exchange rates, gross profit
increased in absolute dollars by approximately $0.6 million for the three months
ended December 31, 2021 as compared to the three months ended December 31, 2020.
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.





                                       30
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Operating expenses



                                          Three months ended December 31,          Period-to-period change
                                             2021               2020              Amount             % Change
                                                                 (dollars in thousands)
Operating expenses:
Research and development                  $   26,305       $       25,408     $           897                 4 %
Sales and marketing                           49,738               45,187               4,551                10 %
General and administrative                    24,199               16,649               7,550                45 %
Total operating expenses                  $  100,242       $       87,244     $        12,998                15 %

Research and development costs

Research and development expenses increased $0.9 million in the three months
ended December 31, 2021 compared to the three months ended December 31, 2020,
which was primarily attributable to an increase in personnel-related costs of
$1.2 million. Personnel-related costs increased primarily as a result of
salaries and benefits associated with merit increases.

Sales and marketing expenses

Sales and marketing expenses increased $4.6 million in the three months ended
December 31, 2021 compared to the three months ended December 31, 2020, which
was primarily attributable to increases in personnel-related costs of $2.7
million, marketing costs of $0.6 million, and professional fees of $0.6 million.
Personnel-related costs increased primarily as a result of increased
commissions, marketing costs increased primarily as a result of lead generation
and advertising costs, and professional fees increased primarily due to an
increase in consulting fees.

General and administrative expenses

General and administrative expenses increased $7.6 million in the three months
ended December 31, 2021 compared to the three months ended December 31, 2020,
which was primarily attributable to increases in professional fees of $4.3
million, personnel-related costs of $1.5 million and share-based compensation of
$1.0 million. Professional fees increased primarily as a result of transaction
costs incurred related to the Transaction. Personnel-related costs increased
primarily as a result of merit increases as well as an increase in headcount.
Share-based compensation costs increased primarily as a result of equity grants
issued to employees since the prior year.



Other income (expense)



                                            Three months ended December 31,           Period-to-period change
                                             2021                  2020               Amount            % Change
                                                                  (dollars in thousands)
Other income (expense):
Interest income                           $        82         $           261     $         (179 )            (69 )%
Interest expense                                 (465 )                  (578 )              113              (20 )%
Foreign exchange (expense) income and
other, net                                     (1,043 )                 1,441             (2,484 )             nm

Total other income (expenses), net ($1,426) $1,124 $(2,550)

             nm






nm - not meaningful

Foreign exchange income (expenses) and other, net modified by $2.5 million
mainly due to lower foreign exchange income of $2.5 million
on inter-company balances.



                                       31

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Provision for income taxes



                                               Three months ended December 31,              Period-to-period change
                                                2021                     2020              Amount             % Change
                                                                      (dollars in thousands)
Provision for income taxes                $          1,705         $          1,155     $        550                  48 %


The provision for income taxes increased by $0.5 million in the three months
ended December 31, 2021 compared to the three months ended December 31, 2020.
The increase in the provision for income taxes was primarily attributable to the
tax on increased earnings offset by the discrete effect of excess tax benefits
on share-based compensation realized by U.S. and U.K. employees.



Comparison of the nine months ended December 31, 2021 and 2020

Revenue



             Nine months ended December 31,             Period-to-period change
               2021                  2020               Amount             % Change
                                    (dollars in thousands)
Revenue   $       441,381       $       367,505     $        73,876               20 %




Revenue increased $73.9 million in the nine months ended December 31, 2021
compared to the nine months ended December 31, 2020. The increase in revenue was
primarily attributable to new customers, including approximately 600 new
customers added since December 31, 2020, a full period of revenue related to new
customers added during the first nine months of fiscal 2021 and additional
revenue from customers that existed as of December 31, 2020. Revenue for the
nine months ended December 31, 2021 compared to the nine months ended December
31, 2020 was positively impacted by approximately $15.8 million as a result of
the weakening of the U.S. dollar relative to the British pound, South African
rand, and Australian dollar.





