MobileIron, Inc.
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Welcome to the MobileIron Third 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, Pedro. Good afternoon and welcome to MobileIron’s third quarter 2014 financial results conference call. Joining us 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 earnings release, please call the MobileIron Investor Relations or go to MobileIron Investor Relations website at investors.MobileIron.com. Before we begin the formal remarks, the company advises that today’s conference call does contain forward-looking statements. Forward-looking statements include statements regarding expected revenue, billings, operating expenses, operating margins and other projected financial results, market trends and opportunities, competition, research and development efforts, sales and marketing efforts, new product introductions and our overall 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 update on assumption is the future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. Information of potential risk factors are detailed in the company’s periodic filings with the Securities and Exchange Commission including but not limited to those risks and uncertainties listed most recently in our Form 10-Q filed on August 7, 2014. MobileIron undertakes no obligation to release publicly any revisions to forward-looking statements contained herein to reflect events or circumstances after today or reflects the accuracy of unanticipated events. In addition, several non-GAAP financial measures we mention on 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 Investor Relations website once again at investors.MobileIron.com or on our 8-K filing made today 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 and thank you everyone for joining us. MobileIron is at the forefront as one of the largest in most disruptive technology transformation with the enterprise in the last 15 years. A recent survey by CIO Insight found that two-thirds of CIO and IT professionals believe that mobility will impact their organizations as much or more than the Internet did, we agree. We believe that mobility is transforming the way every employee works the way the business operates and the way every IT organizations delivers computing services for the business, although it's becoming the primary computing platform for employees in the workplace. We call this the Mobile First World. We are pleased to report that our journey to the Mobile First World generated strong financial results in the third quarter of 2014. Non-GAAP revenue was $33.7 million for the quarter, compared to $21.9 million for Q3 of last year. This represents 54% year-over-year growth. Gross billing for Q3 was $38.2 million, up 47% year-over-year versus the $25.9 million in the same quarter of last year. We reported a non-GAAP net loss of $11.3 million or non-GAAP EPS loss $0.15. Please see the earnings press release for reconciliation from a GAAP results. MobileIron results and our overall business are driven by two secular tailwinds. One the rapid adoption of smartphones and tablets in the workplace and two, mobility becoming a primary competing platform for applications and for business processes. In this new world Enterprise Mobility, MobileIron plays a very critical role. MobileIron provides security and management for mobile applications, contents and mobile devices, across both BYOD and corporate owned. Our Mobile IT platform leverages a perfect build and differentiated technology architecture that combines a multi U.S. security and policy engine, along with data and motion security in order to deliver mobile device management, mobile application management and mobile content management. Customers can buy our platform, both as a subscription cloud service or as on-prem licensed software. Our platform security framework has been extended to a large ecosystem on mobile applications and enterprise infrastructure product such as Aruba, Cisco, FireEye. Together, our platform and our ecosystem deliver the best-of-breed mobile capability to our customers with a great native user experience. The MobileIron, CIO gets the best of both worlds. Employees can be productive on the device of their choice with an experience they love, but at the same time IT is confident that their enterprise data is secure. With MobileIron, large and mid-sized enterprises around the globe are embracing mobility as their primary computing platform. This global demand and our track record of global execution are also reflected in our sales result. In Q3, 41% of our GAAP revenue came from outside the U.S. Our European team continues to perform well with a record of quarter in Germany, which has historically been a strong market for MobileIron. As speaking of records, we added a record number of cloud customers in the third quarter. MobileIron Cloud continues to grow quickly and is becoming a choice for our mid-sized enterprise customers. And now, we’re seeing larger customers go cloud as well. On the customer front, we continue to extend our leadership position. Our customer acquisition and expansion is strong across the board, with particularly strength in business services, financial services, healthcare, manufacturing, technology and government. Our head-to-head win rate versus the competition is well over 60% and moved up in Q3 plus mobile is hard. We saw a number of enterprise customers come to MobileIron after suffering from failed deployments with other vendors, whereas for MobileIron, we saw a continued increase in the number of large orders. Successful customers drive our cohort expansion at healthy clip and they enable us to maintain our high renewal rates of over 90%. Q3 was also a strong quarter for up-sell. At the same time our customers expanded a footprint, we continue to see a significant percentage of [indiscernible] sold where customers purchased our gold or platinum bundles for app security, content security and data in motion security features like Tunnel. We are also pleased to share that we passed another major milestone in Q3. We surpassed 7,500 cumulative customers, who purchased our platform in 2009. Our focus on large and mid-sized customers is a key element of our strategy. Approximately 70% of our business comes from customers with over 1,000 employees. This matters because large customers value the breadth of our platform and they generate the most incremental sales and drive long-term financial return. And finally, our market leadership is further validated by a recent IDP report on EMM. According to the report, MobileIron grew the fastest of any EMM vendor in the industry and has the highest market share of any modern EMM vendor. The bottom-line, Q3 demonstrated strong growth and we believe we gained relative market share in one of the fastest growing enterprise technology sectors. At this point, I’d like to take a couple of minutes to highlight and welcome several of the many-many new customers who joined us in the last quarter to make all this possible. I’d like to welcome Balfour Beatty. Balfour is a global building and city infrastructure company with over 40,000 employees across 80 countries. Balfour runs massive project, which is transforming the Queen Elizabeth Olympic Stadium into a multi-use venue. With the global workforce needing instant and secure access to information wherever they are, Balfour selected MobileIron to deliver productivity and security within their global workforce. From the transportation sector, we are very excited to welcome Ryanair. Ryanair chose MobileIron to help pilot screw and operations team leverage mobility to get their job done. If there is one industry that has a highly mobile workforce, it’s the airline industry. And my personal favorite See's Candies. See’s Candies became a customer during the quarter, we’re proud to have them. We are adding See’s to the growing list of Berkshire subsidiaries that we count as customers. In Q3, we also continued a rapid expansion into the financial services and government sectors. We’d like to welcome Nomura, a 90 year old global financial services firm who chose MobileIron after conducting a deep dive POC. We also welcomed many other financial services customers including large banks in Japan, Italy and the Nordics. On the government defense side, while we cannot mention specific names, we had yet another strong quarter at all levels both domestically and internationally. BlackBerry migration is alive and well. We love winning customers, but more importantly, we love when we can help our customers successfully transform their business with mobility. Regal Entertainment Group is a nationwide theater group across 42 states with 44,000 employees. For movie goers, a movie is an entertaining experience with some popcorn and food. The Regal, the business process is behind tickets, their services, theater operations and concessions. This all work together to deliver a great guest experience. With the rise in smartphones and tablets, Regal saw a chance to re-engineer transform their business around mobility. Mobile V1 for Regal started years ago, with the legacy system