MobileIron, Inc.
Q1 2018 Earnings Call Transcript

Published: 27 Apr 2018

[Operator:]

Welcome to the MobileIron First Quarter 2018 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Erik Bylin. Please go ahead.

[Erik Bylin:]

Thank you, operator. Good afternoon and welcome to MobileIron's first quarter fiscal 2018 financial results conference call. Joining us from the Company are Simon Biddiscombe, CEO; and Shawn Ayers, Interim CFO. The format of the call will be remarks by Simon. Then Shawn will provide details on the financials. We will then have time for questions. If you have not received a copy of today's press release, please go to MobileIron's Investor Relations website at investors.mobileiron.com. Today's conference call contains forward-looking statements that involve risks and uncertainties, including statements regarding MobileIron's revenue, operating expenses, GAAP, and non-GAAP financial metrics, projections, and trends. All of these forward-looking statements are subject to a number of significant risks, uncertainties, and assumptions. Actual results could differ materially from the statements made on this call. Please see the Risk Factors section of our SEC filings. All statements made on the call are made as of today. We assume no obligation and do not currently intend to update any such forward-looking statements. If this call is reviewed after today, the information presented during this call may not be current or accurate. With regard to non-GAAP financial metrics, while we believe them to be helpful in understanding MobileIron's financial performance, they are not meant to be considered in isolation or as a substitute for comparable GAAP metrics. They should be read in conjunction with MobileIron's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the non-GAAP financial metrics to the GAAP metrics can be found in our press release and on the Investor Relations page of our website. Unless otherwise stated, results shared today will be non-GAAP. Please note, that we are now reporting our financial results under Accounting Standards Codification 606. As noted in our Q4 2017 earnings call, we have adopted the new standard using the full retrospective method so that we have restated prior period financial results. When we compare our Q1 2018 results through Q1 2017 or December 31, 2017, we are comparing two restated prior period results. Please see today's earnings press release to learn more about the details of how product revenue categories, recurring revenue, deferred revenue, DSOs, and sales commissions are effective. At this time, I will now turn the call over to Simon. Please go ahead.

[Simon Biddiscombe:]

Thank you, Erik, and good afternoon. In my remarks today, I will provide comments on our first quarter financial performance, and share some detail on our recent accomplishments and customer wins. Our billings in Q1 were $46 million, squarely within guidance. Our cloud EMM solution continues it's strong growth trajectory and represented $11.4 million of billings in the quarter, up 67% year-over-year. Revenues were $43.7 million, also within guidance and up 4% over last year. Recurring revenue grew 12% in the first quarter and now stands at 78% total revenue. Our recurring revenue is the best proxy for our true rate of growth as we continue our transition to a cloud and subscription business. Our gross margin was 85.1%, right in the middle of our guidance and our OpEx came in at $42.9 million which was better than guidance. With strong collections in the quarter, we generated $9.2 million in cash flow from operations, an improvement of more than $8 million over last year. Shawn, will provide further details on our financials in his prepared remarks. Now I'd like to touch on the recent partnership and discussion of our partnering strategy. Earlier this month we deepened our relationship with Lenovo as our primary go-to-market partner for Windows10 devices. In 2018 we plan to move from selling with Lenovo to designing building and marketing with them. Integrating the MobileIron EMM solution into Lenovo devices, we plan to bring a new offering to market that will help companies deliver modern work experiences to their employees. When implemented, the Lenovo-MobileIron offering will give companies a simple and efficient means to procure, protect and manage all Lenovo devices and securely deploy enterprise cloud services and applications across them. We're excited to become an even more strategic partner with this market leader. In addition to our new initiatives with Lenovo, last quarter we announced a significant go-to-market partnership with Google Cloud; and I'd like to take a few minutes to talk about our partnership strategy. We look at partnerships as ways to expand our market opportunity by getting into new markets with new solutions. Our partnership with Google Cloud is a path to the bigger play in securing and managing the app lifecycle. And our partnership with Lenovo is a pass to the desktop. Over the last 10 years we've established a strong EMM base and we look to partnership opportunities that build on that foundation. Our strategic approach is to look at all the entry points into the enterprise in order to identify where we can leverage our existing strengthens to target new buy incentives. Then, we identify the technologies that can be coupled with EMM and cloud security in order to bring a differentiated solution to market. With Google Cloud and Lenovo, our existing strengths allow us to build new solutions for new buyer incentives. I look forward to providing you more details in future quarters. I'm pleased to share that we've added another key member to our leadership team. Sohail Parekh has joined MobileIron as Senior Vice President of Engineering. Sohail brings more than 20 years of experience leading engineering teams to build business critical products on cloud platforms. He joins us Cloud Passage, the cloud security platform where we served as Executive Vice President of Engineering. Prior to Cloud Passage, Sohail was EVP of Engineering at Infoblox. With a staff of more than 300 engineers, Sohail delivered numerous innovative security, analytics and networking software products that helped Infoblox become a market leader. I'm confident that Sohail's expertise in building cloud platforms will bring significant benefit to our Company moving forward. And now I'd like to touch on our customer wins from last quarter. Further building on our strong presence in the financial vertical, we grew our relationship with Union Investment. Founded more than 60 years ago and with 3,000 employees they are one of Germany's leading investment firms. They have selected MobileIron to help drive their business processes to mobile devices. With MobileIron's secure their mobile endpoints, Union Investment has put key business processes into an integrated dash board app so that executives can securely access information on their IOS devices at anytime to accelerate approval and decision making processes. I'm proud that MobileIron will play such as integral role in price and the transition to modern work at the Union Investment. MobileIron continues to be the security solution of choice for leading financial institutions around the world. In the quarter we closed the deal with Westpac, Australia's first bank and oldest company. Westpac was established in 1817 and has been serving the Australian and New Zealand communities for over 200 years. We are pleased to provide the security backing [ph] for this great institution and protect their vision to be one of the worlds great service companies helping customers, communities and people to prosper. Allergen, a multinational pharmaceutical company and a leader in the industry grew their relationship with MobileIron in the first quarter. MobileIron's client solution will help secure the company's devices across iOS and Android endpoints. With operations in over 100 countries and a portfolio of leading brands and products Allergen is relying on MobileIron to be a part of the journey towards best-in-class mobile security. We're pleased to announce that we closed the deal with the Australian Department of Foreign Affairs and Trade; the department provides foreign trade and policy advice to the Australian federal government and is the lead agency managing Australia's international presence. A new customer in the quarter, the department is combining our access solution with MM to provide secure access to client services and we're on it to play an important role in helping connect their network of 1,000 overseas posts across five continents. And further demonstrating our reach in the European market, MobileIron recently expanded it's relationship with the German Red Cross, a long standing customer, one of Germany's leading aid and welfare organizations if we use MobileIron bridge to centrally manage the organizations devices and reduce the employees administrative burden. In closing, I'm very pleased with the progress we made in the first quarter and I believe we are well set for further success throughout 2018 and beyond. I will now turn the call over to Shawn for his remarks. Shawn?

