MobileIron, Inc.
Q1 2017 Earnings Call Transcript

Published: 28 Apr 2017

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the MobileIron First 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 would now like to turn the conference over to Sam Wilson, Head of Investor Relations. Please go ahead.

[Sam Wilson:]

Thank you, Operator. Good afternoon. And welcome to MobileIron's first quarter 2017 financial results conference call. Joining me from the company are Barry Mainz, CEO; and Simon Biddiscombe, CFO. The format of the call will be an introduction by Barry then Simon will provide details on the financials. We will then have time for questions. If you have not received a copy of today's release, please call MobileIron Investor Relations or 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 of the 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 the call may not contain current or accurate information. With regard to non-GAAP financial metrics, while we believe them to be hopefully in understanding MobileIron’s financial performance, they are not meant to be considered an isolation or as a substitute for the comparable GAAP metrics. They should only 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 on our website At this time, I'd like to turn the call over to Barry. Please go ahead, sir.

[Barry Mainz:]

Thank you, Sam, and good afternoon. In my remarks today, I will provide a brief commentary on the first quarter, discuss key highlights and provide progress on our growth initiative in the mobile and cloud security market. Simon will then provide our detailed financial results. First quarter revenues were $42.3 million, slightly above the midpoint guidance range of $41 million to $43 million that we provided on our last earnings call. Billings were $45.4 million, above the middle of our $44 million to $46 million guidance and growth of 19% over the first quarter of last year. This marks the third quarter in a row of double-digit growth. We are seeing the positive result of our strategy and execution and we are off to a great start 2017. At our Analyst Day in February, I communicated our four growth initiatives. These are core EMM, cloud security, desktop security and the Internet of Things. First we believe the EMM market remains robust and we have lots of room to grow in EMM. Let me share some recent activities and win. Our cloud platform remains our fastest growing platform, driven by our rich feature set and broadening market demand. In the U.S. our relationship with Verizon is ramping nicely with the particular emphasis on selling cloud solution. T-Mobile, the U.S.’s third largest wireless carrier with over 65 million subscribers placed a renewal and large expand order for MobileIron Cloud. MobileIron is the preferred internal vendor for the largest three wireless carriers of the U.S. We are seeing increased demand from emerging markets such as Middle East, Russia and Latin America. You can see this in our cumulative number of customers, which has grown by 1,000 in the last few quarters. Let me share an important win in Brazil, [ph] Brindenie. Brindenie (4

[Simon Biddiscombe:]

Thanks, Barry, and good afternoon. The first quarter of 2017 saw a continued marked improvement in our financial performance. Billings and revenue were above the midpoint of our guidance range, our sales execution was solid, new product contribution increased and renewal rates remained high. Operating expenses were below our expected range as a result of improved expense management across all functions. All of this combined led to the company delivering the second consecutive quarter of positive cash flow. As a reminder, 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. For the first quarter ended March 31, 2017, gross billings were $45.4 million, up 19% year-over-year. This marks the third quarter in a row with gross billings growth in the double digits. Our recurring gross billings in the fourth quarter were $34 million, up 27% year-over-year and makeup 75% of total billings. This is $136 million annualized run rate business. Revenues were $42.3 million, up 11% from the prior year. Breaking down revenues into the segments, revenues from perpetual license sales were $9.9 million, down 5% year-over-year, new customers continued to show a strong preference for subscription solutions, but that was offset by existing perpetual customers expanding. Revenue from subscriptions consisting of both term subscriptions and monthly recurring charges or MRC was $16.9 million, up 16% year-over-year. Term subscription revenue $11.1 million, up 37% from a year ago, MRC revenue $5.8 million, down 11% from a year ago. During the first quarter, we had a couple of customers switched from MRC to term subscription in order to achieve cost savings by moving to fixed term contracts. Revenue from software support and services was $15.5 million, up 19% year-over-year. We continue to enjoy high renewal rates in excess of 90%. Revenue from recurring sources for the first quarter was $31.2 million, up 17% year-over-year. We believe that recurring revenue reflects combined performance data on seats contract lengths, billings mix and renewal ASPs, and since ASPs have been generally 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 first quarter was 84.8%. This was stronger than expected based on product mix and our continued operating efficiency in the customer success organization. Total non-GAAP operating expenses were $40.8 million, which was below of $41 million to $43 million guidance, maybe due to seasonal factors. We believe there is about a $1 million of expenses that we originally forecast for the first quarter that will shift to the second quarter. We continue to focus on operating efficiency and in the quarter we were able to deliver 19% growth in billings while reducing operating expenses by 3% year-over-year. Operating margin improved by roughly 17% for the first quarter of last year. Turning to the bottomline, for the first quarter, we reported a GAAP net loss of $12.8 million and a non-GAAP net loss of $5 million. GAAP EPS was a loss of $0.14 and non-GAAP EPS was a loss of $0.06. These are based on weighted average basic share count of 19.4 million shares. Moving to the balance sheet, we ended the quarter with $90.5 million in cash and short-term investments, up from $90.2 million in the prior quarter. In the first quarter, cash from operations was a positive $700,000. This mark second quarter in a row of positive cash from operations and positive free cash. I would like to call out a particular use of cash during the quarter. As we continue to grow cash flow and improve profitability, we are seeking to reduce equity dilution. By most companies we have an annual bonus program. We pay our bonuses during the first quarter using our skews. Now that the company is cash flow positive, we paid the withholding tax portion with cash. We believe this is a good use of cash, given our stock price and thereby reducing dilution from the program. Let’s have the news on the litigation front. We reached an agreement in principle to settle the remaining stockholder class action lawsuits. In the proposed settlement we will contribute up to $1.1 million with our [ph] dealer (19