of RF devices used for ticket scanning. Mobile V2 for Regal leverages iPods for their employees and mobile apps to transform their theater operations. Regal combined MobileIron with a mobile app called UsherPoint developed by Vista Entertainment. UsherPoint scans through the bar codes on the paper from smartphone screens it improves customer service by providing real time information about movie schedules for Regal’s staff and integrates with the theater janitorial and theater operations to confirm that auditoriums have been cleaned. Regal uses MobileIron to provide security and management for their mobile applications and their nationwide fleet of mobile devices. Regal leverages our mobile application security framework called AppConnect and our per app VPN solution called Per App. For Regal employees love having a device they’re familiar with also appreciate the improved experience and their business is more efficient. As we look across the industries and speak with customers like these, there are three core trends that I would like to share. The first is that the enterprise facility is no longer a nice to have mobility is becoming tier one mission critical IT service. I’d like to share recent conversations that I had with the CIOs of one of our large customers, a global energy and resources company. He shared that mobility started off as a special project to deliver email on iPads for a couple hundred executives now, mobility for tens of thousands computers their emails and key business apps. For him, mobility went from a side project to now it’s on his top 10 list in critical infrastructure. For him it’s not an experiment with tier two product for him mobility requires us to breath. The second major trend we see is that user choice as a requirement. IT departments can no longer dictate what tools employees use for work users and line of business preference is constantly changing with new apps, new cloud services, new mobile devices as they hit the market. CIOs demand in open platform that can secure and support the constantly changing array of choice. While at the same time legacy players continue to push a closed single vendor stack of mediocre technologies. This model is failing. The days of the close stacks are over. The third major trend is the legacy PC security model is dying. We believe the legacy desktop models of the main joint operating system with images and package along with Win 32 apps, VDIs, plug-in agents dedicated file shares and VPN is dying. The new model of computing consisting of an EMM joint modern mobile operating systems with sandbox applications, modern mobile and Web apps, per app VPN and constant to distort anywhere will become the new standard. Frankly we already all this in iOS and with Android and now offer our next generation laptop and desktop OSs like Mackintosh and Windows 8 and in Windows 10. For ’15 is just the future in the future every endpoint will look like a mobile device. A recent top analyst report predicted that by 2020 and this is key, smartphone security and management architectures will dominate the endpoint computing environment. This means that the future model rest squarely on top of MobileIron. This means that the market is coming to us. This new mobile world is not for the faint of heart. This new mobile world is disrupting ways of working that is in place for decades. Mobile moves at a blistering pace it knows over legacy players illustrates I would like to share a few examples of some of the innovations and we’ve recently delivered. Apple released iOS 8 on September 17th MobileIron supported it on the day it shipped and thousands and thousands of customers around the world immediately upgraded and were able to yes iOS 8. In Q3, we delivered new releases across our platform with enhancements to MobileIron Core, Cloud, Sentry, Tunnel, AppConnect, and Web@Work our secure enterprise browser. Another MobileIron first is our innovation for our customers is our real time connectivity with Microsoft System Center Console Manager. This offering allows enterprises to easily extend system center which provides legacy desktop management to use MobileIron as the mobile security and management standard. Last week, we had another announcement. We announced our next generation Docs@Work for securing mobile content and our overall platform strategy for securing enterprise content wherever it is, either in the enterprise cloud or the personal cloud. With our overall platform strategy users will be able to choose their content storage and choice and IT will be able to extend their bigger content to any repositories and ecosystem partners. This will help transform a discrete content cloud for one of IT’s work security nightmares into a secure productivity tool that allows users to work the way want to work. Across the board, MobileIron’s track record of innovations is backed by patents. As a matter of fact, we’ve been granted 15 of what we believe are the core patents for this new EMM based model of security and management. And why we are proud of MobileIron’s track record of innovation, innovation is not just driven by us; it's also driven by our ecosystem. The third quarter was a big one for our ecosystem. We added 27 new partners with released product or integrations in development. I want to take a couple of minutes and drill down in on particularly interesting area in ecosystem, app reputation and app security scoring. With the rapid growth of mobile applications at the workplace an ecosystem of company provided security scanning and app reputation services at large. Over the course of 2014, MobileIron tuned our platform APIs in order to allow for type integration with the market leading players in this space. By enabling with ecosystem customers can leverage best-of-breed solutions. The joint solution works like this, MobileIron has unique visibility into the mobile applications used in aircraft and our ecosystem partner technology provide app scanning and reputation scores for each apps back to MobileIron. IT can then define clear policies and take quick action to ensure enterprise data is protected. In the second quarter, we announced our integration with Veracode and then during the third quarter we completed development in recently announced our integration with FireEye's MTP product, their behavioral based analytics product. In addition to Veracode and FireEye's, our ecosystem includes other leading vendors which are Appthority, mediaTest digital, Lacoon, and stay tuned more are coming. These ecosystem partners that I highlighted point to how mobile is blowing previous the old closed enterprise IT stack. Customers want to choose the best technologies for the business and expect them to work together. MobileIron’s platform is just the core of bringing this ecosystem together for our customers. Our ecosystem also extends to our reseller channel. Our channel community includes thousands of trained sales and support professionals across our global network and it includes many, many IT resellers in most of the world’s largest mobile service provider. In Q3, we’re pleased to announce our partnership with CSC to target the better market and internationally we extended our mobile service provider channel to include ChungHwa Telethon, Taiwan’s largest operator and an expansion into Eastern Europe with Orange. In summary, MobileIron grew the factor in one of the fastest growing market in enterprise software; Q3 was a quarter of execution and innovation product with compelling product releases, a broadening patent portfolio and an increasingly differentiated technology with ecosystem. Mobile has become strategic; our customers are expanding this deployment and buying our advance solution. Our past success is focused, mobile is hard and our competitors extract it under pressure as their PC economy fades. Going forward, MobileIron is in a great position. MobileIron is built from the ground up for this mobile world. Our market is large, fast growing with no incumbent at the cusp of a major transformation. We sit squarely at the intersection of some of the largest changes to enterprise software during the last 15 years. The future of enterprise security and management is moving to the mobile model. The market is moving towards us. As a result, we believe MobileIron is poised on these strategic positions in the enterprise infrastructure from mobility. As we look ahead we’ll be focused on three things to drive the business; one, delivering innovating products with ecosystem that drives our win rate and increases our value; two, continuing to win customers through investments in sales, marketing channel; and three, if our customers wildly successful so that they expand. With these three things we’ll extend our leadership position and drive shareholder value. I would like to thank our global customers, our worldwide employees and our investment community. We deeply appreciate your partnership on the journey to the mobile first world. We’re excited about our prospects for the final quarter in 2014 and beyond. I will now turn the call over to Todd for further details on our financials and business.

