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Mimecast (NASDAQ:MIME) Surprises With Q1 Sales, Provides Encouraging Quarterly Guidance


Full Report / August 03, 2021
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Email monitoring and security company Mimecast (NASDAQ:MIME) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 23.7% year on year to $142.5 million. Mimecast made a GAAP profit of $10 million, improving on its profit of $3.13 million, in the same quarter last year.

Mimecast (MIME) Q1 FY2022 Highlights:

  • Revenue: $142.5 million vs analyst estimates of $138.1 million (3.19% beat)
  • EPS (non-GAAP): $0.32 vs analyst estimates of $0.30 (7.86% beat)
  • Revenue guidance for Q2 2022 is $142.5 million at the midpoint, above analyst estimates of $141.1 million
  • The company reconfirmed revenue guidance for the full year, at $580 million at the midpoint
  • Free cash flow of $31.6 million, up 31.4% from previous quarter
  • Net Revenue Retention Rate: 105%, in line with previous quarter
  • Customers: 40,600, up from 39,900 in previous quarter
  • Gross Margin (GAAP): 76.4%, in line with previous quarter

Founded in London by South Africans Peter Bauer and Neil Murray, Mimecast (NASDAQ:MIME) provides cloud-based filtering service for securing business email accounts.

For example, Mimecast automatically detects any infected emails and can delete them from employees inboxes, as well as blocking links to risky sites. However, it can also block employees' private email accounts, like gmail, and prevent delivery of any emails they send with specific protected files. It uses analytics to try to prevent phishing and it can archive all emails, creating both redundancy in the case of a ransomware attack, as well as a searchable database.

When the company was founded back in 2003, email was just hitting the mainstream and the founding pair sought to fix perceived shortcomings in email security and archiving. Though threat detection has since moved far beyond email, the need remains, and the company now serves thousands of diverse companies from hospitals to banks and a lot in between.

The rise of criminal and state sponsored cyber attacks means that more companies should are in a situation where they need to be responding to the threat of ransomware or phishing (where employees are tricked into sharing sensitive information). Email often serves as a gateway into successfully planting malware onto a company’s network and that drives demand for cybersecurity solutions that can help keep it safe.

Mimecast competes with a range of vendors such as Microsoft (NASDAQ: MSFT), Cisco (NASDAQ: CSCO) and Broadcom, which purchased part of the legacy Symantec enterprise security business.

Sales Growth

As you can see below, Mimecast's revenue growth has been decent over the last year, growing from quarterly revenue of $115.1 million, to $142.5 million.

Mimecast Total Revenue

This quarter, Mimecast's quarterly revenue was once again up a very solid 23.7% year on year. On top of that, revenue increased $8.65 million quarter on quarter, a very strong improvement on the $4.25 million increase in Q4 2021, which shows acceleration of growth, and is great to see.

Analysts covering the company are expecting the revenues to grow 12.4% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Customer Growth

You can see below that Mimecast reported 40,600 customers at the end of the quarter, an increase of 700 on last quarter. That is quite a bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Mimecast Customers

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Mimecast Net Revenue Retention Rate

Mimecast's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 105% in Q1. That means even if they didn't win any new customers, Mimecast would have grown its revenue 5% year on year. That is a fair retention rate and it shows us that customers stick around.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Mimecast's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 76.4% in Q1.

Mimecast Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good gross margin that allows companies like Mimecast to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Mimecast is doing a good job controlling costs and is not under a pressure from competition to lower prices.

Key Takeaways from Mimecast's Q1 Results

With market capitalisation of $3.62 billion Mimecast is among smaller companies, but its more than $338.4 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by Mimecast’s very strong acceleration in customer growth this quarter. And we were also excited to see it that it outperformed analysts' revenue expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 0.7% on the results and currently trades at $55.5 per share.

Is Now The Time?

When considering Mimecast, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although Mimecast is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. Unfortunately, its customer acquisition costs are higher than we like to see, although its customers spend noticeably more each year, which is great to see.

Mimecast's price to sales ratio based on the next twelve months is 6.2, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Mimecast doesn't trade at a completely unreasonable price point.