MobileIron, Inc.
Q4 2014 Earnings Call Transcript

Published: 13 Feb 2015

[Operator:]

Welcome to the MobileIron Fourth Quarter 2014 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Sam Wilson, Head of Investor Relations for MobileIron. Please go ahead.

[Sam Wilson:]

Thank you, Laurey. Good afternoon, everyone. And welcome to MobileIron’s fourth quarter 2014 financial results conference call. Joining us today from the company are Bob Tinker, CEO and Todd Ford, CFO. The format of the call will be a business review by Bob, then Todd will provide details on the financials and other information, we will then have time for questions. If you have not received the copy of today’s release, please call MobileIron Investor Relations or go to MobileIron Investor Relations website at investors.MobileIron.com. Before we begin the formal remarks, the company advises today’s conference call contain forward-looking statements. Forward-looking statements include statements regarding expected revenue, billings, gross margin, operating expenses, operating margins, recurring revenue and other projected financial results, market trends and opportunities, competition, research and development efforts, sales and marketing efforts, new product introductions and our growth strategy. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented in the call may not contain current or accurate information. Further certain forward-looking statement is subject to the risks and uncertainties and are based on assumption as the future events which may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. The information of potential risk factors are detailed in the company’s periodic filings with the SEC including but not limited to those risks and uncertainties listed most recently in our Form 10-Q filed on October 31, 2014. MobileIron undertakes no obligation to release publicly any revisions to forward-looking statements contained herein to reflect events or circumstances after the date hereof or reflects the accuracy of unanticipated events. In addition, several non-GAAP financial measures we mention during this call. Information relating to the corresponding GAAP measures as well as the reconciliation of non-GAAP measures to GAAP measures can be found in our press release on the MobileIron Investor Relations website or our 8-K filing with the SEC. At this time, I would like to turn the call over to Bob. Please go ahead.

[Bob Tinker:]

