MobileIron, Inc.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Welcome to the MobileIron Third Quarter 2017 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’d 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 third quarter 2017 financial results conference call. Joining us from the company are Simon Biddiscombe, Chief Executive Officer; and Shawn Ayers, Interim CFO. The format of the call will be remarks by Simon and Shawn will provide details of the financials. We will then have time for questions. If you have not received a copy of today's release, please go to MobileIron Investor Relations Web site at investors.mobileiron.com. Additionally, I’d like to remind you that MobileIron released ranges for select preliminary results its press release of October 17. However, when we refer to guidance, we are referring back to the third quarter and fiscal year outlook we provided in our second quarter earnings release and conference call. 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 only 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 Web site. At this time, I'd like to 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 third quarter financial performance, our recent leadership transitions, including our new Head of Sales, and our focus on mobile and cloud security initiatives. Third quarter gross billings were $50.4 million, up 7% over the third quarter of last year and above the midpoint of our guidance. Revenues were $42.7 million below the guidance of $44 million to $46 million, and Shawn will provide further details on this in his remarks. When MobileIron approached me in 2015 of my joining as CFO, I didn't hesitate because I believed in the product, I believed in the market, and I believed in the team. MobileIron is the only modern cloud and endpoint security platform that combined enterprise mobility management with client security. MobileIron blocks bad endpoints from accessing the cloud and protects company data on good endpoints. The fundamental shifts from legacy to modern computing and from application services moving to the client is rapidly driving new security requirements. Employees are working on mobile devices and using apps to connect to client services. Our value proposition is bigger than EMM. EMM alone constitute the cloud and cloud gateways and identity providers alone constitute the endpoint. You have to do both and MobileIron is the only modern cloud and endpoint security platform that enables customers to tapping the cloud innovation without risk in losses of data. As I take the reins as CEO, it is even more clear to me that we have a great team and the best product in a fast-growing underpenetrated market. In this new role I’m squarely focused on helping the team of MobileIron to capitalize on the opportunity in front of us, to solve complex customer security issues, drive profitable growth and unlock shareholder value. I'm very pleased to share with you that we are filling out the leadership team and that Greg Randolph is joining the company as Senior Vice President of Worldwide Sales. Prior to joining MobileIron, Greg was the Senior Vice President and General Manager of Global Sales for the Enterprise Cyber Security business at CA Technologies. His responsibilities included go-to-market strategy and execution as well as new product direction and acquisition. Greg's deep security background, global experience, and strong customer relationships, make him a perfect fit for MobileIron, and I'm delighted that he is joining the team. With that, I’d like to share a few highlights from the quarter. Leading independent research firms IDC and Ovum, both named MobileIron as a leader in their recently published reports on the Enterprise Mobility Management category. Our recognition continued with our customer support team and in the prestigious service capability and performance standards certification for our world class customer service. The world's leading service providers have adopted these standards as the roadmap to service excellence and benchmark measure of success. None of our competitors has achieved this certification and this is especially significant as we continue to hear that certain competitors are failing to provide adequate customer support. As our customer base grows, a key component of our business strategy is to monetize our installed base. We recently finalized a very exciting partnership with Zimperium, a global leader in enterprise mobile threat defense. We will integrate Zimperium's machine learning-based threat detection with our security and compliance engine and sell the combined solution. We see a large opportunity here, because we know that less than 5% of enterprises globally are using mobile threat detection software. We believe that this integration will be the first to address one of the most significant mobile security gaps faced by enterprises. The