MobileIron, Inc.
Q1 2015 Earnings Call Transcript

Published: 2 May 2015

[Operator:]

Welcome to the MobileIron First Quarter 2015 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’d like to turn the conference over to Sam Wilson, Head of Investor Relations for MobileIron. Please go ahead, sir.

[Sam Wilson:]

Thank you, Joe. Good afternoon and welcome to MobileIron’s first quarter 2015 financial results conference call. Joining us from the company are Bob Tinker, CEO; Ojas Rege, VP of Strategy; Vittorio Viarengo, VP of Products; Shawn Ayers, VP of Finance; and Laurel Finch, our General. The format of the call will be a business review by Bob, then I will provide some details on the financials and other information. We will have time for questions. If you have not received a 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 that today’s conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, billings, gross margins, 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 the call is replayed or reviewed after today, the information presented in the call may not contain current or accurate information. Further, certain forward-looking statements are subject to the risks and uncertainties and are based on assumption as the future events which 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. 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 on our Form 10-K filed on February 27, 2015. 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 will be mentioned on this call. Information relating to corresponding GAAP measures as well as a reconciliation of the non-GAAP measures and GAAP measures can be found in our press release on the Investor Relations website at investors.mobileiron.com or on 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. Not since the dawn of the internet age that we witnessed such a dramatic upheaval in the enterprise technology landscape. Companies around the world face tough questions. How do we empower and enable a mobile workforce? How does mobility change our business processes? What’s the right mobile strategy for a company? And how do we deal of this securely? Mobility has transformed our personal lives and now employees in business units of companies around the world are demanding that same flexibility, access applications, and a great user experience at work. IT needs to make this happen. And at the same time, ensure their enterprise data is secure. Mobile is now a way of life in the workplace. This is the backdrop of the opportunity for MobileIron. MobileIron was purpose-built to enable productivity and secure enterprise data in this new mobile first world. None of that has changed, even though, MobileIron underperformed versus expectations in the first quarter of this year. For the first quarter ended March 31, gross billings were $36.4 million, up 20% year over year. Non-GAAP revenue for the quarter was $32.7 million, up 23% year over year. Recurring billings, as a percentage of gross billings, climbed from 52% to 65% year over year. Gross billings and revenue came in below our guidance. On this call, we’re going to share what happened, what we’re doing about it, and how we think about expectations for the future. I’m personally disappointed in how the company performed during the quarter and as CEO, I take full responsibility. Let’s talk about the first quarter and what happened. As I said before, billings came in at $36.4 million, lower than our guidance of $40 million to $42 million. There are two factors that contributed to the performance relative to guidance. First, some expanded deals from existing customers. They were anticipated closing in Q1, did not close as expected. Second, we also saw a larger than expected mix shift of the [indiscernible] sold in the quarter into our month-to-month subscription model or MRC. More on this in a moment. We expected a mix shift and that’s why we guided the $40 million to $42 million in gross billings and not a higher number. But the mix shift turned out to be greater than expected, because new customers that came in in Q1 skewed towards the cloud and specifically our monthly subscription model. And then there was also a mathematical mix effect of the perpetual expand orders we mentioned earlier not closing in the quarter. First, let me proactively several questions that we are sure you have. First, ASPs for the quarter was flat quarter over quarter. Two, our head to head win rate in competitive evals remained above 66%. And three, our renewal rates were in line with historical trends of over 90%. So let me provide some context this quarter compared to last quarter. Q1 saw a small 3% sequential decline in fee. At the same time, gross billings were down approximately 14% from the fourth quarter of 2014. Pricing was consistent, as I mentioned earlier, so the comparable reduction was caused by mix, which we’ll discuss in a second. In other words, if our mix among our perpetual subscription and MRC billings in Q1 had been the same it was in Q4, we’ve had billings of approximately $42 million for the first quarter. I’d like to now talk about the deals that didn’t close in Q1. Several deals that were on target to close in the first quarter were pushed out of Q1. The majority of these deals we expand orders from existing customers. They are large enterprises, specifically