[Todd Ford:]

Thank you, Bob. I am very pleased with our strong execution during the third quarter. Our results demonstrated strong financial performance across all key metrics including new customer acquisitions, expansion of business within existing customers and improvements in margin. I’ll begin by providing additional details on our performance for the third quarter of 2014 and we’ll conclude with our outlook for the fourth quarter. Our discussion will primarily focus on non-GAAP financial metrics. Our preference in website provides the reconciliation of GAAP and non-GAAP financial results. As Bob noted, non-GAAP revenue for the third quarter ended September 30, 2014 was $33.7 million compared to $21.9 million in the third quarter of 2013, an increase of 54% year-over-year. Non-GAAP revenue excludes $1.2 million in the third quarter of 2014 and $4.5 million in the third quarter of 2013 from perpetual license revenue recognized during those periods that was delivered prior to January 01, 2013. These amounts were deferred prior to 2013 with the lack of vendor specific objective evidence, also refer to as VSOE. Amounts related to be BSOE have been removed from non-GAAP revenue to provide more meaningful period-over-period comparison. We have recognized revenue from four primary sources. One, sale of perpetual licenses, two, sale of term subscriptions, three service and support and four monthly recurring charges. Third quarter non-GAAP revenues are broken out as follow. $16.4 million in sale of perpetual licenses, $8 million from subscription which consists of above term subscription and monthly recurring charges, and $9.3 million from software support services. Perpetual licenses sales were up 32% year-over-year while subscription sales continue to see high growth of 96% year-over-year and up 13% quarter-over-quarter. The mix between perpetual license sales and term subscriptions will fluctuate from quarter-to-quarter. Over the longer term we expect to see continued shift in perpetual licenses and subscription licenses. However, the timing of large perpetual license transaction and cause the mix to shift in any particular quarter. On our last earnings call we noted that we expected a slightly more pronounced shift to subscription in the third quarter. The mix of licenses in Q3 ended up in roughly as the same as Q2 driven by a few larger perpetual license deals. While we don’t push customers towards any particular licensing model, we welcome the shift to subscription billings as they have a higher long-term value. The mix shift does make it more difficult to forecast revenue for any given quarter. Monthly recurring charges or MRC, are revenues recognized from an operator-retailers such as Everything Everywhere, Swisscom and Vodafone Global Enterprise. Monthly recurring charges as billed by the operators on a monthly basis to their end-user customer is on actual devices our users deploy. We report monthly recurring charges in our subscription revenue line item. It is important to note that MRC is billed monthly by MobileIron in arrears; it does not show up in our deferred revenue. In Q3 2014, MRC was $3.1 million in revenue, up from $1.7 million in revenue in the third quarter of 2013, for growth of 98% year-over-year. This represents the ’14 third quarter MRC revenues have increased. During the quarter, we continue to show strength in international operations as well, with 41% of our GAAP revenues coming from outside of the United States. Turning to billings. Gross billings for the third quarter of 2014 was $38.2 million up 47% from $25.9 million when compared in the third quarter of 2013 and up 9% from the previous quarter. Billings for the first three quarters of the year are up 50% year-over-year and we believe we will gain market share. Billing from recurring sources were 53% for the quarter up from 46% in the third quarter of 2013 and flat in percentage churn sequentially. We classify recurring billings as a sum of two categories, subscription licenses including MRC and support contracts with software supporting services. Recurring billings do not include perpetual license sales, professional services or hardware. Looking at expenses, non-GAAP expenses excludes non-cash stock compensation expenses and amortization of intangibles. Percentages are based on non-GAAP revenue. Non-GAAP gross margin in the third quarter of 2014 was 82.8% up from 81.6% in the third quarter of 2013. Coming into the quarter, we had expected gross margin closer to 80% that due to higher than expected revenue and lower expense as result of slower than expected higher end. Our gross margins for the quarter were above expectations. Looking towards the fourth quarter we should expect gross margin to be slightly down, as hiring picks up at quarter’s end and we expect to continue making hires in Q4 that will impact gross margin. Total non-GAAP operating expenses were $39 million for the third quarter 2014 compared to $28.3 million in the third quarter of 2013, went up only $1 million sequentially which was at the low-end of our previously announced guidance range $39 million to $40 million. Due to the timing of expenses and hiring during the quarter, some operating expenses shifted from Q3 to Q4. Looking at R&D, R&D continues to be a key area of focus and investment for the company. We will reiterate that mobile technology moves faster than any other enterprise technologies. It requires the appropriate R&D investment to keep up with the pace of change and to deliver innovation. Recent announcements such as our securing the personal cloud, integration with Microsoft System Center and our work with FireEye a great example to the how quickly MobileIron is moving. Our