Cost of revenue



                     Nine months ended December 31,            

Variation from period to period

                        2021                  2020              Amount             % Change
                                            (dollars in thousands)
Cost of revenue   $        101,433       $       89,783     $        11,650               13 %




Cost of revenue increased $11.7 million in the nine months ended December 31,
2021 compared to the nine months ended December 31, 2020, which was primarily
attributable to increases in data center costs of $4.4 million,
personnel-related costs of $3.6 million, depreciation expense of $1.1 million,
share-based compensation expense of $0.7 million, information technology costs
of $0.7 million, and professional services costs of $0.5 million. Cost of
revenue expenses for the nine months ended December 31, 2021 as compared to the
nine months ended December 31, 2020, were negatively impacted by approximately
$4.1 million primarily as a result of the weakening of the U.S. dollar relative
to the British pound and South African rand. Data center costs increased
primarily as a result of the increase in our customer base and expanding
infrastructure, personnel-related costs increased primarily as a result of
increased headcount as well as salaries and benefits associated with annual
merit increases, and depreciation expense increased primarily as a result of
increased capital expenditures in support of our expanding infrastructure. The
increase in share-based compensation expense is primarily due to equity grants
issued to employees since the prior year. Information technology costs increased
primarily due to an increase in purchases of hardware and software.



As a result of changes in foreign currency exchange rates, gross profit
increased in absolute dollars by approximately $11.7 million for the nine months
ended December 31, 2021 as compared to the nine months ended December 31, 2020.
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.





                                       32
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Operating expenses



                                             Nine months ended December 31,              Period-to-period change
                                               2021                  2020               Amount             % Change
                                                                    (dollars in thousands)
Operating expenses:
Research and development                  $        83,025       $        70,497     $        12,528                18 %
Sales and marketing                               146,775               133,224              13,551                10 %
General and administrative                         60,373                50,400               9,973                20 %
Total operating expenses                  $       290,173       $       254,121     $        36,052                14 %

Research and development costs

Research and development expenses increased $12.5 million in the nine months
ended December 31, 2021 compared to the nine months ended December 31, 2020,
which was primarily attributable to increases in personnel-related costs of $6.1
million, professional services costs of $2.4 million, share-based compensation
expense of $2.3 million and information technology costs of $1.2 million.
Research and development expenses for the nine months ended December 31, 2021 as
compared to the nine months ended December 31, 2020, were negatively impacted by
approximately $4.0 million primarily as a result of the weakening of the U.S.
dollar relative to the British pound. Personnel-related costs increased
primarily as a result of salaries and benefits associated with annual merit
increases and increased headcount. Professional services costs increased
primarily due to increased consulting fees. Share-based compensation expense
increased primarily as a result of equity grants issued to employees since the
prior year as well as a result of the acceleration of expense for certain awards
due to changes in requisite service periods. Information technology costs
increased primarily due to an increase in purchases of hardware and software.

Sales and marketing expenses

Sales and marketing expenses increased $13.6 million in the nine months ended
December 31, 2021 compared to the nine months ended December 31, 2020, which was
primarily attributable to increases in personnel-related costs of $9.2 million,
marketing costs of $1.9 million, share-based compensation of $1.4 million, and
travel and entertainment expenses of $1.0 million. Sales and marketing expenses
for the nine months ended December 31, 2021 as compared to the nine months ended
December 31, 2020, were negatively impacted by approximately $4.0 million
primarily as a result of the weakening of the U.S. dollar relative to the
British pound, South African rand, and Australian dollar. Personnel-related
costs increased primarily as a result of salaries and benefits associated with
increased commissions and annual merit increases. Marketing costs increase
primarily as a result of lead generation and advertising costs. Share-based
compensation expense increased primarily as a result of equity grants issued to
employees since the prior year. Travel and entertainment costs increased
primarily due to the decrease in travel costs in the prior year as a result of
the impact of the global COVID-19 pandemic.