older perpetual license. To be clear, these are all still MobileIron customers. They are still running MobileIron, it’s just that they did not place expand orders as expected. During April, we closed some of those deals and, of course, there are a few deals that were lost, which happens every quarter and while frustrating, we didn’t see anything unusual here. Our head to head win rate, as I mentioned earlier, evaluations remained about 66%. We also saw an increase in new customer business moving towards cloud subscription. With the cloud purchases, there was a large skew towards our month to month subscription model or MRC which is purchased through our operator channel. With MRC subscriptions, we recognized that billings and revenue one month in arrears. This monthly recognition model coupled with our traditionally back end loaded quarters means that MRC deals closed generate little to no billings and revenue for the quarter in which the deal is booked. For example, all the MRC deals, one during the month of March, produced zero billings and revenue for the quarter. To give you a sense for this, if you look at our upcoming second quarter, we expect MRC billings and revenue to be approximately $5 million. This is up from $4.3 million in the first quarter and $3.7 million in the fourth quarter of last year. We’ve described the billings and revenue treatment of our different billing models in previous conference calls and with regard to the upfront billings and revenue, perpetual billings generates the most upfront billings and revenue, annual subscriptions are in the middle. And MRC generate no upfront billings and revenue at the time of booking. However, because MRC is a recurring monthly subscription, the long-term value is higher than a perpetual license, assuming we maintain a high renewal rate, which to date we have. So even though seats were basically flat from Q4 to Q1, because net deals shifted billing methods and hence accounting bucket, this led to notably reduced billings in the short run, but the good news is that I expect billings and revenue from MRC to show up in future quarters. Let me pause for a moment. I am not happy that we missed expectations. We understand the seriousness of this event and we’ve identified a number of things that we can do better and I am committed to put those into place. And one last change to note, separately from our first quarter performance, Todd Ford, our CFO, resigned to join a new company and will be leaving after we file this quarter’s 10-Q in several days. We wish Todd the best of luck in his new venture and we have started the search for a new CFO. Now, onto the good news for the quarter and for the business. MobileIron is focused on delivering security and productivity for the most demanding large and medium enterprises. A large percentage of our billings come from customers with our 1000 employees and in the first quarter that number was over 70%. We believe this segment highly values mobile security and also has the highest long-term expand upside for us. In the segment, many of the largest financial services, government, healthcare, manufacturing, professional services and transportation companies depend on MobileIron. Our security has been vetted and tested in some of the toughest most stringent IT environments in the world and [indiscernible] with flying colors. We are pleased to share that in a recent 2014 International Legal Technology Association survey, they reported more law firms chose MobileIron over other vendors in the MDM space. Not surprisingly, the legal market has stringent security and also demanding users. Lawyers depend on being able to quickly and securely access and review and modify and share documents. Our MobileIron security platform combined with our Docs@work product or our ecosystem of content management solutions enables these law firms to set sophisticated security policies, while at the same time enabling a great user experience. Law firms are just one example of enterprise customers that are evaluating a new service and product that we launched, our Content Security Service that we introduced in Q1. CSS provides advanced encryption and key management at a document level, which enables law firms to do something they’ve never been able to do before, which is securely store and log documents in personal cloud services. Another news on the product front, we recently announced our partnership with Google in integrating with their new Android for Work platform. Our development work with Google started in the second quarter of last year and we officially unveiled [indiscernible] product support on February 25. So far, the customer reaction to Android for Work has been very positive and suggest us that this is a milestone to further accelerate Android adoption in the enterprise. Another piece of news is regarding mobile application development. Customers continue to build and deploy mobile app at a rapid pace. We have one European customer that is securely deployed over 3000 mobile applications from MobileIron. To speed development, we see our customers often using a mobile application development platform. In this past quarter, we announced that our AppConnect, app security and management technology, now offer support to three of the leading development platforms