customers choose our products because they have confidence in our platform’s ability to solve their problems today and in the future. And this is reflected in our increasing attach rate. Our catch rate represents the percentage of customers who purchased that additional functionality. In Q3 our tax rate increased to 77% on new [C fold]. As our tax rate demonstrates customers have moved beyond MDM and EMM has become the foundation for any enterprise mobility strategy. As a result, our continued investment in R&D is critical and we expect R&D spending in absolute term will be up for the fourth quarter. Sales and marketing has been another area of significant investment for the company. Our channel is going through a long-term success. Our reseller partners provide long-term leverage to our model by accelerating sales and expanding our ability. We support our channel partners by providing marketing coverage and support onside technical sales engineers. It is also important to note that our go to market strategy is focused on mobile larger enterprises because there the highest potential. Previously, we highlighted our 2010 customer cohort expanded 5x between 2010 to 2013. We’re happy to report that expense rates as that same cohort has continued to expand and now top 7.5x. We would also like to note that our 2011 cohort of customers is following the same trajectory and have expanded 5.5x since 2011. Our sales and marketing is yielding results and we’re consistently making key investments in this area. Turning to G&A. G&A took a notable jump quarter-on-quarter at Q3 with the first full quarter as publically traded company and the related expenses are reflected in our financials. We expect G&A to normalize over the next few quarters. Regarding our tax situation, income tax expense primarily associated with our foreign entity and we expect to take minimal taxes for the foreseeable future. Turning to the bottom line for Q3, we reported a GAAP net loss of $15.5 million and a non-GAAP net loss of $11.3 million. GAAP earnings per share were a loss of $0.20 and non-GAAP earnings per share was a loss $0.15. These are based on weighted average basis share count of 75.9 million shares which was the first full quarter in setting our IPO shares issued and conversion of preferred shares. We calculate fully diluted shares outstanding with approximately 93 million. Moving to the balance sheet, we ended the third quarter of 2014 with $147.4 million in cash and cash equivalents. During the third quarter cash used from operations was approximately $9.3 million and CapEx was $510,000. Historically we have not been in capital incentive business. We expect the capital expenditures will be up in Q4 at approximately $1 million related to the expansion and move of our data center. Except for a possible office move in the next year we don’t expect it’s now changing our capital expenditures. Deferred revenue was $49.6 million as of September 30, 2014 and $40.8 million as of December 31, 2013. Deferred revenue includes $3.2 million and $7.3 million as of September 30, 2014 and December 31, 2013 related to BSOE. The amounts related to BSOE deferred revenue balance the 76% and 26.4 million in the comparable quarter a year ago. As of September 30, 2014 deferred revenue is broken into a short term balance of $41 million and a long-term balance of 8.6 million. In the press release, we provided the break-down of deferred revenue at quarter’s end. DSO for the third quarter of 2014 of 79 days as compared to 73 days in the second quarter of 2014 and 62 days in the third quarter of 2013 the increase in DSO was primarily driven by selling growth, linearity of billings in the quarter timing of some collections that were made in October. We continue to manage our collections closely and have experienced minimal bad debt expenses to date. Now looking at guidance, this quarter is historically having been our strongest quarter of the year reflecting seasonality -- in budgetary cycle. We’re providing the following guidance for the fourth quarter. We expect GAAP revenues to be in the range of approximately $35 million to $36 million. GAAP revenue includes $1 million of revenue related to BSOE. The non-GAAP revenue we’re projecting in the range of $34 million to $35 million. This revenue guidance contemplates slight next year and production licensees the subscription plus ratable revenue in the fourth quarter compared to Q3. Also we start billings of the key metrics for the business and given the number of questions we get about going in the mix between different models we decided to simplify connections by adding mobile guidance. We expect fourth quarter billing to be in the range $39 million to $41 million. We expect non-GAAP gross margins to be approximately 81% to 82%. For Q4 we expect non-GAAP operating expenses will be in the range of $43 million to $44 million as compared to $39 million in the Q3 of 2013 and we expect all expense categories to be up in dollar term sequential. As a reminder GAAP to non-GAAP reconciliations and disclosure information can be found in our earnings press release or 8-K filed with the SEC this afternoon. Overall, we’re very pleased with our Q3 results technical innovations during the quarter and increased customer traction. We remain very optimistic about our ability to maintain the momentum driven by a healthy pipeline of business worldwide and the accelerating demand for our mobile IT platform. That concludes our prepared remarks and one last comment since we like to use a lot of baseball analogies go giants. With that, we’ll now open the line for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Rick Sherlund with Nomura. Please go ahead.