Thank you, Sam. Good afternoon, everyone. And thank you for joining today's call. The rapid growth of smartphone, tablet and mobile app is fundamentally changing the workplace and is the secular tailwind that drives their business. Mobility touches the way every employee work. The way every business operate and the way every IT organization look at its computing services with employees. Mobility is now a primary computing platform in the enterprise. Enterprises around the world are rushing headlong in to the Mobile First era. This is where MobileIron comes in. MobileIron was purpose- built to enable productivity and secure enterprise data in this new Mobile First World. It is important to note that this mobile first world is profoundly different than the legacy PC world. In the old PC world, IT dictated technology and legacy software vendors restricted choice by pushing closed stacks of slow moving software. On the other hand, in the mobile first world, the MobileIron world, choice and speed win. End user set the technologies and demand choice, innovation moves at mobile speed. Our purpose-built platform conserve user and IT choice. While hoping IT do their job by securing enterprise data wherever it live. Enterprise data could be on the device, it could be in a mobile app, it could be in the network or in the cloud. When I look back 2014 was the year that mobility became strategic for our enterprise customers. As a result, 2014 was also the year that our platform became strategic. EMM and our architecture is quickly becoming the underlying end point security and management foundation for modern operating system. All the major modern operating system, IOS, Android, Windows 8 and now Windows 10 are built for EMM and the MobileIron model. As customers unleash mobility in 2014 for their users and for their businesses, we were there to deliver. As a result, 2014 was a great year for our business here at MobileIron. Let me summarize four key takeaways for 2014. We grew rapidly, we innovated the mobile speed, we expanded our leadership in the largest and most demanding customer segment and we delivered strong financial results for the year and for the quarter. First, let's talk 2014 starting with growth. For the year, growth billings were $145.7 million, up over 45% over 2013. Non-GAAP revenue was $127.1 million, up 50% year-over-year. At the same time, we saw a recurring billing increased in the fourth quarter of 2013 from 49% to 57% in the fourth quarter of 2014. For the year, international business was 45% of our GAAP revenue. Second, let's talk innovation. we innovated the mobile speed. MobileIron delivered day one support for AppleI8 through our global customers, we also delivered a host of new platform capabilities for Android and Windows 8. We delivered great new market innovation. Innovation such as tunnel which eliminates the need for traditional old BPX, Kerberos proxy which enables secure single finance. System center mobile integration which enables legacy system center admin to leverage MobileIron's best of breed platform. And the new Docs@work which provide secure access to word document in the datacenter of the cloud. In 2014, we are also granted 12 new patents, bringing our total number of granted patents to 17 at the end of the year. And these patents cover fundamental core technologies for enterprise mobility such as enterprise app store front and BYOD privacy policy. Third, let's talk about the heart and the soul of MobileIron customers. Over 8,000 customers have now purchased MobileIron as a platform since 2009. We focus on large and mid sized enterprise. And in 2014, we expanded our leadership in the most demanding and most valuable customer segment such as financial services, government, pharmaceuticals and professional services. Our focus on the large enterprise is paid off. We added over 100 of Forbes Global 2000 as customer in 2014 alone. Now we are proud to have nearly 25% of the Forbes Global 2000 as MobileIron customers. Across the board, approximately 75% of MobileIron business came from customers with over 1,000 employees. Those larger customers value the breadth of our platform and from a financial perspective those customers also generate higher incremental sales and drive the long-term profitability of over business. Driving incremental customer sales is simple. Successful customers buy more. Our passion for customer success and innovation is demonstrated in our business metrics. Our renewal rate grew above 90% on seat-on-seat basis and we are approximately 125% on dollar based retention metric that Todd will cover more in his section. Every quarter we win more customers, every quarter we expand our existing customers. It is still early innings in enterprise mobility yet many thousands of customers who get to pick a mobile security platform. And even within our own customers, we have significant upside growth left. At the end of 2014, we estimate that we are still less than 25% penetrated in to our already large existing customer base, meaning we have 75% more to go. There were two other big milestones in 2014 that I should mention as well. Demonstrating our consistent leadership in the industry, Gartner named MobileIron to the leaders' quadrant our market for the fourth year in a row. And finally, in 2014, we joined the public market. And welcome the whole new set of investors on our mobile first journey. As we exit 2014, it was a spectacular year for MobileIron. We delivered strong financial results for 2014, and for our most recent fourth quarter. I am proud of our execution as a team, our track record delivering the market leading platform for enterprise mobility and our track record of successful customers. I'd like to now highlight and welcome several organizations around the globe to choose MobileIron in the last quarter. Welcome to Italian based Pirelli is the fifth largest tire manufacture of the world operates in 160 countries and is a member of the Milan Stock Exchange. Also in the auto industry, we welcome Continental AG, a leading German automotive equipment manufacture and member of the German DAX Index. Continental and Pirelli are two of the largest tire manufactures in the world and have over 200,000 employees combined. Also in Germany we would like to welcome P7S1, P7S1 is a Germany mass media company that operates commercial television, pay channel, radio stations and print businesses across 13 European countries. Also during the four quarter, we are pleased to add to our customer family Expedia, one of the larges online travel companies in the world. So this means that you can travel the globe, drive fast and listen to the radio really loudly, all using the fantastic products and services from our new MobileIron customers. In the public sector, we expanded our government and defense footprint with the win at the US Naval Engineering Command. MobileIron now has deployment in all four branches US military as well as DISA, the defense information system agency. Our government traction expanded internationally with the win at the