ability to detect device, network and application threats and immediately take automated actions to protect enterprise data. We’ve talked in prior quarters about the focus we are placing on the federal market and the opportunity to replace Blackberry devices in that market. I’m pleased to report that Q3 was a record quarter for our federal business, and our largest transaction was with the European federal government agency. More and more customers are choosing the MobileIron cloud solution and this quarter we closed $10 million or 20% of our billings on our modern cloud platform. Our market theses has been that customers will increasingly choose cloud solutions and this quarter shows results of our investment and focus. We are also starting to see our existing on-premise customers moving to our cloud solutions, and this quarter we had another large customer begin that transition. I look forward to providing future updates on our cloud quite business. German company FlixBus is a new MobileIron cloud customer. Founded in 2013, FlixBus connects 1,200 destinations in 26 countries and have served more than 60 million passengers. We believe that the most innovative companies in the world run MobileIron, and we are pleased to have been chosen by a disruptive company that is transforming how people travel. Our channel plays a critical role in given a scale, and I'm pleased to share that together with our partner Vodafone Global Enterprise, we won Staples in Europe. Staples mission is to bring technology and people together in innovative ways to consistently deliver products, services, expertise that elevate and delight customers. We are proud to be part of Staples technology architecture. Sapporo Breweries joined the MobileIron family in the third quarter. Founded in 1876, Sapporo is the oldest brand of beer in Japan and the company is known for its focus on the finest ingredients and its insistence on delivering quality products. After evaluating our competitors, Sapporo chose MobileIron as the platform for its enterprise mobility initiatives. And in addition to purchasing EMM, Sapporo added our cloud security solution MobileIron Access. A final example is Schaeffler, the global automotive and industrial supplier. With nearly 88,000 employees and 170 locations in over 50 countries, Schaeffler is one of the world's largest family-owned companies. This quarter Schaeffler not only expanded with us, they also added MobileIron Access, which gives me the perfect transition to talk about that aspect of our business. Our cloud security solution, MobileIron Access, continues to be a critical differentiator. In the third quarter, we recognized nearly $2 million in gross billings for this new add-on product and we’ve a very strong pipeline for the fourth quarter. In the third quarter, when announced that Access will be able to manage the lifecycle of cloud services with three new capabilities. First, risk discovery to identify unauthorized devices and apps trying to connect to cloud services like Office 365 and Salesforce. Second, conditional access to the desktop to ensure that only trusted Max Windows 10 and Windows 7 devices can access those services. And third, authentication analytics to identify unusual use patterns that could indicate either a new business need or a potential security threat. Microsoft Office 365 has been a huge catalyst for companies to adopt cloud services across their organizations. An example of this is longtime customer Jefferies, the global investment bank and institutional securities firm. Jefferies added MobileIron Access to provide employees with secure access to Office 365. I’m also pleased to share that MobileIron Access won the CyberSecurity Breakthrough Award for Application Security Solution of the Year. This quarter we announced that we are expanding our full security and Access model to Mac's. Demand for Mac is increasing in the enterprise, driven by the influx of millennials into the workplace and the shrinking cost gap for Mac. Mac security represents a greenfield opportunity for us because while Mac users growing, we know from speaking with our customers that many of them aren't secure at all. With MobileIron customers can protect data on a Mac by securing application delivery and configuration. Protect data as it leaves the Mac by securing connectivity through MobileIron tunnel, which provides VPN and eliminates the need for third-party products, protect data in the cloud by enforcing conditional access through MobileIron Access, blocking unauthorized Macs from reaching services like Office 365 and Salesforce and use the same console to secure all modern endpoints. In closing, I want to thank our customers, our employees, our partners, and our shareholders for their continued support. I believe that with disciplined go-to-market focus, thoughtful investments, and strong execution, we will accelerate