[Rick Sherlund:]

I'm wondering, if you can give us a perspective on ASPs in the quarter? And also if you can touch on the competition, we've seen a lot out recently. Microsoft announced some things yesterday for Office 365. If you can just sort of chat for a moment about the different competitive offerings that you're seeing in the market? Thank you.

[Bob Tinker:]

Sure Rick this is Bob. First of all thanks for recognizing the progress on the quarter. With regard to ASPs, I can share a couple of comments here. I think first of all, we definitely see the value of enterprise mobility increasing inside our customers, requirements are expanding, they’re using more parts of the platform. And at the same time, the competitive landscape is narrowing. We get a lot of questions about this in the past and we have shared data regarding our upward trend in pricing and actually recently our competition I guess shared that they are also seeing sort of a similar trend. Going forward we are no longer going to be sharing pricing metrics on quarterly calls, but we will share for this call that for the most recent quarter that overall pricing continue to be strong. Now the second question you had which is around competition in Office 365 announcement from Microsoft. Let me just sort of paint what we’re seeing for the competitive landscape. I think we’ve talked about this in the last call, but the trend certainly continued. As the requirements of customers expanded from MDM to mobile application management, mobile content management, data security in motion that the customer requirements expanded. At the same time, the competitive landscape is significantly narrowed. If you’d asked me six months ago, I’d say the competitive landscape had really narrowed to four. At this point, it’s really narrowed down to two. We don’t see good very often, we see citric is fading. The only one we really see competitively is us and is Austin VMWare/AirWatch. And again, they tend to be sort of more focused on sort of the SMB side of business. With regard to the Microsoft announcement that is actually a very interesting one. And so I think I have a couple of comments to share there. One is that, our relationship with Microsoft is complicated. Part of our job is to work closely with Apple, Android and Windows to help them to be successful in the enterprise. However, at the same time there are parts of Microsoft’s legacy infrastructure teams that are trying to catch up and gain a foot hold in mobile. So, Microsoft made an announcement that they’re going to make Intune free, which frankly we expected given how infrequently we see it in competitive landscape, how infrequently we see it get inside customers. And I think maybe the best way to talk about that is in order to be successful in enterprise mobility a successful player need to be able to collaborate with all the different operating systems, Apple, Google and Microsoft. Microsoft is not neutral, MobileIron is. The second thing is that a successful player must be able to meet all the major functionality requirements and keep up with speed in mobile. Microsoft Intune was not listed in the Gartner Magic Quadrant, didn’t make the cut. Importantly, the most rudimentary MDM capabilities, we’re seeing some very fundamental product elements such as Jailbreak detection. Whereas MobileIron provides mobile device management, mobile application management, mobile content management, secure access controls, Tunnel and much richer set of functionality and a successful player needs to have that right platform that’s built for the large enterprise. And Intune was really built for cloud-based laptop management and it’s being retrofit for mobility. So we frankly don’t see it in production rollouts and in any of the demanding vertical markets. I think in summary I’m not sure Microsoft actually had a choice, here I think they had to make this move to try and get customer attention with Intune and I’ve made this comment again that bundling is what players do when they have a solution that can’t win on its own. Maybe it’ll be successful in the small business, but that’s not really our focused market, so that’ll probably be a problem for somebody else. But for other parts of Microsoft, the Windows team the application team we look forward to working with them and play our part in their success.