Australian Defense Ministry as well. We welcome these and to all of our new customers around the world into our MobileIron family. MobileIron's business is driven by winning new customers like these. And then making them successful so they grow their deployment. I'd like to now share with you five of the global companies that expanded their business with MobileIron last quarter. Swiss Re, the world's second largest reinsurance company expanded its MobileIron footprint as they continue to migrate off Blackberry. Shisheido, the largest cosmetic firm in Japan and the fourth largest in the world, also deploy expanded its deployment with MobileIron. Shisheido was particularly innovating the retail experience by deploying iPad from point of sale. In the UK, Nottingham University Hospital Trust is one of the busiest and largest healthcare hospitals in England employing over 14,000 staff and serving over 2.5 million residences. Nottingham leverages mobile to enable their staff with mobile app to provide more swift and efficient services to their patient. And I thank you and welcome to Varian Medical System which manufactures medical devices who also place the large expand order in fourth quarter. Varian, by the way, was the very first Silicon Valley IPO back in 1956. And so with the core part of all of the heritage, of all the companies like MobileIron who was founded in Silicon Valley over the last 60 years. And finally we like to say thank you to long time strategic customer and partner Intel for continuing to expand their business with MobileIron. I'd like to also thank all our early enterprise customers who made the best our MobileIron three and four years ago as their platform to this new world of mobility. We recently saw several more of our large global 2000 fully embrace this new world of mobility and turn off their last Blackberry Enterprise server, BES, during the fourth quarter. Across the large enterprise, the scalability of the MobileIron platform is a differentiator for us. At a recent data point, two of the customers we won in the third quarter, successfully deploy over 50,000seatsand 100,000 seats in less than four months. While many of our large customers depends on dataset premise deployments, we are seeing a rapid increase in the demand for our cloud service. In Q4, MobileIron added a rapid number of cloud customers and Q4 marks the second quarter in a row where we added more cloud customers than on premise customers. Going back to the innovation thing. Now I'd like to share with you a major MobileIron platform innovation, based upon on our vision to secure enterprise data wherever it live. In Q4, we announce the MobileIron strategy to secure the personal class. Work documents leaking in the personal cloud from a mobile device is one of the most persistent mobile security challenges facing enterprise today. Employees are choosing their own cloud app in which they store and share their work document. Rather than providing choice IT is enforced them to lock down those. Yet employees try to do it anyway. And in fact compromise the security posture of the organization, not because they are malicious but because they are just trying to get their job done and be productive. We believe at MobileIron is the best security is user enabled. Last quarter we launch Phase 1 of our strategy to secure the personal cloud with a new version of Docs@work. In Phase 1, Docs@work can securely access cloud services by box, Dropbox and Microsoft office 360 box. Last week we announced Phase 2 with a brand new product the MobileIron. The MobileIron content security service. With the MobileIron content security service, people can now securely store and share work documents in personal cloud services. Employees can now safely see something that's never been possible before. They can bring their own storage for BYOS to work. Our unique solutions move content security down to the document level. We are the first EMM platform to separate security controls from data storage. Work data can now be consistently protected across multiple content storage depositories. The technology behind this innovation is described in three US patent that we've just granted in October of 2014. IT want securities while employees want choice. The great news is that now with the MobileIron content security service, our customers get both. Our new content security service is yet another example of MobileIron delivering innovation. Innovation on top of what we believe is the most advanced enterprise mobility platform to the mobile first world. Growth, innovation, successful customers and MobileIron here building a business with long term. We started with six months of customer research all the way back in 2007. And now we exited with over a $146 million in annual billing in innovated platform and a leadership position in a fast growing market. To get here, we invested significant investor capital along the way. And we appreciate the support of our investor community. As we look to the future, profitability, cash flow and growth is important to our shareholders, our customers, our employees and to me. In the earnings press release we are pleased to offer additional guidance on our path to profitability. We are seeking to be cash flow positive from operations exiting 2016. While also continuing to drive growth in the strategic enterprise mobility market. Todd will share more detail regarding to our path to profitability in his section. In closing, MobileIron is the only company that was built from the ground up for the mobile first enterprise. We believe that MobileIron is poised on the strategic position for security and management in the new IT computing model. Going forward, we will be focused on four thing. One, winning more customers to invest in sales, marketing and channel. Two, making our customer widely successful so that they can expand. Three, delivering innovative products in a rich ecosystem to drive our win rate and increase our platform value. And four, becoming a profitable and cash generating business. I want to share one final 2014 highlight with you. There has been a lot to us as a company. Glassdoor recently awarded MobileIron the employees' choice award for one of the best places to work in 2015 for companies of our size. This award is based entirely on direct feedback from our employees and it is our employees I believe that create our long term company shareholder value. So thank you to our employees around the world. To our global customers, to our global partners and to our investment community. We deeply appreciate your partnership on our journey together to this mobile first world. Thank you for your time today. And for many of you on the phone that are already MobileIron customers, we appreciate your business as well. For those of you who they are not yet MobileIron customers, our sales teams are certainly more than happy to drop by. 2014 was a great year for MobileIron. We are excited about our prospects for 2015 and beyond. I will now turn the call over Todd for further details on our financials.