[Sam Wilson:]

Turning to the detailed numbers for the quarter, non-GAAP revenues are broken out as follows

[Bob Tinker:]

Thank you, Sam. Now, I’d like to share some comments and updated guidance for fiscal year 2015 and also for Q2 of this year. Given the performance relative to our expectations for Q1, we’re providing the following Q2 guidance and lowering our overall 2015 guidance. We believe we will continue to see a shift from perpetual licenses to recurring subscription licenses and our MRC billing model and the timing of large transactions may cause the mix to shift in any particular quarter. So for the second quarter, we are expecting billings to be in the range of $37 million to $39 million. We are basing this on a mix of billing type being close to the first quarter of this year. We’re projecting non-GAAP revenue of $33 million to $34 million for Q2. This excludes approximately $616,000 in VSOE recognition. We expect non-GAAP gross margins to be approximately 81% to 83% and we expect non-GAAP operating expenses will be in a range of $49.5 million to $51 million. The increase in expense quarter to quarter is mainly driven by hiring done in the first quarter and the expense of our Annual Mobile First Global User Conference, as well as increased litigation fees as we approach trial. Turning to the full year of 2015, we are providing the following guidance. We expect that billings for 2015 will be in the range of approximately $165 million to $180 million. The $165 million in 2015 assumes the seat mix for the year is similar to that seen in the first quarter, where new customers are preferring subscription and MRC. The $180 million in 2015 billings assumes that the seat mix for the year trends back towards the mix seen in 2014 and the expand rate increases from the first quarter. We expect non-GAAP revenue for the year to be in the range of approximately $140 million to $150 million. And as a reminder, this non-GAAP revenue excludes $1.8 million of revenue related to VSOE. For 2015, we expect non-GAAP gross margin to be approximately 81% to 83%. And we are not providing operating margins guidance for 2015. We expect to provide a further update in our analyst events which we plan on holding on June 10, during our Annual Mobile First User Conference in San Francisco. More details will be provided on that shortly. Running a profitable and cash flow positive company means an important milestone for us as a company. At this time, our goal remains to achieve cash flow – turning cash flow positive in the fourth quarter of 2016. With the reduced guidance and maintaining our cash flow break even target of Q4 of next year, we are taking a hard look at every investments we make and reviewing spending plan. We are focused on aligning our expense plans with our billings and revenue. 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. These forecasts are being made as of today. In closing, we had a bump in Q1 and I’m not happy about it. We’re taking swift actions to rectify the situation so that we can capitalize on the opportunities that’s in front of us which is still intact and large. There are exciting things ahead like the news we share about working with Apple and we look forward to sharing more details in the future. We have winning products that have allowed us to build a great company with great customers. We will continue to innovate in mobile security and productivity. We will enable our customers to embrace mobility at scale and make mobility a competitive differentiator for their business. Thank you.

[Sam Wilson:]

Operator, please open it for Q&A.

[Operator:]

[Operator Instructions] First question today comes from Heather Bellini with Goldman Sachs.

[Heather Bellini:]

If I take a look at what you’re talking about in terms of some deals pushing out and the operator business maybe being a little bit better and I can trust that way the guidance and there is significantly reduced billings growth rate in calendar 2015, how do we think about the competitive dynamics, when you’re saying your win rate is the same for those perpetual, we were at the Microsoft analyst day yesterday, they say they’re gaining a share here, BMR is saying they are gaining a ton of share here, I mean, so I guess that’s the part that we’re all struggling with and so I’d love some more color because it’s – that everyone can be gaining share in this market? And then secondly, just given where the growth rate is and given the competitive environment probably gets tougher from here, what’s the board thinking regarding strategic decisions for helping to improve shareholder value?