[Operator:]

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

[Heather Bellini:]

I had a couple of questions. The first one would be, I was wondering if you could share with us how customer appetites are changing towards subscription contracts at the high-end of the market. The second one would be, you mentioned that 70% of business is coming from customers with over 1,000 employees. Can you walk us through what that was last quarter or maybe to start the year? And then, the last question would be your tax rate you said was 77%. I'm wondering what it was last quarter? And also, what's the type of ASP uplift that you see from if you were to look at on a cohort basis for those customers? Thank you

[Bob Tinker:]

Okay, so let’s see. Heather, thank you this is Bob. Todd and I will join in answering your question so. First one is customer appetites for long term subscription, we are seeing general increasing trend towards cloud subscription and in general we’re seeing an appetite for longer term subscription contract, Todd will give any specific data you want to share here.

[Todd Ford:]

Yes, on subscription contract over the past year we have seen longer contracts. Historically our contracts are almost all one year that in the last four quarters we’ve seen that tick up to about 30% so that is likely longer pricing term. The one thing I will call out there is the longer pricing terms don’t equate to higher renewal rates. So whether you have a one year subscription deal or even an MRC deal, which is the monthly recurring contract strong renewal rates across the board.

[Bob Tinker:]

And I will also add in that part of that I think have the fact that we’re starting to see more large customers start to sign up the cloud and we have one very large global energy company for cloud, we had one of the four top 10 largest companies in the world go cloud and I think as those larger companies ship the cloud you’ll naturally see some longer term contracts.

[Todd Ford:]

And in respect to the attach rate, that you’ve seen automatically increasing over time, if you look at Q2, our attach rate was about 55% and one of the other questions we get is with our cumulative attach rate is couple of years ago all we offered with MDM and there has been a significant opportunity to go back to our initial customers and up sell them on our applications content security and it’s been that actually on a total feed basis the attach rate advance solution is about 46% now up from 39% in previous quarter.

[Bob Tinker:]

And then Heather your other question regarding,

[Heather Delaney:]

Yes, the customers coming from over 1,000 customers coming with over 1,000 employees.

[Bob Tinker:]

Yes, so if you look the -- we shared is that with our focus on making large enterprise customers being our strategy that 75% of our business comes from customers with over 1,000 employees, that percentage statistics is not changed significantly in the last quarter and we don’t have any important guidance that we think better do in the future but there is not going to material change in that.

[Heather Delaney:]

Thank you.

[Bob Tinker:]

And then lastly I think your question was on ASPs and I think to answer that one will be sort of the same answer I gave earlier in terms of we’ve shared some information in the past and our pricing trend continue to be strong but we’re not -- .

[Heather Delaney:]

No, it wasn't about ASPs; it was about uplift you see with the attach rate, when people had multiple -- .

[Bob Tinker:]

Okay, got it. So probably the best way to answer that one is to look at our list pricing and - have a relative based pricing between our gold, platinum and silver bundles. I’m sorry our silver, gold and platinum bundle and on top of my head is sort of 1X I think 1.5X and about 1.9X if I remember correctly, we can get to you specific date on that so you can map that out, publically available information that if you Google on Friday [ph].

[Operator:]

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

[Unidentified Analyst:]

Hi, guys this is [Stefan]; I'm sitting in for Raimo. Thanks for taking the question. Just a quick question for me, can you provide a little more detail about the new content management solution? Was that in response to anything specifically, a specific request from customers or what was the thinking behind the added functionality that you had there?

[Bob Tinker:]

Sure, thank you [Stefan]. What we announced was two things. One is, updated version of Docs@Work which is our mobile content management solution and the second thing we announced was our Board strategy on providing security for content no matter where it goes. And the reason why we did that is that as mobility becomes the primary productivity tool for users, they need their choice of device, they need email, they need their applications in their content to be able to get their job done and what’s happening is enterprise content is going everywhere both in the enterprise cloud on the enterprise premise servers and in the personal cloud. And we delivered two things one is with our updated version of Docs@Work, it’s a secure model for connecting in the multiple content stores and providing global search, which is a terrific feature and then we also are working on some other things that we have patents for to be able to extend security for content for our customer wherever it goes and be able to share that technology with our ecosystem and we’re excited about that look forward to you keeping you updated on it.

[Unidentified Analyst:]

I just was going to ask one follow-up. In the competitive day talk, are you guys seeing the conversations move towards more the complete mobility suite, implying that most of the conversations are shifting towards your gold and platinum bundle? Or can you talk a little bit about the customer buying behavior and now that's evolved within the last couple quarters?