[Shawn Ayers:]

Thanks, Simon, and good afternoon. Our discussion today refers to non-GAAP financial measures unless otherwise noted. Our press release, Form 8-K, and website provide a reconciliation of GAAP to non-GAAP financial results. As Erik noted, all financial information is now being reported under ASC606. Revenue in the first quarter was $43.7 million, up 4% year-over-year and slightly above the middle of guidance. New customers continue to show a strong preference for our cloud deployment model and subscription solutions. Revenue from cloud services was $11.2 million, up 24% year-over-year. Revenue from software support and services was $20.1 million, up 8% from the year ago. Our renewal rate remains about 90%. Licensed revenue was $12.4 million, down 14% year-over-year. Revenue from recurring sources in Q1 was $33.8 million, up 12% year-over-year. Annualized recurring revenue was approximately $135 million. Moving forward we expect more quarterly variability in the growth rate of recurring revenue under ASC606 because we recognized the license component of on-premise subscription upfront. Non-GAAP gross margin in the first quarter was 85.1% in the middle of our guidance. Total non-GAAP operating expenses were $42.9 million, slightly better than our guidance. Turning to the bottom line for the first quarter; we reported a GAAP net loss of $16.4 million or $0.17 per share, and a non-GAAP net loss of $5.6 million or $0.06 per share. Moving to the balance sheet, we ended the quarter with $99.3 million in cash and short-term investments, up from $6.7 million from $92.6 million in the prior quarter. In the first quarter, cash from operations was $9.2 million, $8.5 million better than a year ago driven largely by strong collections in the quarter. Capital expenditures were about $500,000. Our DSOs for the first quarter of 2018 were 70 days, down from 76 days in the fourth quarter of 2017. In general, we expect DSOs to remain in the 70 to 80 day range. Under the new revenue accounting guidance, deferred revenue has been replaced by unearned revenue and customer arrangement with termination rights. Unearned revenue was $80.9 million at the end of March versus $77 million in the prior quarter and $64 million in the year ago quarter, up 26% year-over-year. Customer arrangements for termination rights was $17.2 million at the end of March versus $19.5 million at the end of the end of the prior quarter and $14.2 million in the year ago quarter, up 21% year-over-year. This strong year-over-year growth is a reflection of the ongoing transition of our business to subscription. With first quarter performance behind us we are reaffirming the annual guidance from our prior earnings call and I would like to share an update regarding our 2018 financial outlook. Our second quarter of 2018 guidance is as follows

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from James Faucette of Morgan Stanley.