[Todd Ford:]

Thank you, Bob. I am very pleased that we continued to execute against the plan we laid out last year in connection with our initial public offering. Our land expand up sell and renew business model is working. For the fourth quarter and fiscal year 2015, we exceeded guidance across all key metrics. Billings for 2014 were $145.7 million, up 45% year-over-year. Recurring billings in the fourth quarter was 57%, up from 49% a year ago. Non-GAAP revenue for 2014 was $127.1 million, up 50% year-over-year, on proceed basis our renewal rate was greater than 90%. For the year, ASPs were up in the high single digit on a percentage basis. And lastly our operating margin improved from minus 48% in Q4 of 2013 to minus 30% in Q4, 2014. Now let's look at some of the specific details for Q4. Four quarter non-GAAP revenues are broken out as follows. $17.6 million from the sale of perpetual licenses, $9.1 million from subscription which consist of term subscription and monthly subscription which we refer to as MRC and $9.9 million from software support and services. Perpetual license sales up 32% year-over-year while subscription sales continue to see high growth of 82% year-over-year. In Q4, 2014, MRC was $3.7 million in revenue, up from$2 million dollar in the fourth quarter of 2013, where growth of 77% year-over-year. This represents the 15th straight quarter MRC revenues have increased. At this time I'd like to provide more color on our MRC business which is only sold through the mobile operator and with nearly 10% of Q4 quarterly billing. Our operator channel is the significant source of leverage in our business model that's drive long time sales efficiency. To illustrate, in 2014 we surpassed 5,000 trained operator sales people. Although billing for MRC did not show up in deferred revenue as they are billed monthly, we view them similar to a two years subscription deal as the operator often have three year contract with the end customer. It is also important to note that renewal rate for MRC and subscriptions are similar. As our operator channel continues to grow we believe MRC will become a more material portion of our business. For 2014 we reported non-GAAP revenues to count for vendor specific objective evidence or VSOE provide more meaningful period over period comparison. At the end of 2015, we will no longer be reporting non-GAAP revenue as VSOE business will become immaterial. Looking at expenses, non-GAAP expenses exclude non-cash stock compensation expenses and amortization of intangibles. Percentages are base non-GAAP revenues. Non-GAAP gross margin in the fourth quarter of 2014 was 84.3% which was higher than the 81% to 82% we expect to come into the quarter. Due to higher than expected revenue and mobile royalty payment. Total non-GAAP operating expenses were $41.9 million for the fourth quarter of 2014 which was slightly better than the Q4 guidance of $43 million to $44 million. Turning to the bottom line for Q4. We reported a GAAP net loss of $15.3 million and non-GAAP net loss of $11.1 million. GAAP earnings per share were loss of $0.20 and non-GAAP earnings per share were loss of $0.15. These are based on our weighted average basic share count of 76 million shares. We calculated the fully diluted shares outstanding to be approximately $93 million. Moving to the balance sheet. We ended the fourth quarter of 2014 with $140.4 million in cash short term and long term investment, a decrease of $7 million in the prior quarter. During the fourth quarter, cash used by operations was approximately $7.2 million, an improvement of $2.1 million from Q3. Deferred revenue was $54.2 million as of December 31, 2014 versus $40.8 million on December 31, 2013. Please note deferred revenue include $2.1 million related to VSOE as of December 31, 2014 which is down from $7.3 million of deferred revenue related to VSOE as of December 31, 2013. Excluding amounts related to VSOE, the deferred revenue balance grew 56% in 2014, up from $33.4 million in the comparable quarter a year ago. DSO for the fourth quarter of 2014 was 74 days as compared to 79 days in the third quarter of 2014. In general, our DSOs are in the 70 to 80 day range and usually in the up and down based on inter quarter linearity and some seasonal factor. We exited 2014 with 783 employees, up from 560 employees at the end of 2013. We expect to add approximately same number of employees in 2015. Now some comments and guidance for fiscal year 2015 and Q1. The market we are addressing is in its early stages and our strategy has been to focus landing customers in the medium to large business segment, followed up with expand enough to order, the strategy is working. Our recurring dollar base retention rate for 2014 was approximately 125%. Dollar based retention measured the total billings growth as our recurring business, the changes in subscription and software support of our customers 12 months prior to the current period net of customer churn. This is an important metric as it encapsulates several key factors of our business including customer retention and expansion, feature up sells and pricing trend. As we work through 2015, we will continue to be aggressive to landing large global customer and we would like to expand within our current account base which we estimate at less than 25% penetrated at this point. This matters because expansion into our current space creates significant growth opportunity and relatively lower incremental cost. We continue to witness a shift from perpetual licenses to recurring subscription licenses in MRC, while we don't push customers towards any particular licensing model, we welcome the shift to subscription billing as we believe they have a higher long term value. However, the timing of large transactions may cause some mix to shift in particular quarter. The mix shift does make it more difficult to forecast revenue. Starting with Q1 guidance. And this is our first time recording on Q1 as a public company; I wanted to provide a few comments specific to Q1. Q1 is historically been a seasonally slower billing quarter for us, coinciding with enterprise budgetary cycle. Also in Q1 we typically have higher operating expense with sales pick up initiatives, reset of payroll tax expenses and hiring activity. From this quarter, we are also seeing a substantially higher mix of subscription plus ratable billing driven by few large deals. Our guidance incorporates the resulting impact to billings and revenue. For the first quarter, we expect billings to be in the range of $40 million to $42 million. Given the make shift in billing for Q1, we estimate that our recurring billing for Q1 will exceed 60%. We are projecting a non-GAAP revenue range of $34 million to $37 million. This excludes approximately $800,000 in VSOE recognition. We expect non-GAAP gross margins to be approximately 81% to 83%. We expect that non-GAAP operating expenses will be in a range of $43.5 million to $44.5 million. We expect all expense categories to be up in dollar terms sequentially. Turning to the full year 2015, we are providing following guidance. We expect that billings for 2015 to be in the range of approximately $190 million to $200 million. We expect non-GAAP revenues to be in the range of $165 million to $175 million. As a reminder, this is non-GAAP revenue which excludes approximately $1.8 million of revenue related to VSOE. For 2015, we expect non-GAAP gross margins to be approximately 81% to 83%. For the fourth quarter of 2015, we expect non-GAAP operating margins to be in the range of minus 18% to minus 22%. Similar to 2014, we would expect to see steady operating margin progress beginning in the second quarter continuing through the fourth quarter of 2015. Our guidance for 2015 includes approximately $2 million a quarter for litigation legal fees. Now I would like to provide some comments on our expectations regarding profitability and when we expect to turn cash flow positive from operation. We will continue to invest in sales, marketing and engineering to expand our footprint in this rapidly growing market. Although we continue to invest for the future, we are committed to showing scale in our financial results. To that end we believe that in fourth quarter of 2016, non-GAAP operating margin will be in a range of minus 8% to minus 12%. And that we will generate positive cash flow from operations. Under normal course of business, we also expect to have approximately $80 million to $100 million in cash and cash equivalent when we turn cash flow positive from operation. Overall, we are very pleased with our execution in 2014. We remained very optimistic about our ability to maintain the momentum driven by healthy pipeline of business worldwide and accelerating demand for our mobile IT platform. As a reminder, GAAP to non-GAAP reconciliation disclosure and risk information can be found in our earnings press release or 8-K filed with the SEC this afternoon. This forecast are being made as of today. Operator that concludes our prepared remarks. We will now open the line for questions.