[Bob Tinker:]

Because of our focus on middle and large enterprise customer we definitely see a shift in customer behavior where they are looking for being able to secured management device e-mail apps and content. So yes we are definitely seeing a shift in buyer behavior we’re looking at to buying the full platform. And I think that’s natural as the ability of going from the e-mail in people pockets through a full productivity platform and if you look at where that’s happening in the nodes fits in the medium and large enterprise customer sales. Yes we do see a significant shift in customer behavior and we think that’s actually one of the major reason provide a competitive landscape is narrow and also one of the major reasons why are win rate went up and our tax rates goes up.

[Operator:]

The next question is from Michael Turits with Raymond James. Please go ahead.

[Michael Turits:]

Hi, guys, good afternoon. A couple questions. First of all, could you just drill down a little bit again into what was going on in terms of the moods perpetual. I thought you originally said that you thought you’d see perpetual pick up in fourth quarter -- with budget bust, it would pick up earlier. And also, MRC seems to be platinum may have been down slightly quarter over quarter and I have a couple others.

[Todd Ford:]

Okay so with respect to MRC it is been up 14 straight quarters. It went from 3.1 million in Q2 to 2.4 so MRC is actually the gift keeps on giving. I say, we’ve had strong growth there and strong bookings had there as well. With respect to Q4 you are correct historically Q4 has been a much higher percentage of perpetual deal and subscription especially in Q4 2013. What we’re starting to see now is that the adoption of our cloud product and if it is starting to gain more traction. But more customers are shifting that way and that’s why we guided to the mix between approximately the same perhaps slightly up in Q4. But you are correct historical perpetual has been larger in Q4 but we’re starting really see significant traction in our cloud operating as well which is we stop getting that in our pipelines for Q4.

[Michael Turits:]

And then also, I thought it was interesting to see this quarter -- I know there’s that shift, but whereas last quarter there was the big pick-up in the long-term, this time, short-term seems to actually have grown faster than long-term, which seems to be positive. It looks like a higher-quality going from our short-term billings grocer that actually comes out higher than your-- by a couple points -- than your normal billings number. Okay, and then last question from me was just that - I’m sorry, go ahead, Todd.

[Todd Ford:]

It’s okay go ahead.

[Michael Turits:]

Just whether or not -- I know you said your pricing was good. Are you seeing any increased price aggressiveness in the market, whether it's from AirWatch or from anyone else?

[Todd Ford:]

So on pricing aggressiveness generally we are seeing less aggressiveness from the one competitor we see the most the exception to that comment I’ll make would be sort of the legacy players like Microsoft and Blackberry try and give this stuff away for free because that’s their only choice.

[Michael Turits:]

And Todd does that make sense to you on short and long term on differed.

[Todd Ford:]

Yes one comment I would make there is there was a re class in Q2 between short term and long term differed is about $1.2 million.

[Michael Turits:]

Okay we’ll take it offline thanks.

[Operator:]

The next question is from James Lisette with Morgan Stanley. Please go ahead.

[Nina Marshall:]

Hi, this is Nina Marshall filling in for James for right now. Couple of quick questions. One, you mentioned still getting a lot of Blackberry replacement deals. Just if you could give a sense of what percentage that is? Second, were there any currency headwinds during the quarter? Noticed that your percentage mix shifted a little more towards North America this quarter, and just whether that played any role. And then third, are you still seeing new customers by perpetual, or is it predominately existing customers and that’s what’s leading to the mix? Or was it an uptick this quarter, or is it new and existing customers?

[Bob Tinker:]

So first question regarding Blackberry replacement deals yes we do see a lot of Blackberry replacement deals particularly the regulated industries finance and services government healthcare where we are adding a lot of customer. Not sure we sort of track at that precisely just because of lot them it had Blackberry before so it is not present at being that meaningful statistic for us. In terms of new customer buying patterns I’ll take that one and then the second question could you repeat the second question again?

[Nina Marshall:]

Just your percentage of revenue coming from North America upticked a little bit this quarter, or just a down tick in the percentage coming from international markets. And just wondering if that's from currency headwinds or you noted strong Germany results, but..

[Bob Tinker:]

Okay. So I will take the new customer one and hand off to Todd on the second question. So in terms of buying patterns among new customers, we are seeing gradual shift towards subscription, but new customers are still buying a mix of perpetual and subscription and that’s because we are winning lots of large customers and lots of mid-sized customers and some picked perpetual they want to go on from and some pick clod. So we are definitely seeing a gradual shift, but not wholesale, so as a result we do see new customers buying both perpetual and subscription.

[Todd Ford:]

With respect to the percentage of outpacing between domestic and international, I wouldn’t say that what you selected to currency headwinds and more reflect that as from seasonality in Europe due to the August vacation season and honestly they have extremely warm weather there so people take extended vacations, when I look at Q4 with respect to our forecast, and the international extremely strong.

[Operator:]

The next question is from Karl Keirstead with Deutsche Bank. Please go ahead.