growth and profitability and deliver value to all constituents. Now I will turn the call over to 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 Web site provide a reconciliation of GAAP to non-GAAP financial results. As a reminder, we provided ranges for our preliminary financial results in our press release on October 17. In my commentary, I will provide comparisons to our original guidance for Q3. In the third quarter, billings were just above the midpoint of our original guidance, but revenue came in below guidance. Despite lower revenue, we were able to control spend in cost of goods sold and they came in above our gross margin guidance, while our operating expenses came in at the high-end of our guidance. For the third quarter ended September 30, 2017, gross billings were $50.4 million, up 6.6% year-over-year. Our current billings in the third quarter were $37.5 million, up 7.5% year-over-year and made up 75% of total billings. On an annualized basis, our current billings business is over $150 million. Revenues were $42.7 million, up 2.8% year-over-year. During the quarter, one of our largest perpetual transactions was a multiyear deal that will be recognized ratably rather than upfront. Had this transaction to be recognized upfront, revenue would have been at roughly the midpoint of the guidance. Perpetual license sales were $9 million, down 20.6% year-over-year. New customers continue to show strong preference for subscription solutions. Revenue from subscriptions consisting of both term subscriptions and monthly recurring charges or MRC was $17.3 million, up 11% year-over-year. Term subscriptions revenue was $12.8 million, up 33% from year-ago. MRC revenue was $4.5 million, down 25% from year-ago. MRC is down because large MRC customers have converted to term subscription to achieve cost savings by moving to fixed term contracts. Revenue from software support and services was $16.5 million, up 12.1% year-over-year and we continue to enjoy renewal rates of about 90%. Revenue from recurring sources for the third quarter was $32.4 million, up 12% year-over-year. We believe that recurring revenues reflect combined performance data on seats, contract lengths, billings mix and renewal ASPs. Since ASPs have generally been flat, the rate of growth of our recurring revenues has been highly correlated to the rate of growth of cumulative seats. We believe recurring revenue is the best proxy for organic growth. Non-GAAP gross margin in the third quarter was 84.5%, above the high-end of guidance. This was stronger-than-expected because of the continued operating efficiency of our world-class customer success organization. Total non-GAAP operating expenses was $43 million at the top end of our original guidance due to multiple factors. Turning to the bottom line for the third quarter. We reported a GAAP net loss of $17.1 million and a non-GAAP net loss of $7.1 million. GAAP EPS was a loss of $0.18 per share and non-GAAP EPS was a loss of $0.07 per share. These are each based on a weighted average basic share account of 95 million shares. Moving to the balance sheet, we ended the quarter with $82.2 million in cash and short-term investments, down from $89.2 million in the prior quarter. In the third quarter cash from operations was a negative $4.2 million, capital expenditures were $4.1 million as a result of two building moves. DSOs for the third quarter of 2017 were 85 days, up 2 days from last quarter. In general, our DSOs remain in the 70 to 80 day range and have typically moved up or down based on inter-quarter linearity and some seasonal factors. The third quarter was more backend loaded than usual causing us to coming above the normal range. Deferred revenue was $101 million at the end of September versus $78.2 million in the prior year, up 29.2% year-over-year. Turning to the fourth quarter of 2017 guidance, we expect gross billings for the quarter to be in the range of $55 million to $58 million, flat to up 5% year-over-year. We are projecting a revenue range of $46 million to $48 million, up 1% to 6% year-over-year. We expect non-GAAP gross margins to be approximately 85% to 87%. We expect that non-GAAP operating expenses will be in the range of $42 million to $44 million. We expect that fourth quarter non-GAAP operating margin will be in the range of minus 4% to minus 6%, slightly below our prior guidance as a result of lower revenues. And for the full-year, we expect cash from operating activity to be approximately breakeven. As a reminder, all of these forward-looking statements are subject to a number of significant risks and uncertainties and assumptions. Actual results could differ materially from the statements made on this call, all statements made on the call are made as of today. Operator, we are ready for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Michael Turits of Raymond James. Please go ahead.