[Operator:]

[Operator Instructions] The first question today comes from Karl Keirstead of Deutsche Bank. Please go ahead.

[Karl Keirstead:]

Yes, thank you. This question is for Bob or Todd. I wanted to focus on that high single digit growth in ASPs. Just because it is a big focus of the investors on the line, can I just dig into a little bit more detail, the Fortune takes like my guess is that pure device management ASPs down and you are getting an offset through your focus on application, content security but maybe little color behind that high single digit growth might be helpful. And then I got a follow up. Thanks.

[Todd Ford:]

So, Karl, this is Todd. On the ASPs as we noted on the call, ASPs were up in the high single digit. And they really actually wasn't a huge delineation between perpetual and subscription licenses. With respect to your question on basic MDM, we are not breaking that out but I would say that in general that those prices are flat. So we are not seeing compression in basic MDM. And the reason for that is when customers are buying our solutions, they may start out with MDM, but they are intended to move to go and d perpetual which is our advanced bundle.

[Karl Keirstead:]

Okay, that's good news. And then if I might ask a second question. Do you talk -- you mentioned on the Q1 guide that there will be healthy make shift to subscription for the full year 2015 revenue guide of $165 million to $175 million. What's perhaps even in general or if you want to be specific your guidance around the mix between the license and subscription.