[Operator:]

[Operator Instructions] First question is from James Faucette with Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

Hi. This is [ph] Annie (23

[Barry Mainz:]

Okay. [Ph] Annie (24

[Simon Biddiscombe:]

Yeah. I will take the MRC piece Barry. So, no change in the relationship that. We typically on a quarter-to-quarter basis we will have a handful of customers who decide that they want to move an MRC model to a term subscription model primarily because the economics resulting and being favorable for the customer. AT&T in the quarter was 16% of revenues, typically in that 15% to 20% range and they remain clearly a very important rate to market for us. So, that just come down the handful of customers that particular seek the economic value and making a long-term commitment to us.

[Barry Mainz:]

Yeah. The one more thing I would add, clearly there is another major desktop vendor that we haven't talked about, so stay tune.

[Unidentified Analyst:]

Great. Just -- so -- that’s obviously exciting, but circling back, when would training be kind of expected to be complete or when kind of do you guys expect the Lenovo partnership to gain speed. Understand there might be revenue this year, but is it something we should expect in the Q3 or in Q4, just trying to get a sense of when you expect that relationship to start gaining a little bit more speed?

[Barry Mainz:]

[Ph] Annie (25

[Unidentified Analyst:]

Okay. Thanks.

[Barry Mainz:]

Thanks, [ph] Annie (26

[Operator:]

The next question is from Robert Breza with Northland Capital Market. Please go ahead.

[Robert Breza:]

Hi, everybody. Thanks for taking my questions and nice solid quarter. Barry, just one question for you and one for Simon, as you think about Access, obviously off to a very, very strong start. How should we think about that, A, I know it’s still early, but from a penetration perspective or maybe talk to how you incenting the Salesforce to cross sell the product, I love to just get a little bit more color on the underlying drivers that that you're using internally? And then, Simon, I know you mentioned in your commentary about the legal charge and it would hit cash flows, maybe I know you’re not wanting to provide quarter-by-quarter guidance, but maybe if you can talk just qualitatively or non-qualitatively about how we should think about that, maybe seasonal trends on the cash flow, that would be helpful? Thank you.

[Barry Mainz:]

Yeah. So, first, thanks for the congrats on our performance and we were really happy with the performance, I am really excited. The great example of our executioner progress over the several quarters, yeah, so thanks. Appreciate it. You asked the question about the Access and how we are incenting and where we're going to market. Let me give you a little bit of color on that so that maybe hope it get a framework to hang things on. First, MobileIron Access ties into our strategy perfectly. We go talk about our desktop security. We talk about cloud security. That really builds off EMM. So we go and talk to customers about what’s their sort of next step along their mobile first journey to really about rolling out that. And as we said in previous quarters that, hey, we saw email is really the first killer app, now we are starting to see more of the we call them packaged dots or cloud services rolling out be wanting to used on a mobile device and MobileIron Access ensure that trusted users, trusted devices using trusted apps get access to enterprise data and the cloud in a secure way. So the story really ties on nice if you our current story. In the field we have some sales specialist that can go and help articulate value props and also work with the ecosystem to make sure we bring in, say like, Tableau or Concur to help endorse our value prop. So, right now we are early stages, but, again, like I said, we are really pleased with the performance and look forward to the business moving forward.

[Simon Biddiscombe:]

So, Rob, it’s Simon, I will take the cash flow positive questions. So you are absolutely right that we got to steer clear of providing detailed guidance on the quarter-to-quarter basis, very specifically talked about the fact, I expected on a full year basis, the business will generate cash from operations. Q2 is always kind of the dip if you will, probably, because the collective Q1 billings and Q1 is typically the seasonally lowest quarter from the billings perspective in the year and then secondly, obviously, this quarter, because we have got the litigation settlement as well. So that gave you the absolute dollars. I would expect that the operating level of business will consume some cash in the current period, nothing but you should be at all concerned about and then I would expect as we move through the year that the cash performance will continue to improve primarily given off the billings trends that we would be able to collect moving forward.

[Robert Breza:]

Great. Thanks. Nice quarter.

[Simon Biddiscombe:]

Thank you.

[Barry Mainz:]

Thanks. Next questions.

[Operator:]

The next question is from Raimo Lenschow with Barclays. Please go ahead.

[Raimo Lenschow:]

Hey. Let me congratulate you as well and a great performance in Q1. And quick question and first of all, can you talk a little bit about, with Access fully coming in, with IoT slowly coming in. How do you see the mix of business changing over time?