[Unidentified Analyst:]

Good afternoon. This is actually Robert [indiscernible] on for Michael today.

[Simon Biddiscombe:]

Hi, Rob.

[Unidentified Analyst:]

So, we have your Q4 guide, but in addition to that I was also hoping to get your early thoughts on margins and cash flow for 2018.

[Shawn Ayers:]

So we are not here to provide guidance for 2018 at this point in time. We are here to talk about the Q4 guide and we are here to talk about the performance in the most recent quarter. So we will hold on that. We are actually going through our planning process at this point in time and we will complete that planning process over the course of the coming months -- weeks and months, and then we will be in a position to provide guidance for 2018 on the next earnings call.

[Unidentified Analyst:]

Okay, fair enough. And then any change in strategy at this point in time under your direction, Simon? How much opportunity is there to get sales more efficient and cut cost here?

[Simon Biddiscombe:]

Yes, there is three areas where I think there is an immediate difference in the business. The first one is to make sure that we are focused on the right set of opportunities that have the greatest ability to drive near-term billings and revenue impact and you heard me talk extensively in my prepared remarks about what’s going on in the mobile security space and then also what’s going on in the cloud security space that we serve with EMM and Access, respectively. We are going to continue to focus on those market and is making sure that from a product alignment and from a go-to-market alignment that we’ve got all the wood necessary behind those arrows for success. The second part is clearly we’ve got to continue to monetize the installed base and that’s combination of incremental investment associated with solutions such as Access that we bought to market over the course of last year and also the partnerships, and we talked about to Zimperium in the prepared remarks as well. That’s a great example of how we can use a really compelling partner who has got incredibly compelling technology that's immediately adjacent to us in terms of the technology deployment to realize greater value from the install base that we have. And then, thirdly, as you pointed out, we continue to need to focus on discipline on spend and making sure that we drive in the most appropriate ROI from every dollar that we spent and this two areas where we need to continue to focus. Number one is the go-to-market related efficiencies, and number two is the R&D related efficiencies. So, as we’re working our way here through the 2018 time and process, it's very clear to me that we’ve more progress to make in that regard. Part of being able to get there on the sales and marketing side was about having Greg on board and having that Global Head of Sales who can assist in driving with those thoughts as we move into 2018. And he is a fantastic add to the team and I'm very pleased that we've been able to bring him on board here, that deep security expertise, that global experience and frankly the fact he has operated at scale across large organizations is really compelling, and I think he is going to bring a different set of capabilities to thinking about how we drive incremental efficiency added to the sales and marketing investment. So that -- that’s at a high level, what I’m thinking to make differently at this point in time.

[Unidentified Analyst:]

Yes, that’s extremely helpful. Thank you. Just lastly from me. Microsoft hold strength in EMS on their last conference call, but from your view point, just hoping to kind of get your thoughts and an update on the competitive environment versus both VMware's Airwatch and Microsoft's EMS in engine products?

[Simon Biddiscombe:]

So, it's interesting. So, I think, from our perspective, obviously -- look, I’m not thrilled with we’ve the top line guidance at this point in time. As we talked about, we need to continue to improve that go-to-market focus and execution. As you know our true rate of growth is actually kind of hidden, which is why we pointed to the rate of recurring revenue growth which was at 12%, and that’s far more indicative of how quickly our business is growing relative to the market. I don’t think that -- when I think about where we are from a competitive dynamic perspective against Microsoft right now, we win when the customer perceives that security is strategic. We win when customers are committed to multi-OS and multi cloud strategies, okay. So if you’re thinking that you need android and iOS and Windows, then we win when you need that multi-OS strategy. Interesting, just over the course last quarter, Microsoft actually moved its Intune organization into its Windows Organization and our perception, I think our customers perception is that in an increasing focus on the Windows side of their initiative and less of a focus as it relates to that multi-OS, multi cloud strategy that we've been driving. Microsoft is an important partner obviously that relates to certain technologies that we bring to market at this point in time. So, I think we’re doing very well against Microsoft. Against VMware, the VMware message is entirely different at this point in time for them. It's really all about works -- the Workspace ONE strategy and the overall experience associated with having one consistent framework that you rollout across all the types of independent of form factor and independent of operating system that’s being applied. We continue to believe from native experience that are likely to win in the market, and we believe that we continue to provide a stronger security experience across those environment. So I think we are very comfortable where we are today versus Microsoft and where we are today against VMware. And when we look at the win rates in the business, they’re entirely consistent with where we’d have expected them to be. So that’s the change. That’s where we are.

[Unidentified Analyst:]

Thank you. That’s very helpful. I will jump back in the queue.