General and administrative expenses

General and administrative expenses increased $10.0 million in the nine months
ended December 31, 2021 and 2020 compared to the nine months ended December 31,
2020, which was primarily attributable to increases in professional fees of $4.4
million, personnel-related costs of $2.6 million, share-based compensation of
$1.7 million and insurance related costs of $1.0 million. General and
administrative expenses for the nine months ended December 31, 2021 as compared
to the nine months ended December 31, 2020, were negatively impacted by
approximately $1.1 million primarily as a result of the weakening of the U.S.
dollar relative to the British pound. Professional fees increased primarily as a
result of transaction costs incurred related to the Transaction.
Personnel-related costs increased primarily as a result of merit increases.
Share-based compensation costs increased primarily as a result of equity grants
issued to employees since the prior year. Insurance related costs increased
primarily due to an increase in premiums for global insurance policies.



                                       33

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Other income (expenses)

                                             Nine months ended December 31,             Period-to-period change
                                               2021                  2020               Amount            % Change
                                                                   (dollars in thousands)
Other income (expense):
Interest income                           $           351       $           612     $         (261 )            (43 )%
Interest expense                                   (1,535 )              (2,251 )              716              (32 )%
Foreign exchange (expense) income and
other, net                                         (2,234 )               4,365             (6,599 )             nm

Total other income (expenses), net ($3,418) $2,726 ($6,144)

             nm






nm - not meaningful

Foreign exchange income (expenses) and other, net modified by $6.6 million
mainly due to lower foreign exchange income of $6.4 million
on inter-company balances.

Provision for income taxes



                                              Nine months ended December 31,             Period-to-period change
                                               2021                    2020              Amount            % Change
                                                                    (dollars in thousands)
Provision for income taxes                $         4,884         $         2,350     $       2,534              108 %




The provision for income taxes increased by $2.5 million in the nine months
ended December 31, 2021 compared to the nine months ended December 31, 2020. The
increase in the provision for income taxes was primarily attributable to the tax
on increased earnings offset by the discrete effect of excess tax benefits on
share-based compensation realized by U.S. and U.K. employees. In addition,
during the nine months ended December 31, 2020, we recorded a discrete tax
benefit of $0.6 million for the release of a portion of our pre-existing U.S.
valuation allowance as a result of the MessageControl business combination



Cash and capital resources

Our principal sources of liquidity are cash and cash equivalents, investments,
accounts receivable and our Revolving Facility (as defined below). 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 nine
months ended December 31, 2021 and 2020:



                                               Nine months ended December 31,
                                                 2021                  2020
                                                       (in thousands)

Net cash flow generated by operating activities $130,160 $95,326
Net cash used in investing activities

               (30,901 )             (47,975 )
Net cash provided by financing activities            27,825                38,649




As of December 31, 2021 and March 31, 2021, we had cash and cash equivalents of
$416.2 million and $292.9 million, respectively. Net cash provided by operating
activities was $130.2 million and $95.3 million for the nine months ended
December 31, 2021 and 2020, respectively. In the year ending March 31, 2022, we
expect net cash provided by operating activities to increase as compared to the
year ended March 31, 2021. In the year ending March 31, 2022, we plan to
continue to invest in the development and expansion of our Mime | OS™ platform
to improve on our existing solutions and develop new services in order to
provide more capabilities to our customers. Investments in capital expenditures
in the year ended March 31, 2021 were $38.6 million, of which $36.6 million
related to the expansion of our grid architecture. We expect fiscal year 2022
capital expenditures to remain relatively consistent with fiscal year 2021.

Based on our current operating plan, we believe that our current cash and cash
equivalents, Revolving Facility (as defined below) and operating cash flows will
be sufficient to fund our operations for at least the next twelve months from
the date of filing this Quarterly Report on Form 10-Q. 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 $3.6 million as of
December 31, 2021, primarily related to the expansion of our grid architecture.