[Bob Tinker:]

Let’s talk first about what happened with the deals in the quarter. So as I mentioned earlier, we thought some deals slipped out and not closed. And the bulk of those were perpetual deals from large existing customers, like I mentioned earlier, we didn’t lose them, they are just expand orders that moved out. So if you look at how we thought about providing our guidance for the year, given our performance relative to expectations this quarter, we clearly need to reset expectations. And essentially, if you look at how we thought about guidance for the year, we’re being much more conservative on two fronts. One is we are being more conservative in terms of thinking about how our expand rate unfolds throughout the year. And the second one is that we’re being more aggressive about the shift from perpetual to our subscription and MRC billing models. So you can imagine sort of the underlying growth in the business is actually higher than it’s necessarily reflected in our billings number. That’s part of the answer to your question. The second one in terms of share, I think the reality is in Q1, given our performance, I think it’s fair to say that we lost share in Q1. Our goal is to clearly continue to improve our execution and get back on path to regain share. Now, if you look within our customer focus of the mid and large enterprise, those customers tend to do head to head evals and in those head to head evals, we still win north of two thirds of the time. So I do think we did not necessarily gained share in the first quarter of this year, our core win rate remained the same. Let me get to your second question. In terms of the evolution of the competitive landscape and how the board is thinking about that. So the competitive landscape has actually narrowed significantly over the last three years. We went from an environment where we may have had 10 to 12 competitors, that’s in there before, and really it’s down to two, maybe three. The only other vendor as we see in deals is really AirWatch and occasionally we’ll see Microsoft. We actually like our odds in that scenario, because being purpose-built, focused on mid and large enterprise customers in a market that’s moving fast, we believe it’s the right recipe to win.

[Heather Bellini:]

I guess, the question was more focused on what does the board do from here to improve shareholder value creation, given the two competitors you just mentioned, just have obviously many more deep pockets that you all have, and look the other side, if I look at my inbox, people e-mailing me saying if it’s billings and you’re moving more to deferred revenue and it’s not the operator stuff, then the billings number should actually be better than the type of growth rate we’re looking for. So I think there’s a lot of people asking me, so that’s why it’d be great to address it. How does the board – what’s the board’s decision tree look like if the environment stays the way it is, how do we think about how the company is going to improve shareholder value from here in terms of strategic opportunities?

[Bob Tinker:]

Heather, the way I would answer that is that our policy is to actually not comment on any type of M&A activities, if that is actually the question behind that. So I think we need to move on from that question.

[Operator:]

The next question is from Rick Sherlund with Nomura.

[Rick Sherlund:]

Can you refresh our memory on this issue of litigation, the trial? And also on departure of the CFO, can you just comment, any assurance that you could give us, I’m sure we’d all be interested in terms of was there anything in the accounting that was uncovered or was this coincidental, what’s behind the departure of the CFO?

[Bob Tinker:]

Sure. Let me take the Todd question first. Todd is leaving MobileIron to join another company. There was no disagreement about financial statements or any other regularities, and we wish him well. With regard to the litigation question, we continue to litigate aggressively. We are heading into the homestretch on the main California case, with the trial set for July of this year. And we’re looking forward to resolution of the issue at that time.

[Operator:]

Next question is from Raimo Lenschow with Barclays.

[Raimo Lenschow:]

Can you talk a little bit about the strength on the MRC side? I remember when you did the IPO, it was like a small item, it’s not going to move that much, the stuff that really creates billing that’s going to be in the future, now this looks like has changed and you changed your outlook for the year for that. What’s behind that, I mean, it looks like obviously the MRC was more driven by the telco guys, why all of a sudden you have the strength there and on the flip side then, what’s going on on the other side of the business?