[Simon Biddiscombe:]

Sure. Thank you.

[Operator:]

Our next question comes from Robert Breza of Northland Capital Market. Please go ahead.

[Robert Breza:]

Hi. Thanks for taking my questions. Simon, as we look at Q2, you added a Head of North American sales, now adding an SVP, Head of Sales. I guess, is it fair to characterize the last couple of quarters as clearly sales force execution issues or focus, is that fair? And then I’ve a follow-up.

[Simon Biddiscombe:]

Well, it's certainly fair, Rob, as it relates to Q2, okay, and we were pretty explicit about the performance in Q2, having been primarily driven by less-than-perfect sales execution, okay. So that’s the right way to characterize that. In Q3, that was less about sales execution, okay. And as we move forward, as I said in -- answer to the first question, bringing the right focus to the go-to-market related strategies, making sure that the sales organization and the marketing organization are focused on the right customers with the right products. And putting aside initiatives that might otherwise have not resulted in the same level of success that we need from the investments that we are making is absolutely a critical change that we are making, right. So as I've been talking to Greg over the course of the last few weeks, he is extraordinarily excited about some of the growth drives that exist in the business today. So whether that’s associated with Access, whether that’s associated to cloud based EMM solutions, we’ve got a lot to work with that’s in our core set of offerings. And getting the sales guys and sales organization, marketing organization absolutely focused on that core set of offerings is going to be critical as we move forward.

[Robert Breza:]

Maybe as a follow-up, and you’ve been the CFO and you’ve been there for a while through some of the ups and downs, when you look at the -- providing the right tool for the sales personnel and marketing people, is there a way -- given your history as a CFO and now the CEO to help them work within a better predictable capability for to do CFO meeting? Can you emphasize more term subscriptions versus perpetual? I know we’ve talked in the past about a ceiling being around 80% of getting to recurring revenue and clearly that's maybe it moves around a little bit with the federal business picking up. But I’d love to get your comments about that how we should think about the mix between perpetual versus term monthly recurring etcetera?

[Simon Biddiscombe:]

So, first of all, we are always focused on making sure we are predictable, right. We recognized that not being as predictable as you as our investor community want us to be or frankly I wanted to be in [technical difficulty] causes distress, okay. And clearly on the revenue side in Q3, we weren't as predictable as we would have wished we would be or you would have wished we would be, okay. Now there is one very specific reason why that was the case, which Shawn called out in his prepared remarks, I’m not going to rehash that. As we think about license models moving forward, that is certainly something that Greg and I will be having detailed conversations [indiscernible]. Beyond the license models, you also have the muddying the water associated with the adoption of new accounting standards coming to [indiscernible] year as well. So, yes, we recognize that we have to be more predictable as a company, okay. The sales organization doesn't own the fact that the predictability in the Q3 period for revenues was not where you needed it to be, okay. But we have to make sure that we continue to arm them with the right tools and processes to bring that predictability there. So it's actually four or five different initiatives that are ongoing and have been ongoing for some short period of time here to make sure that we are able to take advantage of the opportunity that exists to drive improvement in this area. I’m not going to take you through what the four or five are, but there is a lot of work going on in the background to make sure that we become that more predictable company that you need us to be.

[Robert Breza:]

Great. I will jump back in the queue. Thank for taking my questions.

[Simon Biddiscombe:]

Thanks, Rob.

[Operator:]

Our next question comes from Raimo Lenschow of Barclays. Please go ahead.

[Raimo Lenschow:]

Hey, thanks for taking my question. Simon, so can I just recap quickly, because I understand this correctly. So, Q3 would have been in line if you would have that one contract that was …

[Simon Biddiscombe:]

Yes.