[Todd Ford:]

So we are not providing detailed mix for the entire year but let me provide some comments on Q1 in particular. So in Q1 we are seeing a much pronounced shift from perpetual licenses to subscription. We believe that is a Q1 phenomenon as many of our large companies have not yet established this cycle and are electing to subscription over perpetual. We've seen that phenomenon little bit in prior years. With respect to the full year, we expect the make shift to be roughly the same as we saw in 2014.

[Operator:]

The next question comes from Rick Sherlund of Nomura. Please go ahead.

[Rick Sherlund:]

Yes, thanks. Just to follow up on Karl's question on ASPs, were ASPs still up in the second half? I think you said for the year, I am curious was there any material change in the last quarter or two and if you could also just touch on competition. Whether you've seen any change in the competitive landscape?

[Todd Ford:]

So I will take the ASP question and I'll hand up to Bob for the competitive landscape. So on the ASPs they can vary quarter by quarter based upon large deals. I would say that especially in Q4 ASPs were extremely strong; they were actually above the range we gave for the year. So I think if you looked at on a second half year basis they were stronger than the first half. But actually I haven't broken that out.

[Bob Tinker:]

Yes, hi, Rick. This is Bob. So in terms of the competitive landscape and how that evolved in back half of the year, Rick, the first comment I would make is that this continues to be a large, fast growing market with no incumbent. The second point I would make is that we continue to see a narrowing of the competitive landscape, good and -- particularly really wedded from through the deal end and stake we see out there in customers. I'd say the only sort of new piece of information as we have case only started to see in tune typically showing up in the small and medium business. But overall, it is definitely a still two horse race. Truly MobileIron is the focused player and VMware is the other one we see.

[Operator:]

The next question comes from Michael Turits of Raymond James. Please go ahead.

[James Gosan:]

Hey, guys, good afternoon. It is James Gosan [ph] filling it for Michael. First thank you for providing EBIT margin milestones. I know we appreciate the additional color. Bob, I wanted to touch a little bit more on your comments on Microsoft in tune, can you give us a little more color about what you are seeing from Microsoft? They continue to talk about their EMS product strengths, any additional color you can provide there?

[Bob Tinker:]

I think the comments I would make is that it is very new, it is really only recently showed up. It is an immature product, it is legacy is that it was a laptop only business solution that has been sort of re-engineered to do mobile. And it is pretty focused on more sort of the basic features and functionalities which are more appropriate for the small business. That sort of the in tune part of it. If you look at Microsoft more broadly, we actually worked very closely with this ten team, the office 65 team so Microsoft actually we view as mostly a partner.

[Michael Turits:]

Great. And then just one housekeeping question, Todd. I think last quarter you had said you had 77% attach rate beyond core MDM, did you disclose that figure for fourth quarter?

[Todd Ford:]

We didn't close the attach rate for Q4. What I will say is that and as I mentioned on the ASPs, customers who are buying our solutions whether they start off with and basic MDM is a full IT platform led to move to the full platform over time and if you look over the 2014 our attach rate range from 60% to 80%. It was definitely at the high end of that range in Q3, I would say that the lower end to that range in Q4.

[Operator:]

The next question is from Heather Bellini of Goldman Sachs. Please go ahead.

[Heather Bellini:]

Great, thank you. Thank you for taking the question. You talked about 2014, 2016 from a cash flow perspective, I was wondering you saw some big improvement in calendar 2014, how should we be thinking about calendar 2015 given the opportunities should we expect the cash fund to accelerate this year and be bigger than it was in calendar 2014 or are you thinking that you are going to keep progressing at -- keep compressing at lower?

[Todd Ford:]

Thanks, Heather. For the year we expect cash flow from operations to improve vis-à-vis 2014. We do expect in Q1 that we will see a higher cash run rate just given the seasonality in our business and some of the large initiatives that we have at the beginning of the year, whether it is sales kick off, or mobile first conference coming up. But we do expect that you start seeing the improving in cash flow from operations as well as operating margins Q2 through Q4. Very similar to what we saw in 2014.