[Meta Marshall:]

Hi, this is Meta Marshall for James, a couple of quick questions. Just wanted to get your sense coming out of RSA last week, just what we're any kind of high level takeaways or kind of discussions with customers and level of engagement that you had there? And then second, if you could just talk about the Europe market in particular and kind of the data privacy laws there and just what you're doing and capitalized on those opportunities? Thanks.

[Simon Biddiscombe:]

So I think coming at the [indiscernible] there was a tremendous amount of interest in the new products obviously at this point in time Meta, and if you look at what we're doing with access, if you're looking at what we're doing with mobile threat and if you look at where we are with the cloud based version of the EMM solution as well, tremendous amount of interest from customers and from prospects as well as it relates to the broaden insight of technologies that we as MobileIron are able to deliver into that customer set and the opportunities associated with new customers in order to solve the solutions and solve the problems that they are going to have moving forward. As it relates to Europe at this point in time, clearly we continue to see a benefit associated with GDPR, I mean we continue to believe actually that EMM becomes critical for GDPR compliance and every business system contains personal data, whether it's employee data or customer data and without the solution like MobileIron solution then that data would be unprotected on a mobile device. So for MobileIron customers this means they should be able to expand the relationship with us as we move forward. And it's not easy necessarily to tie precisely how much of the growth in our European business is attributable to GDPR but there is no doubt that we've seen certain customers expand their footprint with us as a result of having to deal with the compliance related issues that become so real to them in just a number of days at this point in time. So RSA was very good for us, a lot of interest around new products and GDPR continues to benefit the business as we move forward.

[Meta Marshall:]

You guys mentioned that the renewal rates kind of been consistent around 90% and just looking in as a sense of like what most often is that just customers going out of business is the reason that they don't renew? Is it employee leaving and they don't need to kind of renew their contacts? Just what tend to be the reasons why there are renewals?

[Simon Biddiscombe:]

Actually so the principal reason a customer wouldn't renew through the life of our company, that's kind of two-fold and it depends on the size of the company. The largest customers -- so let's assume it's a customer that's got more than 5,000 employees and that's where we kind of cut-off that analysis. Typically we lose customers only when they are acquired and the acquired [indiscernible] in a different technology at that point in time, it's very true loss of a customer for any other reason at that point in time. At the low end, so if you look at a customer who may have just dozens or the small number of hundreds of devices, we'll often lose that type of customer if they do not have the competence internally to necessarily continue to play the technology and there is a skillset which is necessary, obviously in order to have EMM solutions and especially things like access and mobile threats on top of them that doesn't always exist in smaller customer and we'll lose customers when they don't necessarily understand all of the benefits that our technology brings and they don't have the resource in house to make sure it's deployed the way it needs to be deployed, sometimes that's on the back of a bundle from a mobile operator by the way; so a mobile operator may have sold a bundle without the customer necessarily understanding exactly what we bought and when it comes up for that renewal event we would typically not see that customer renew if he didn't understand the solution he brought from the mobile operator.

[Operator:]

Our next question comes from Rima Lenchow [ph] of Barclays.

[Unidentified Analyst:]

Simon, can you talk a little bit about or as a team maybe at infunnel [ph] to run the moving parts from 606; historically people would look at billings and you can also have billings -- I mean billings hold with 1.4%, this is kind of okay with notch, amazing. Can you talk like how much 606 would impact that number or if there are any moving in parts in there? Then I had a follow-up question.

[Simon Biddiscombe:]

606 doesn't really impact billings, what 606 impacts is revenues. How do we bill out a customer is completely unchanged as a result of the implementation and the adoption of the new accounting standard. Now all the Shawn explained to you how it impacts revenues just at a high level.

[Shawn Ayers:]

So the main thing is for on-premise subscriptions that we sell; we take the -- we're able to carve out the license components of those subscriptions and we recognize the revenue for those upfront as we deliver the licenses, so that's really the main change, there is a lots of odds and ends but that's the main thing.

[Unidentified Analyst:]

Yes, I'm aware of that part from the other companies. And then Simon, if you think about…

[Simon Biddiscombe:]

I will be explaining through it a little bit more detail afterwards. If you have more questions, I'm happy to do it separately.

[Unidentified Analyst:]

Yes, perfect, thanks. And Simon, on the Lenovo partnership, can you talk a little about is that an exclusive one for you and Lenovo? Is that kind of like how quickly do you see that evolving in terms of revenue contribution?