[Raimo Lenschow:]

… planned as perpetual coming in, okay. Okay, good. So then, a follow-up and like so that looks like sales was actually doing their job. It is just the predictability didn’t kind of work out. Can you talk me through the change of -- it didn’t sound like it was kind of the change to leadership then, so -- because in a way you like, you have Barry running the company, he was -- he had it very close on sales, but it wasn’t [indiscernible], so that the [indiscernible] predictability you have the change. Can you just talk through what the discussion were internally in terms of where you want to move the company? I’m guessing, it sounds like the predictability was to change and there you want to put a bigger focus on that. Just wanted to hear it from you.

[Simon Biddiscombe:]

So, I’m not sure, I understand exactly where you were going with the question, Raimo. So let me give you my thoughts and I think it will help you frame the question you’re asking. Having a new Head of Sales on board is absolutely critical. And as I’ve said throughout my prepared remarks and in my answers to earlier questions, I think Greg brings a tremendous amount to be as it relates to moving this organization forward. And that’s something that we had ongoing by way of a search process for an extended period of time at this -- for an extended period of time. What Greg will bring to bear I also don't doubt having talked to him as much as I have, it's just a greater focus on the right set of customers, the right set of go-to-market initiatives that will drive more predictability and frankly better performance as we move forward. And that’s exactly what you need when you hire a new Head of Sales. So, [indiscernible] is here. Does that answer your question?

[Raimo Lenschow:]

Yes, yes. We can do it offline. Okay. The other one I had on that one is, so Greg with good enterprise background on -- from CA in terms of enterprise focus etcetera, but he obviously came from security and then you mentioned security as one area where you’re kind of want to do a little bit more, but he wasn’t quite in the EMM market like, do we need to expect some sort of transition periods or like how quickly you think it will be fully ramped and can be kind of taking accountable for the sales performance?

[Simon Biddiscombe:]

I think it's going to be almost instant. We didn't need to hire Head of Sales, who understood EMM. We’ve got a fantastic team [indiscernible] that has a deep understanding of EMM and then as you go further down through the organization. We didn't need to bring that incremental skill set to bear that was pure EMM, I assure you. What we needed to bring to bear was a broader set of skills associated with security landscape in general and everything else, I talked about in my prepared remarks on earlier questions, okay. But if you think about how we’ve been talking about our business, if you think about Access as our cloud security offering, you talk -- you think about the progress we’ve seen with Access, actually called out that Access had delivered almost $2 million of billings in Q3. And by the way that was to roughly 12 customers out of the 15,000 customers that we sold this product to over time. The opportunity to sell a security offering such as Access into the install base is absolutely enormous at this point in time. And it's that type of growth initiative that is ultimately going to unlock the value associated with this company and that’s what Greg found attractive, right. The fact that he can come in and spearhead initiatives associated with the newer products, not at the expense of the core offering, but recognizing as a team in place to take care of the core offering that we have. So, yes, there is no doubt that as we think about our company, as we think about cloud security and as we think about mobile security, they’re critical drivers for unlocking value and driving growth.

[Raimo Lenschow:]

Perfect. Look forward to that. Good luck. Thank you.

[Simon Biddiscombe:]

Thank you.

[Operator:]

Our next question comes from James Faucette of Morgan Stanley. Please go ahead.

[James Faucette:]

Thanks a lot. So just a couple of follow-up questions. So you indicted that your growth this quarter was about 7.5%, but you think that the recurring number was more like 12% and that’s what it's a better indicator of your growth rate. What do you think the underlying growth of the market overall is and how are you thinking about how that market growth rate is likely to develop over the next couple of years?

[Simon Biddiscombe:]

Yes. So, we’ve our internal thoughts on that, James, but typically what we do is point people to the external models that exist and we’ve got a growth rate in the market that’s probably in the mid teens, and that’s for the EMM market, let me be clear, okay. So I’m not including anything we are doing in [indiscernible], including anything we are doing in Access, that is the core EMM market. So think mid teen as being the rate of growth and recurring revenues is the best proxy for our rate of growth serving that market at this point in time, given that substantially everything was sold for Access is on a subscription model. In fact, everything we sold through Access on a subscription model. There is no revenue impact. So that that hasn’t started to contribute yet in any meaningful way. So that 12% rate of growth in our recurring revenues is indicative of the rate of growth in the EMM market for us.