[Heather Bellini:]

Okay. And then I just had a quick follow up in regards to I think it was Rick who asked about pricing. I am just wondering do you think the pricing trends that you are seeing are also a function of some of your competitors being a little bit more rational in the market this year over the last few quarters than may be they were 12 to 18 months ago.

[Bob Tinker:]

Heather, this is Bob. I will take that one. I think the answer to that question is yes. We've seen a number of things that are driving our both consistent and upper trend in pricing. One is that in generally we've seen the competitive landscape narrow and as a result sort of the remaining players we see have been more disciplined around pricing. I think the second thing I would say is actually more driven by customers which is that one of the big things we saw happen in the back half of 2014 and we believe it is going to be really big deal in 2015, is that mobile now becoming strategic inside our customers. So as a result they value best of breed, high quality, and high scale products. And they are willing to pay for it. So I think the combination both of external factors but also the shift inside customers that is driving that as well.

[Operator:]

The next question comes from Mark Sew [ph] of RBC Capital Market. Please go ahead.

[Mark Sew:]

Thank you. Maybe if you could just help us understand the seasonality as it relates to your billing trends as you move through the year? Understanding we have a bracket for your annual revenue guidance. And secondly, just as price vertical where you might be gaining shares and then lastly just on the whole trend towards DYOB, there is some cost because of the high profile security breaches. And people are trying to move back to the other way and I am just trying to get a sense what you are seeing, from what your customers having saying about security breaches. Thank you.

[Todd Ford:]

This is Todd. I'll take the first part of the question then I'll hand it off to Bob. So regarding the seasonality trends and how we would think about billings throughout the year. Q1 is definitely seasonally our slowest quarter. If you look at 2014, our billings were down approximately 5% versus Q4 of 2013. And our guidance for Q1 is roughly flat to Q4 even though we are seeing a massive shift from subscription to perpetual in the first quarter. Yes, I would expect to see acceleration in Q2. Q3 we also usually see pretty good acceleration but it is often tampered by international growth and the December season there and then Q4 is definitely our largest quarter of the year which you've seen in the past several years of our financial results.

[Bob Tinker:]

This is Bob. I'll take the last two questions, Mark. So in terms of enterprise vertical, one of the great things about enterprise mobility is the wildly global phenomenon, and if you look at where we at MobileIron get our traction, seen a lot of growth, it is actually in the larger enterprise verticals such as financial services, healthcare, pharmaceutical and professional services. I would say the only vertical that we have seen had a slowdown in the latter half of 2014 was the energy vertical and I think that was probably more due to their secular challenges. With regard to your third question around BYOD and what do we are seeing. We are not seeing any type of slowdown in BYOD, particularly North America now increasingly other geos, we are seeing mobile become a force of nature inside middle margin enterprise customers where they want to have every user to be mobile enabled. And Finally BYOD enables that, the great thing about that is frankly that's why their customers buy MobileIron so that they can secure enterprise data no matter where it lives on corporate device and a personal device, in an app or in the cloud. So we don't really see any difference in terms of what's going on inside customers. We look at all of the net positive.

[Mark Sew:]

Okay. So maybe just a quick follow up. Your progress today maybe on the regulated verticals, are you still seeing good churn there on the regulated vertical side government, financial, some investment bank those type of verticals.

[Bob Tinker:]

Yes. So that's historically actually been a strong vertical for us and accelerate significantly over the last 18 months. And frankly based on our pipeline we see that trends continuing.

[Operator:]

The next question comes from Michael Kim of Imperial Capital. Please go ahead.

[Michael Kim:]

Hi, good afternoon, guys. You talked about the opportunities to expand within existing customers. In the past you provided some cohort analysis. Are you seeing similar trends with more recent cohort to earlier one and any differences in what the attach rates are looking like or what types of higher value services they are adding on?

[Todd Ford:]

So on the -- the cohort analysis, we are seeing customers expand at a similar rate whether with the 2010 cohort, 2011 and 2012. So we are not seeing anything really change there. The attach rate as I mentioned will typically range from 60% to 80% in any given quarter. One other thing I will notice if you look at our total installed base from a fee perspective, it didn't go up in Q4, it has been in Q3 is up 47% penetrated and now we have 50%. The newer cohort, we didn't have the advanced management application suites, year and half two years ago, so we have to take there substantial hired now than it was in the early days, if we simply didn't have it available. With respect to -- one other comment on the cohort, we started giving the dollar based retention rate this quarter, it is actually probably the better metric in the cohort expansion because it includes such things not only we expand up sells but renewal rate and ASPs trends as well.