[Simon Biddiscombe:]

Yes, so it's not exclusive for either of us but what it does is clearly unite the two leaders in our fields, right. And I think what we're going to have is undoubtedly best to bred product and strategy as we move forward. And the overall framework you clearly understand which is modern management, the Windows10 devices through EMM as opposed to through legacy management methods. And the conscience [ph] is that for the ultimate customer there is an enormous saving associated with the amount of time and effort necessary to deploy PCs such as somewhere between the 70% and 80% based on many different analysts understandings of how to deploy in the new world versus an old world and clearly, that's of enormous benefit to IT organizations when they are deploying massive fleets and so on. So I expect that the next part of this year will be spent primarily to an engineering and go-to-market related to work. We've got some integration level -- integrations that we have to complete at the BIOS level and so on, and then we'll see first revenues late '18 and then really into 2019 before it becomes a more meaningful contributor to business. I'm excited about what we're doing with Lenovo at this point in time, it's much broader than what we announced over a year ago at this point in time and it doesn't do any harm at all to be attached to the largest PC vendor in the world. So I'm excited.

[Operator:]

Our next question comes from Michael Turits of Raymond James.

[Michael Turits:]

First, just -- it's nice to see the guide reiterated for the year, I do got below on billings and margins on 2Q; so the street is having wrong on seasonality or what is the issue that was there?

[Simon Biddiscombe:]

I think a little Michael, I think the other part of it is just putting ourselves in a position where in the back half of the year we continue to expect a greater contribution not only from EMM but from the new products and my confidence in the back half of the year is pretty strong at this point in time, partly attributable to the new products as I said and the continued ramp of those products and the contribution they are making into the business. But also based on just the improved sales execution that I'm seeing and that will continue to improve over the course of the coming quarters as well. I've actually got a reasonably high degree of confidence now in our ability to deliver what we have put forth for you based on new product contribution and based on just improved sales execution and the continued benefit for the business as we move forward.

[Michael Turits:]

That was actually going to be my next question; perhaps you can drill down on the sales where you are [indiscernible] what ending we're in or what exactly has been done?

[Simon Biddiscombe:]

Sure. So Greg's been onboard for almost exactly 6 months at this point in time. When I look at what he has achieved over the course of the 6 months, first and foremost, he has hired some excellent people around him and we're beginning to see the contributions from the other people he has hired at random at this point in time. It's a combination of traditional sales leaders and people who bring other values steps to bay in the organization as well. I took the last quarter but the fact that he brought the different and rigor and discipline so that we were able to execute to our targets as we move forward. He is creating a different culture, there is a culture of accountability within the organization and just tactically how that manifests itself is things like pipeline inspection, deal understanding and so on. And I expect to see him continue to bring people onboard and I expect to see that organization to continue to improve as we work our way through 2018. So I'm very excited about what I'm seeing from Greg and his team at this point in time.

[Operator:]

[Operator Instructions] Our next question comes from Michael Kim of Imperial Capital.

[Michael Kim:]

Can you talk a little bit about the contributions and the -- if you're seeing acceleration from access and mobile threat and whether that's coming primarily from the existing installed base or new levels taking multiple products?

[Simon Biddiscombe:]

I was actually relatively pleased with the performance of access and mobile threats last quarter. But we've talked about that access Michael, so let me start with MTD and then I'll come back to access. On the mobile threat side, significant customer interest; customers are aware of the problem associated with threat defense and they were already in many instances looking for solutions from technology providers in the market. For us it's a very logical extension, we've talked about that in length, and for our customers it's a very logical extension from the EMM footprint that we already have. The integration is compelling, the idea of being to both detect and remediate on a single client is something that our customers find it extraordinarily compelling, and that we closed multiple transactions last quarter. Even though the product integration is ongoing at this point in time and not complete, we've got customers who are already excited about being able to deploy the technology and we've got a strong pipeline as we go into Q2. On access; access was still in the early phases of the market and I've explained on our previous earnings call, there is a lot of education of the customer that has to be done relative to access in order to make sure they understand the problem that they have. We continue to have a significant technology advantage, we continue to have the right architectural solution in the market, and I'm confident that it will continue to drive growth throughout the course of the year. So for both MTD and access, I have high expectations for Q2 and beyond at this point in time.

[Michael Kim:]

And then just switching gears to Google partnership; how should we think about the initial contribution, integration and the planned solution of the rollout and any other details on that?

[Simon Biddiscombe:]

Sure. So not a tremendous amount to add on the Google partnership from where we were at the last quarter; so just as a reminder, essentially what we're doing is, we and the Google cloud team are offering that all in one white label marketplace solution that allows both enterprises to operate just by distribute and secure cloud services. So that's where the Google cloud MobileIron offering is focused at this point in time. There is a tremendous amount of go-to-market activity ongoing, there are proof-of-concepts that are ongoing, there is technology work that is ongoing but as I've said previously, I think the benefit of the business will be late this year and into 2019. So no change in my expectation but the execution over the course of the last 90 days is exactly what I would have expected it to be.

[Operator:]

[Operator Instructions] That concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.