[James Faucette:]

Got it. And then when you mentioned kind of Windows 10 and some of the other Access products, what's -- how it like -- what -- I guess, can you give us some color and nuance as to what's happening with traction with those products? And at what point do you think they can start to help really contribute and accelerate the growth for you?

[Simon Biddiscombe:]

So let’s touch on Access or so. Just a reminder, Access is our cloud security solution for mobile app and browser to cloud based services, okay. And if you remember what it does, it shows that only trusted users on trusted devices with trusted apps have access to client-based services. And if you think about that mobile and cloud paradigm, you actually create a security hole where unsecured devices and apps can authenticate the cloud and actually send data back to the device and its actually persistent on the device at that point in time. And the problem for IT department as you can't wipe it, you can't stop people sharing it with unsanctioned apps like Box or Dropbox or something like that. So that’s the challenge that we are solving for with the Access solution. It's actually performing extraordinarily well. We sold it to roughly a dozen customers last quarter, it contributed $2 million in billings. Bear in mind, it's only been in the market for four quarters at this point in time essentially. And it is a key part of how I think about the growth factor of the company and being able to leverage that across the massive in-store base that we have at this point in time. And we will continue to innovate. It's a critical part of how we differentiate MobileIron and the innovation in the most recent quarter included the capabilities I referred to in my prepared remarks around risk discovery, around Access for the desktop and the [indiscernible] authentication analytics as well. So Access is absolutely a critical driver and I took the time, James, to give you the fact it's a $2 million contributor, frankly because I think we need to start giving you some real proof points as to how the business is progressing that are more than just the color and qualitative remarks we’ve provided previously. Windows 10 is a little different, right. So I think we like everybody else are finding that the move to model management is going to take an extended period of time for Windows, and related devices. And that’s because the process reengineering has to go on in the back ground is enormously complex and time-consuming. The concept of replace for systems embedded to EMM is not something that’s feasible. So we’ve brought drivers for us, continue to be things like Microsoft having a [indiscernible], but it's whenever I'll call management model and it's just back in September. As a path to having both EMM and system centric based on Windows 10 devices as we move forward and that open approach to Windows API is an ecosystem that exists to ran Windows 10 is going to be critical to enabling the market to progress, we believe. And it's in Microsoft's interest to make sure that happens. Think about everything they’re trying to do with Windows and make it more like a modern operating system in terms of self service over the Air updates. No systems, image and so on, then that’s something that’s in Microsoft's best interest as well and if we can enable them to be successful and we are more than happy to progress in that path. So Access, honestly an exciting opportunity at this point in time. Windows 10 definitely taking longer than anybody expected. But we remain committed to the market.

[James Faucette:]

Got it. And then, finally last question. Thank you very much for the detail there. Last question for me is when you look at where you see the most traction, I mean, what your customers, is that expanding penetration within existing customers, up-selling those customers to new functionality or gaining new customers, you could kind of rank order those sources of customers now versus where you think you would like them?

[Simon Biddiscombe:]

Yes, I think they’re pretty close to where we would -- I would expect them to be at this point in time. So, number one, on the list is continuing to expand the footprint of the existing customer base, increasing the penetration rate across our customer set at this point in time with the traditional EMM product, okay. Number two is being able to up-sell the higher level solution. So whether that’s higher level EMM solutions, whether its Access or whether it's what we’re doing with somebody like a Zimperium, that becomes the second driver for growth at this point in time. And then, number three, really is the -- in terms of what its contributing, the ability to bring new logos to bear, if you will. That will be the third one in terms of how the business is driven over the course of the coming quarters.

[James Faucette:]

That’s great. Thank you so much.

[Simon Biddiscombe:]

My pleasure.

[Operator:]

[Operator Instructions] The next question comes from Michael Kim of Imperial Capital. Please go ahead.