[Karl Keirstead:]

Thanks. One for Bob, one for Todd. Bob, we're certainly everybody online hearing a lot about security and security budgets ramping. I'm just curious how this trickles down to MobileIron, and if the need for better security on devices is becoming a bigger and bigger reason behind your clients embracing you, in addition to app and other content management. And then for Todd, on a non-GAAP basis, the sales and marketing line, I think, was about 70%. That's the lowest we've seen in a long time. Is this leverage kicking in, or is this a result of new sales rep hiring being a little bit light? And if that's what it is, perhaps you could explain why the hiring was light. Thank you.

[Bob Tinker:]

Okay, thanks Karl, this is Bob. So regarding trends we are seeing around the importance of enterprise security and how that factors into our business, yes we are definitely seeing a significant increasing interest inside customers around security and I think that’s reflected across the Board and the security industry. In a meeting with the large financial services customer, he commented that his security budget is going up 4x year-over-year while rest of his budget is either flat to down in IT. And that provides sort of a great foundation MobileIron business. The second thing is actually just frankly in terms of just from a practical perspective is mobility becomes the primarily computing platform and enterprise data is moving up to mobile devices. Security become more and more paramount of the device, of email and apps, of conference and it’s not just driving MobileIron initial sales but it’s driving purchase of our whole platform because enterprise customers need to make sure their enterprise data is secured wherever it is. So that is a great secular tailwind for us.

[Todd Ford:]

On the sales and marketing expense question, you are correct we area 70% non-GAAP. And we have mentioned before we are after a huge market, no incumbency, and the market is rapidly evolving. And we made major investments in sales and marketing a year-ago and now those investments are starting to payoff. So the leverage that you are seeing in the model and the reduction of the sales and marketing x percentage of non-GAAP revenue, is primarily related to leverage, and there maybe a few people on the headcount but it’s almost all related to leverage in our model as we are starting to see from those investment paying off.

[Operator:]

The next question is from Sandhu Fadwani with Stifel. Please go ahead.

[Sandhu Fadwani:]

Thanks. Just to follow up on the last question, Todd. You're starting to see some leverage, as you mentioned. How should we be thinking about profitability? Your last push was obviously lower than what we had anticipated. So, just curious to get your thoughts on profitability over the next 18 months of so. And then the second question, I think in the past you've shared penetration within existing customers. And I was curious if you could provide an update to that metric. Thanks.

[Todd Ford:]

With respect to showing leverage and scaling the model, as we have indicated before we are committed to showing scale in our business and we are going to continue to show scale over the long-term. We haven’t provided any guidance with respect to timeframe that profitability. And we are going to do that at this time, we may do that in the future but we are not providing guidance on that at this time. With respect to your attach rate our current customers. As we mentioned earlier the attach rate for customers that had originally bought MDM and our cumulative seat base today is approximately 44% within customer base.

[Bob Tinker:]

I think there is sort of another part of that question which is the penetration within our customers. Actually our penetration within our customers has actually gone down because we have actually won a number of very large customers recently.

[Operator:]

The next question is from Michael Kim with Imperial Capital. Please go ahead.

[Michael Kim:]

Hi, good afternoon, guys. Maybe as a follow-on to that previous question, on a cohort basis, I think you guys called out the 2010 cohort extending something around 7.5 times. Was that mostly driven by an increase in the adoption of additional platforms -- excuse me, additional products? Or is it growth in the user adoption, and how did that balance out?

[Bob Tinker:]

So really make sure I understood the question so the question is if you look at 2010-2011 cohort we provided growth stack in terms of what the overall growth ratios were, your question is if you sort of compact that what portion [Multiple Speakers] sort of expanded these footprint versus sales on existing?

[Michael Kim:]

Exactly. What was the relative contribution in that growth?

[Bob Tinker:]

We don’t break that out and report that. It’s a healthy mix I guess that’s what.

[Michael Kim:]

Okay. And then just on the 2011 cohort, I think you commented that it was attracting someone to the 2010 cohort. Was the contribution margin change similar to what you saw over the 2010 cohort?

[Bob Tinker:]

At this time, we’re not providing contribution margin update with respect to the 2010 or 2011 cohort.

[Michael Kim:]

Okay, fair enough. And then just one on the channel strategy are the prior buyers primarily on the international side, or expansion into federal, or continued focus on just enabling your existing resellers versus adding new resellers?

[Bob Tinker:]

Our sales strategy is a mix, we’re always be continuing to add additional resells around the world we mentioned a couple on the call we’ve obviously had a once we got it around the world as well. We already have a very large network of global channel partners with many thousands and thousands of trained sales reps around the world. Our major focus is making the channels we have more productive and help them win more deals and grow the business and that’s working out very well for us particularly in Europe.

[Operator:]

We have no further questions at this time. I will now hand the call back to Sam Wilson for closing remarks.

[Sam Wilson:]

Thank you. So we’re five minutes past our closing time. So for the ones that were still in queue please do call Investor Relations and we’ll take your calls over time. For everybody else, a replay of this call will be available starting at 7 PM Easter Standard Time for 60 days. If you needed the replay numbers 1877-870-5167 or internationally 1858-384-5517 and the pin number is 110073. Thank you very much.

[Operator:]

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