                                       34

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On December 7, 2021, we entered into a Transaction Agreement with an affiliate
of Permira in an all-cash transaction valued at approximately $5.8 billion.
Under the terms of the Transaction Agreement, we have agreed to various
covenants and agreements, including, among others, agreements to conduct our
business in the ordinary course during the period between the execution of the
Transaction Agreement and the consummation of the Transaction. In addition,
without the consent of the Buyer, we may not take, authorize, agree or commit to
do certain actions outside of the ordinary course of business, including
incurring material capital expenditures above specified thresholds, or issuing
additional debt facilities. If the Transaction Agreement is terminated in
certain circumstances, including by us if we enter into a superior proposal or
by Buyer because our board of directors withdraws its recommendation in favor of
the Transaction, we would be required to pay a termination fee of $216.8
million. We do not believe these restrictions will prevent us from meeting our
debt obligations, ongoing costs of operations, working capital needs or capital
expenditure requirements. The Transaction is expected to close in the first half
of 2022, subject to customary closing conditions, including approval by our
shareholders and receipt of regulatory approvals. For additional information
regarding the Transaction, see Note 1 to our condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q.

Loans 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 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,
which is available to fund working capital and for other corporate purposes,
including to finance permitted acquisitions and investments. In June 2020, the
Credit Agreement was amended to permit us to issue letters of credit in certain
additional foreign currencies beyond the U.S. dollar and the British pound (as
amended, the Credit Agreement, the Term Loan and the Revolving Facility are
referred to herein as the Credit Facility). As of December 31, 2021 and March
31, 2021, total availability under the Revolving Facility is reduced by
outstanding letters of credit of $2.1 million and $2.2 million, respectively. As
of December 31, 2021 and March 31, 2021, total availability under the Revolving
Facility was $47.9 million and $30.3 million, respectively. In July 2020, we
drew down $17.5 million under the Revolving Facility. In the three months ended
September 30, 2021 we repaid the $17.5 million outstanding under the Revolving
Facility in full. See Note 12 to the unaudited condensed consolidated financial
statements, included elsewhere in this Quarterly Report on Form 10-Q for further
information. 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 EBITDA. Based on this ratio, the current interest
rate as of December 31, 2021 under the Credit Facility is LIBOR plus 1.375%. The
InterContinental Exchange Benchmark Administration has announced that it will no
longer publish certain tenors of the LIBOR rate starting in 2021. See Item 3,
"Quantitative and Qualitative Disclosures About Market Risk" below for further
information. 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. We were in compliance
with all covenants as of December 31, 2021 and management reasonably believes it
will be in compliance with such covenants over the 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 by 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 Quarterly Report on Form 10-Q) 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 10.12, 10.13, 10.14, 10.15, 10.16,
10.17, 10.18, 10.19, 10.20 and 10.34 to this Quarterly Report on Form 10-Q and
incorporated herein by reference.

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Operational activities

For the nine months ended December 31, 2021, cash provided by operating
activities was $130.2 million. The primary factors affecting our operating cash
flows during the period were our net income of $41.5 million, adjusted for
non-cash items of $47.4 million of share-based compensation expense, $29.8
million for depreciation and amortization of our property, equipment and
intangible assets, $24.9 million of amortization of operating lease right-of-use
assets, and $13.1 million in amortization of deferred contract costs. The
drivers of the changes in operating assets and liabilities were a $27.5 million
decrease in operating lease liabilities, a $20.0 million increase in deferred
contract costs, a $7.2 million increase in accounts receivable and a $0.9
million increase in prepaids and other current assets offset by a $16.4 million
increase in deferred revenue, a $8.5 million increase in accrued expenses and
other liabilities and a $1.2 million decrease in other assets.