[Michael Kim:]

Hi. Good afternoon, guys. Just going back to the sales execution, so I -- we had a couple of large deals, slipped out in Q2. Just curious if you closed? All or most of them in Q3 and in light of the kind of linearity commentary, the CCL cycles lengthy, a little bit here with large deal size?

[Simon Biddiscombe:]

So substantially all of the deals that they didn’t close in Q2, Michael, did close in Q3. But I will say they closed at in many instances at different values than we might have originally expect them to, some higher, some lower. We've actually even had one close in Q4, okay. So we had one close over the course to last week or so as well. That’s part number one. Part number two as it relates to sales cycles, no, we are -- we haven't seen an extension of sales cycles of such. I think the linearity that Shawn talked about in his prepared remarks was actually primarily driven by a couple of very large transactions that closed in the last week of the quarter as opposed to having closed earlier throughout the quarter. So it wasn’t a bad -- a change in the trend, it was just about some of the largest transactions closing at the very end of the quarter and as it was showed up in DSOs as well where DSO bumped up a little bit.

[Michael Kim:]

Got it. And have you seen any change in turnover in the sales organization and just maybe broader commentary around sales capacity and how they are moving in the [technical difficulty]?

[Simon Biddiscombe:]

Yes. So we're much more comfortable with where we are at this point in time. I mean, clearly on the Q2 call, we talked length about attrition in the sales organization, partly caused by people choosing to depart, partly caused by Brian choosing to upgrade its part, because organization at that point in time. And then we talked at length about the fact that when you hire somebody new, the capacity isn't the same as happened inexperienced sales person. The attrition in Q3 was way more in line with what I would expect to see and if you remember, it was very much in North American specific trend and we didn’t see anything that caused me any concern in Q3 as it related to sales attrition in North America.

[Michael Kim:]

Got it. And then just switching over to the roadmap, now you’re taking the reins, any sense -- overall sense on where you want to take the product roadmap and specifically around IoT? Previously I believe you were on track to [indiscernible] with revenue product this year, but curious about how you’re viewing the IT opportunity?

[Simon Biddiscombe:]

Yes, this is a change, okay. So let me be clear, we began this journey in February of this year when we announced our IoT division and what we talked about was the fact that we would have a very measured rate of investment throughout 2017 in preparation to get to that revenue ready product. But we’ve learned a tremendous amount about the IoT market over the course of the last eight, nine months and frankly most important thing we learned was the fact that that market was actually best served with our existing architecture, and where we should be focused, which is kind of high value opportunities, heavy duty workflow type use cases, those are the process intensive, that are actually best served with existing product set. And the other thing we learned was that we don’t wanted to be in the business of generating custom solutions that end up being build once, sell once type scenarios, that frankly is just not the business we are in, okay. So in the IoT space like we are characterizing today, if you have a used case that we can serve with our existing architecture, so it's going to be modern OS, because you’re going to need security framework around it. It’s going to have human interfaces and so on. Then, we can serve that with the existing product, that’s the way we’re going to go-to-market.

[Michael Kim:]

Got it. And I’m going to try for this one, but I think previously we had looked at kind of a breakeven operating margin profile in Q4. Just given the changes in the business, I mean, do you think that may just pushed out two quarters or any material sense on timeframe?

[Simon Biddiscombe:]

Yes. So, no, we haven't offered any perspective on when we expect to see that at this point in time, okay. Obviously, from a margin perspective and from a OpEx perspective, we are where we expect it to be. It's the fact that we pulled the revenue number down of the back of pulling the billings number there that causes us not to be at that roughly breakeven here in the fourth quarter and instead to be at that roughly 5 points in the midpoint, if you will, have lost. So, we are not going to offer you a perspective of when we see that at this point in time. We will save that for the next guide.

[Michael Kim:]

Okay. Very good. Thank you very much.

[Operator:]

This concludes the question-and-answer session. I’d like to turn the conference back over to Mr. Erik Bylin, for any closing remarks.

[Erik Bylin:]

Thank you for joining us today. We really appreciate the time and look forward to your questions for the coming weeks.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.