[Bob Tinker:]

The first part of the answer to that question is that in general, one of the trends that we’ve seen inside our customers is a shift to buying our cloud service. That’s the megatrend underneath this. Now, within that trend towards buying cloud services, our customers either buy our annual subscription or two or three year subscription plan. If that cloud service is bought through the operators, it typically ends up on the bill which turns into MRC or a month to month billing. So as the shift to cloud continues and we see an increased portion of our customers buying cloud, we saw a faster than anticipated increase in the portion of our business that went through the operators and subsequent showed up as MRC in our financials. It is a little bit more complicated to model, that’s frankly why we provide every quarter what that billings number is. And there is some complexity in terms of how that is recognized in future quarters. Now, if you look at the long term value of it, given that the renewal rates are very similar to all our other billing models, that the long term value is similar to our other subscription models, which shows up differently in the financials.

[Raimo Lenschow:]

In terms of the distribution channel that seems to suggest something else is going on than probably you would have talked about like six, nine months ago, looks now that telco is selling a lot more than what you would have anticipated [indiscernible]?

[Bob Tinker:]

I think it’s too early to make that call. What I would say is that we’ve spent the last 3.5 years building up our operator channel. We have dozens and dozens of operators around the world that sell MobileIron. And for an enterprise software company, it takes a little while to get a mobile operator going. Once they actually start to go, you start to see those team engage, deals start to happen, sales will happen and frankly what we believe is happening is that we are seeing the investments we’ve been making in the operator channel beginning to payoff. And we’re seeing that show up in terms of some of the purchasing patterns.

[Operator:]

Next question is from Karl Keirstead with Deutsche Bank.

[Karl Keirstead:]

I’ve got a couple. Let’s start with the 2Q guidance. I guess, my one question is, it looks like your billings and revenue guidance implies a further growth deceleration down to, call it, 10% range or low teens and Bob I just want to ask you if some of these slip deals in fact did close in April and if you’re anticipating that the MRC expand to $5 million in 2Q, why would, if those positive events start occurring, we would see billings and revenue growth decelerate even further?

[Bob Tinker:]

We’ve provided the guidance of $37 million to $39 million for billings in Q2. We believe that’s the prudent thing to do right now. And it anticipates a more conservative approach to expand orders and it also represents a more conservative approach to you thinking about our subscription and MRC point of the business. Now, the good news is that we have closed some of the deals that did not close last quarter and we look forward to closing some of the other ones as time moves forward as well.

[Karl Keirstead:]

If I could follow-up then, Bob, with a second one. I think Raimo asked the question really around the telecom and MRC channel, I’d like to ask about the slipped seat expansion deals that you flagged. From your own interaction with customers and talking to your [indiscernible] what would you pin that on, what were the one or two factors that you heard most consistently that would explain these slipped deals? Do you feel like it was some change in the end market or was it MobileIron sales execution, what do you think?

[Bob Tinker:]

First of all, I would say that we don’t believe it’s a market issue. I believe we had an execution issue in Q1 and it’s up to us to take care of that and improve our execution going forward. There was no one particular reason across those deals, every quarter we get lots and lots of expand orders from existing customers, so the ones that did not close this quarter, there is not one particular pattern to it. So I don’t think we would want to call out any specific pattern.

[Karl Keirstead:]

If I could slip in one more because things are going pretty fast, Bob, you mentioned you had discovered or identified a number of things that in your judgment MobileIron could do a better job at and I presume you’re referring to some of these execution issues. What are a couple of the things that you’ve discovered that you could do a better job at and that you will be focused on in the next several months?

[Bob Tinker:]

We’re making a number of operational changes and we will be able to discuss those in more detail when we have our Analyst Day, our Mobile User Conference in June. If you look across the board, the big things we’re focused on are recovering from our stumble in Q1, making sure our customers are successful and expand, continue delivering innovation and continuing to execute on our path towards profitability. And if you look at what we have decided to do today is that we’re being more conservative in terms of our guidance to accommodate more conservative expand rates, more aggressive mix shift and make sure we align our investments going forward with the top line.

[Operator:]

The next question comes from Michael Turits with Raymond James.

[Michael Turits:]

In terms of slipped deals, were they all lack of expands or were there any competitive deals?