For the nine months ended December 31, 2020, cash provided by operating
activities was $95.3 million. The primary factors affecting our operating cash
flows during the period were our net income of $24.0 million, adjusted for
non-cash items of $41.1 million of share-based compensation expense, $22.3
million for amortization of our operating lease right-of-use assets, $28.3
million for depreciation and amortization of our property, equipment and
intangible assets, and $9.5 million for amortization of deferred contract costs,
partially offset by unrealized currency gains on foreign denominated
transactions of $4.5 million. The primary drivers of the changes in operating
assets and liabilities were a $25.0 million decrease in operating lease
liabilities, a $19.5 million increase in deferred contract costs, a $3.6 million
decrease in accounts payable and a $1.7 million increase in prepaids and other
current assets, partially offset by a $6.2 million decrease in accounts
receivable, a $2.5 million increase in deferred revenue, and a $15.4 million
increase in accrued expenses and other liabilities.

Investing activities

For the nine months ended December 31, 2021, cash used in investing activities
consisted of $29.4 million in purchases of property, equipment and capitalized
software, primarily associated with computer equipment purchased in support of
our expanding infrastructure and $1.5 million for the purchase of strategic
investments.

For the nine months ended December 31, 2020, cash used in investing activities
consisted of $30.9 million in purchases of property, equipment and capitalized
software and $17.0 million in payments for the MessageControl acquisition.

For the nine months ended December 31, 2020, our capital expenditures were
primarily associated with computer equipment and software purchased in support
of our expanding infrastructure. Additionally, in the nine months ended December
31, 2020, we had purchases of $0.8 million related to office facilities.

Fundraising activities

Cash provided by financing activities of $27.8 million for the nine months ended
December 31, 2021 was primarily due to proceeds from issuance of ordinary shares
under our equity plans of $63.1 million, partially offset by payments on debt,
including the Credit Facility, of $24.4 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 $10.3 million.

Cash provided by financing activities of $38.6 million for the nine months ended
December 31, 2020 was due to proceeds from the draw down on our revolving credit
facility of $17.5 million, proceeds from issuance of ordinary shares under our
equity plans of $31.1 million, partially offset by withholding taxes related to
net share settlement of employee stock purchase plan purchases and vesting of
restricted share units of $4.2 million, payments on debt of $5.0 million, and
payments on finance lease obligations of $0.8 million.

Net operating losses carried forward and income tax credits

As of December 31, 2021, we had net operating loss carryforwards in the U.K.,
U.S. federal and state, Australia, Germany, Israel, and Canada. 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 2041. Net operating losses in
Canada expire in 2041. Net operating loss carryforwards in the U.K., Australia,
Germany and Israel do not expire. As of December 31, 2021, we had U.K. income
tax credit carryforwards that do not expire. As of December 31, 2021, we had
Israel income tax credit carryforwards that expire at various dates from 2024
through 2026.

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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. It is possible that within the next 12
months, there may be sufficient positive evidence to release a portion or all of
the valuation allowance currently recorded against our deferred tax assets.
Release of the valuation allowance would result in a benefit to income tax
expense for the period the release is recorded, which could have a material
impact on net earnings. The timing and amount of the potential valuation
allowance release are subject to significant management judgment.

Contractual obligations and commitments

Our principal commitments consist of obligations under debt facilities, leases
for office space, leases for data center facilities, non-lease data center
obligations, intangible asset obligations, and capital expenditures. For more
information regarding our debt obligations, see Note 12 to the condensed
consolidated financial statements, included elsewhere in this Quarterly Report
on Form 10-Q. For more information regarding our lease obligations, see Note 6
to the condensed consolidated financial statements, included elsewhere in this
Quarterly Report on Form 10-Q. For more information regarding our other
contractual commitments associated with agreements that are enforceable and
legally binding and that specify all significant terms refer to our Annual
Report on Form 10-K filed with the SEC on May 27, 2021.

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