Mimecast Limited

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 Mindcast Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to turn the conference over to your speaker for today, Mr. Robert Sanders, you may begin.

Good morning and welcome to Mimecast Earnings Call for the fiscal second quarter of 2022. I'm Robert Sanders, Director of Investor Relations. With me on the call this morning are Peter Bauer, our co-founder, chairman and CEO, and Rafe Brown, our CFO. Today's conference call is being broadcast live. A replay of this call will be available after the live call has ended. We will make forward-looking statements regarding future events and the future financial performance of the company. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including risks and uncertainties related to our recent security incident and the ongoing impact of the global COVID-19 pandemic. We caution you to consider the important risk factors that could cause actual results to differ from those in the forward-looking statements contained in today's press release and on this call. These risk factors are further defined in Mimecast's most recent Form 10-Q filed with the Securities and Exchange Commission. During this call, we will present both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results. a reconciliation of GAAP to non-GAAP measures, and the reasons for our representation of the non-GAAP information is included in today's press release, which can be found in the investor relations section of our website. The date of this call is November 2nd, 2021. Any forward-looking statements we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. Now, I'd like to turn the call over to Peter Bauer.

Peter. Good morning, everyone, and thanks for joining us. I hope you and your families are safe and healthy. I'll begin with some takeaways from the quarter and progress on executing our strategy. I'll also touch on the threat landscape and why we believe Mimecast services are as mission critical as ever. And then Rafe will detail our financial results. Our results this quarter exceeded the high end of our guidance ranges across all metrics. underscoring our strong execution and favorable security demand, especially in North America and the UK. We generated $147.2 million in revenues, which is up 16% year-over-year in constant currency. We drove an increase in average order value to $15,000, which is approximately 15% over the prior year in constant currency. Now, this increase in AOV was partially impacted by a reduction in smaller customers that Rafe will discuss in detail later in the call. Additionally, we increased the number of services per customer to 3.8. That's up from 3.4 last year. We also delivered a strong net retention rate of 106% in the quarter, up from 105% in Q1. Of note, we drove another increase in the percentage of revenue coming from enterprise, or customers with more than 5,000 seats, to 20%, continuing our gains in the enterprise segment. Now, these results speak to our strong execution against our three-pronged growth strategy, as we A, expand our footprint in the enterprise market, B, sell our multi-product platform, and C, automate our to create even stronger and easier to use engagements with our SMB customers and channel partners. Let me provide some examples of that execution this quarter. Firstly, a UK-based consumer goods company with 42,000 employees bought four services across all three zones, secure email gateway with targeted threat protection in zone one, internal email protection in zone two, and demark analyzer in zone three. Then a U.S.-based telecom company with 20,000 seats purchased six services across zones one, two, and a continuity offering that protects against downtime. A logistics services company with 30,000 seats added additional services. This included awareness training, brand exploit protect, large file sending, and demark analyzer. And in total, this customer has now bought eight services across our three zones, plus archiving. An athletic work company based in the U.S. with 8,000 seats purchased seven services. And a clinical research organization in the U.S. with 4,800 seats purchased eight services, including secure email gateway, targeted threat protection in zone one, internal email protect, awareness training, and cybergraph in zone two, and brand exploit protection in Zone 3. And they also added browser isolation, one of our newer offerings. We also had three more hospital systems in the U.S. join Mimecast, one with 15,500 employees, one with 15,000, and the last one with 9,300 seats. And as you know, there have been a number of recent ransomware attacks against hospital systems, and it's clear that these organizations are taking the risk very seriously. We're proud to help them and ensure the continuity of care at these important organizations. We're pleased that customers are relying on Mimecast to solve additional problems too, as they seek to enhance cyber resilience and keep their organization safe. And our teams are doing an excellent job building trust with our customers and prospects and ensuring they understand the enhanced protection provided by our comprehensive suite. And you can see that in our consistent increases in average order value, products per customer, and our industry-leading retention rates. On the product side, we saw particularly strong engagement with awareness training this quarter, adding 400 new customers. As we expand the scope of our offering, we educate on the ever-changing attacks that organizations face today. Our API and alliances program continues to drive results. Integrations with security partners allow organizations to incorporate minecast threat intelligence and automation capabilities into their broader security ecosystem. Notable new collaborations include Exabeam, Sumo Logic, Netscope, and Humio, a CrowdStrike company. These collaborations further differentiate our offerings from competitors and have helped us win new customers as well as deepen existing relationships. We observe even stronger retention among customers who leverage our API integrations. Now, cybercrime is occurring at record rates, and data breaches are more costly than ever, and many companies remain inadequately prepared to defend against these attacks. As trends continue to shift towards the cloud, companies adopt remote and hybrid work environments, and the overall digital transition continues, security remains of utmost importance. And our holistic email security 3.0 strategy and integrated suite of offerings gives customers a meaningful advantage in in mitigating these risks. Now, we continue to work to improve and expand our platform to address our customers' evolving needs and the evolving nature of security threats. For example, our recent innovations around CyberGraph, an AI-driven machine learning social graph technology is designed to identify and mitigate the most advanced and highly targeted phishing and impersonation attacks. But recently, we were proud to host over 750 customers, prospects, and channel partners who attended Mimecast's Beyond 2021 Messaging Security and Compliance virtual conference, where we shared recommendations to help organizations minimize risk and increase cyber awareness. Another exciting development from the quarter was was Mimecast's role as a founding member of the XDR Alliance. The Alliance is a partnership of leading cybersecurity industry innovators committed to an inclusive and collaborative extended detection and response framework. The goal of the XDR Alliance is to foster an open approach to XDR, which is essential to enable organizations to protect themselves against the growing number of cyber attacks, breaches, and intrusions. I'd also like to provide an update on our ESG efforts and progress towards Mimecast's net zero commitment. Recall we've pledged to zero out our entire operational footprint this fiscal year and become a fully net zero emissions company by 2030. In the near term, to meet our goals, we'll be offsetting all scope one and two carbon emissions with third party certified renewable energy certificates and carbon offsets. Additionally, we're conducting a full materiality assessment to baseline our energy needs and identify opportunities to further reduce our footprint. Currently, we operate several 100% renewably powered data centers in the UK, Germany, Canada, and the United States. And finally, we announced to our employees a hybrid model that allows for remote work, further reducing the carbon intensity of employee-related travel.