[Simon Biddiscombe:]

So, do -- you mean by product category, Raimo or…

[Raimo Lenschow:]

Yes. Yeah.

[Simon Biddiscombe:]

So as we mentioned as you can actually start to look at what we are seeing today, right. So by far with vast majority the revenues obviously continue to be from the core EMM market. We expect that will continue to grow robustly, as Barry said in his prepared remarks. The next biggest contributor over the course of the remainder of the year will be Access and Windows 10 and then obviously IoT really doesn’t kicking until begin of the 2018 from a revenue ready product and that also was covered in Barry’s prepared remarks. So, I think, as we look forward over the course of next year, for argument sake, biggest drivers continues to be our core EMM business. When you look at where the most significant percentage of the growth will come from, it's going to come from Access and then come from Windows 10 as well. Does that helpful…

[Raimo Lenschow:]

Okay.

[Simon Biddiscombe:]

Did you get an answer of question?

[Raimo Lenschow:]

No. I was like just trying to see like how and it was more kind of thinking more longer-term like how do you see that kind of, one, this year obviously clear they will kind of small, it’s just more, if you think about the opportunity in the market, how do you kind of if you think about you long-term building the company, how will that change, so?

[Simon Biddiscombe:]

Understood. We can take it offline, Raimo, I mean, we had a slide at the Analyst Day that characterize our perception around the growth in the markets themselves within the IoT is profit at that point of time, but we will have to take it through that offline.

[Raimo Lenschow:]

Okay. Perfect. Okay. Sounds good. Thank you. Well done.

[Simon Biddiscombe:]

Thank you.

[Barry Mainz:]

You’re welcome.

[Operator:]

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

[Michael Kim:]

Hi. Good afternoon, guys. And can you talk a little bit about the international opportunity and if you starting to see more customers converging close to North America and are you planning investing headers things like GDPR in EMEA region?

[Barry Mainz:]

Yeah. Hey, Michael. Yes, there are couple things. We have already invested in GDPR. So we are poised for not only working with our robust ecosystem, but also with the sellers that are and maybe the service providers, where we work also very close in Europe. So I think from investment standpoint the go-to-market channel we are perfectly fine. I also believe Europe is poised as, again, they are moving and will continue to move towards cloud services. They are little bit kind of lagging especially in countries like Germany or maybe the DACH region, if you will. So as those come online, I think, that be able to take advantage of cloud and cloud security value prop that we are have been going around selling. We will have additional opportunities there.

[Michael Kim:]

And just as a segway, any update on a hiring of global sales leader to drive sales execution globally in this year?

[Barry Mainz:]

Yeah. So, if we find the right person, we will update you at that point. I mean, the team is executing really well as you can see in the numbers. I am very pleased with how they are operating on the go-to-market execution. I am really involved currently as well. That’s actually great because not only, I get kind of hear the voice of the customer, but having that sort of layer between what’s happening at the super geo and then our executive team to be able to have that velocity and agility is helped out. I would also say, just being part of the sales team, I can give you some color here. The sales organization suggest about the new products and the sort of I think stated that new strategies opening up new doors. And I mean, I think, there's Frost & Sullivan they gave us an award the Product Line Strategy Leadership Award. They said it that. They said, MobileIron harness innovation, expertise and a partner ecosystem to create an EMM product line and security architecture that expeditely aged customers on the mobility and IoT journey. I mean, that’s what I hear resonating and I can hear that all speaking out from customers.

[Michael Kim:]

Great. One for Simon, as we look at your gross billings outlook for Q2 and for the year, can you talk about some of the puts and takes first half versus second half, I think, we sort of take the midpoint of the range, it appears to have a little bit of flattening effect and curious if you are seeing that from either recurring or non-recurring billings?

[Simon Biddiscombe:]

No. I think as I look at it, I mean, clearly, first quarter behind us, just above the midpoint of the guidance to be able to provide guide that maintains the annual guidance was obviously critical for us and I think as we move through the backend, back half of the year, clearly mix continues to be something that we are paying particular attention to. We actually nailed the mix in the most recent period. We said we expect it to shift by four points to five points, actually shifted by four points. So we are pleased that the mix impact appears to be playing out exactly the way we expected it to and as we gave you the annual guide, we are obviously be a conservative relative to that mix shift. And the second part is just the new product contribution. So when you look at the new product contributions associate with the overall quite security start here in Access, the client platform within EMM and Windows 10, we are just being conservative as it relates to those drivers of growth in the second part of the year pointed that. So we are pleased with as Barry said, very pleased with the progress in Q1, very pleased with where we stand, moving into Q2 and very optimistic for the remainder of the year.

[Michael Kim:]

Great. Well, probably, we are going to be comparing early in the year. Thank you so much.

[Simon Biddiscombe:]

Appreciate it. Thank you.

[Barry Mainz:]

Thanks.

[Operator:]

This concludes the question-and-answer session. I would now like to turn the conference back over to Sam for any closing remarks.

[Sam Wilson:]

Thank you for joining us today. A replay of the webcast will be available at the Investor Relations website at investors.mobileiron.com or by dialing 844-512-2921 and referencing ID number 10002821. Thank you.

[Operator:]

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