[Bob Tinker:]

So if you look at the deals that did not close, the large majority of them were just expand orders from existing customers that did not close. And by the way, those customers aren’t lost customers, we didn’t close the expand orders this quarter. As in every quarter, there are always a couple of deals that we don’t win and that’s normal. Now, while frustrating, it’s normal and we did see any unusual changes in that and that’s reflected in our head to head win rate remaining strong about 66%.

[Michael Turits:]

Is there any sense, Bob, that [indiscernible] any feeling for why you didn’t get the expands and is there any risk that – these are companies – these are customers that are thinking of doing something different competitively or were you overly optimistic about how much internal penetration opportunity there was?

[Bob Tinker:]

Like I said earlier, we did not see any one particular pattern to the expand orders not closing. I think probably the most important thing to zero on there is that we have not seen any type of change in our renewal rate which is sort of the ultimate built by customers. And we still have many, many customers recorded at expands.

[Michael Turits:]

Obviously we’re just trying to get a handle on why, even Citrix reported a good number in growth, VMware and AirWatch reported a very good number and it’s a little hard to make the pieces add up here in terms of why you guys didn’t?

[Bob Tinker:]

Understand, for this point of our Q1 results, our job is to get it back on track.

[Michael Turits:]

I just want to drill down on two metrics. One, you said ASPs were flat quarter over quarter, last earnings report you said that they have been up single digit, I can’t remember what it was for the year, on a year on year basis, [indiscernible] for the quarter, so is there any sense that ASPs are slowing in terms of growth? And also, I think you said that seats actually declined quarter over quarter. Is that total seat and has that ever happened before?

[Bob Tinker:]

Let me answer your question first about pricing dynamics. So if you look at our pricing in Q4 to Q1, we saw consistent pricing. So there is not particular trend to call there. If you look at our tax rate of our advanced services on seats sold, it was up a little bit over last quarter. So no major change there. So we feel very comfortable with how that’s going. If you look at, I did mention, just to sort of paint a picture for how seats from Q4 to Q1 were down a little bit, that’s not unusual in a seasonal business, but we wanted to make sure that you understood that even with that very, very small decrease in seat, the billings was down much more substantially, yet pricing is holding which illustrates the impact of the shift into the MRC bucket that we have.

[Sam Wilson:]

Just to be clear, Michael, it’s the number of new seats added in the quarter was down quarter on quarter, it’s not the cumulative total number of seats the company has. That number obviously grew quarter on quarter, just the number of new seats that we added in Q1 declined versus Q4.

[Michael Turits:]

Maybe that was obvious to you, but I just wanted to make sure we’re clear. And then, sorry, one last one, thank you. Once again, just trying to square up, before we try and square up the change the guidance, you missed by relatively small amount in the quarter you guided low. But the reduction for the year is roughly 25-ish million on both revenue and billings. So it seems like an outsized reduction in terms of the full year. Obviously you want to be conservative at this point, which should be applied, but is this very large?

[Bob Tinker:]

We’re being prudent in terms of thinking about our guidance for the rest of the year. And as I mentioned earlier, there’s two assumptions that go into that. One is that we’re being conservative in terms of the rate of customer expand, because that was one of the things that impacted us in Q1. And the other one is we are being more aggressive in terms of the shift to subscription and MRC from a trend line perspective. So we want to make sure that we build that into the plans, but if we don’t have this conversation again.

[Operator:]

The next question comes from Mark Sew with RBC Capital Markets.

[Ameet Prabhu:]

This is Ameet Prabhu calling on behalf of Mark Sew. Are you starting to see an environment that has potentially multiple vendors where one department might use MobileIron, another goes with a competitor solution, either because as a corporate, maybe geography, the subsidiaries, are you seeing any of that trend especially on the perpetual side?