[Michael Kim:]

Okay, great. And then switching gears to MRC. Were any particular middle operators standing out and stood out in the quarter in any particular GOs that seemed to be I guess seeing a faster adoption rate.

[Bob Tinker:]

Yes, Michael this is Bob, I'll take that one. If you look at MobileIron we invested a lot in the last five years, we built out a mobile operator channel and well over 30 around the globe. So once it tended to do the best, the ones who are strong business to business sales team. And in particular AT&T who has been one of our earliest partners continues to be very strong with us. We have also seen if you look at Horizon, we are excited about 2015 with them. And we are also excited about some of our other global operators such as Deutsch Telecom and everything and everywhere.

[Operator:]

[Operator Instructions] The next question comes from James Fassett [ph] of Morgan Stanly. Please go ahead.

[Meera Marshal:]

Hi, this is Meera Marshal for James. A couple of questions. First, Blackberry just started charging for its EV pass program kind of in the past couple of weeks after a year of being offer free. But at least some of those were mobile, reported to be MobileIron customers. Has there been any effect? Have you seen any churn related to that? And then second and your forecast, has OpEx or has operating leverage kind of ramp in over the bid quicker than kind of -- and so are there any priorities that you are -- are there any spending priorities that you are kind put into side in order to ramp operating leverage a little bit faster than expected? Thank you.

[Bob Tinker:]

Hi, Meera, this is Bob. I will take the first one. So the Blackberry E-ZPass program frankly in terms of what we see outside customers, we just really don't see Blackberry will delve to inside customers or in competitive field. I think typically what we hear is, what we hear from our large enterprise customers which are actually as they are turning off their bells around the world. And I think frankly the only time when your Blackberry is on CNBC so which definitely hear about some customers.

[Todd Ford:]

On the operating leverage question, we basically stayed the course to our plan of attack which is to aggressively go after this rapidly evolving market. We haven't changed anything to moving the -- the time to profitability or cash flow breakeven. We just thought that this was the appropriate time to provide our metrics and how we are going to get there. It is a very large market, we are continuing to invest, but we are obviously spending our money judiciously.

[Operator:]

The next question comes from Sandhu Fadwani of Stifel. Please go ahead.

[Sandhu Fadwani:]

Thanks. Questions, Bob, first one for you. Understanding that Microsoft in tuned as sort of limited capabilities but I am curious how often are you seeing them in deals and whether customers are willing to give them a shot and go through a trial process, maybe delaying some decisions down the road. And then second question as far as thanks for giving the target for cash flow breakeven. I am wondering Todd whether you can comment about what sort of growth should we be looking at in 2016 broad stroke so understanding that you might not want to get into specifics but are we looking at sort of 20% -25% growth to get to that number at the end of 2016. Thanks.

[Bob Tinker:]

Okay. Sandhu, this is Bob. I will take the inching question. So in general in tunes new parts in the market. We do see it occasionally like I said typically in the small to medium business. We do see customers occasionally taking a look at it, but the feedback we get back that it is relatively immature and more importantly if customers are skeptical about Microsoft ability to be neutral in enterprise mobility because here the CIO of large enterprise, you want to know that your enterprise ability partner is collaborating closely with Apple, collaborating closely with Google and collaborating closely with Microsoft. Whether or not that actually sort of delays customers decision, I think given how new it is for the market and how immature it is, it is way too soon to even have any comments on them.

[Todd Ford:]

On the growth rate. We still believe it is very immature in the early innings of this game, we are less than 25% penetrated in our current account. If you look at our pipeline going into Q1 and in the first half of the year and Q3, Q4, our pipeline is actually never been bigger than it is today. So when we look at long-term growth rate, we still believe that this is a 30% to 35% plus growth rate market for the foreseeable future.

[Operator:]

There are no further questions at this time. I will now hand the call back over to Sam Wilson for concluding comments.

[Sam Wilson:]

Thank you, everyone. A replay number will be available-- a replay will be available approximately 7 PM Eastern Standard Time. The dialing number is 1877-870-5176 and the PIN is 110074. Thank you very much. Have a great day.

[Operator:]

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