[Bob Tinker:]

No, we rarely see a customer in our segment of the mid and large enterprise that actually has multiple vendors. Mid and large enterprise customers typically pick one vendor for mobile security and mobile management. And the reason why is that we become the security and policy engine for their mobile data in the enterprise. And any IT and security organization itself is going to have, want to have one place to do that. So we continue to see customers making a large platform decision for that. The only exception to that, I would say, is that occasionally – we do still see sort of legacy BlackBerry customers where they’ve got an old one that’s winding down which they haven’t turned off yet, that’s probably the only exception I’d make for that. Actually, today we did an announcement about NIBC, which is a Dutch bank that actually is in a process of winding off their legacy BlackBerry base and shifting over to iOS and MobileIron.

[Ameet Prabhu:]

And if you think about just MRC, what is pushing customers with the channel or the carrier channel versus subscription, is this the operator channel really doing better than expected and is it the subscription business being below plan or is it just – I’m just trying to understand probably the mix has changed and going towards MRC, MRC is obviously doing better, but what about the term subscription side and is that – really down to make the MRC look larger than it probably would have been at the start of the year?

[Bob Tinker:]

So in general, we’ve seen across the board preference that our customers continually increase to buy cloud services and we see that showing up in our numbers. I think we saw that last quarter was that within that choice to billing cloud that we have seen the operator channel do particularly well and as a result we saw a relative increase in the portion of our seats that went through our MRC billing model. But both actually are up. So the trend is significant for both of those categories.

[Operator:]

Next question is from Sanjiv Wadhwani with Stifel.

[Sanjiv Wadhwani:]

Bob, two questions. On the expand deals that got pushed out, I was wondering if you would be able to offer some granularity in terms of quantifying them. I mean, whether 10 deals, whether 50 deals, any sort of granularity there would be helpful. And then the second question is, post the miss, following up with some due diligence, couple of things have popped up and one of the things that – and maybe this is just comparative thought, but they’ve been talking about container problems with the MobileIron solution and I’m wondering if that has led to some of these deals getting pushed out or some other issues that popped up in Q1, I was wondering if you could address that issue also.

[Bob Tinker:]

In terms of the first part of the question, like I said earlier, there weren’t really any particular pattern to the deals that didn’t happen in Q1. And I think providing granularity on that is not something we’re going to do.

[Sanjiv Wadhwani:]

I was referring more, Bob, to the number, not to the pattern, just any granularity on the number, was it 10, 50, 100 deals, any sort of quantification there would be helpful.

[Bob Tinker:]

Yeah, I understand. I think that’s not something we’re prepared to share. In terms of the diligence question, I think the answer to that is no, we’re not seeing any type of issues with our security and management model, or container. As a matter of fact, we’re seeing lots of customers have adopted and rolled out at scale. So I don’t think that there is any correlation there and I’m not aware of any particular issues there from our customer base.

[Operator:]

Next question is from James Faucette with Morgan Stanley.

[Nina Marshall:]

A couple of quick questions. Customers that you’re gaining through the operator channel, do they tend to be smaller customers or are they SME customers? Second, are you seeing increasing channel conflict around your distributors from potentially also being VMware and Citrix distributors as well or any trends in RSPU, are they looking for a full mobility solution including laptops and more of DDI solution as well?

[Bob Tinker:]

First question, in terms of the customers that comes through the operator channel, the answer is that it’s a mix. We see large deals come through the mobile operator channel, we see smaller deals come through the mobile operator channel. For instance, this last quarter, we saw one particularly large deal come through the operator channel. If you look at who are our main operator partners are, it’s people like AT&T, Vodafone, Verizon, Deutsche Telekom, and they all have fairly major business to business sales teams that call on mid to large enterprise. So it’s a mix. I think in terms of your second question, which was about what dynamics are we seeing in the channels, MobileIron has spent the last four years building a very robust channel go to market, hundreds and hundreds of resellers plus dozens of operators around the world. And it’s actually something that we believe is a competitive advantage for us. Some of those channel partners do carry products from some of our competitors, but one of things we learned is that sales expertise and the ability to deal with customers on the complexity and challenges of mobiles is actually one of the biggest things that a channel partner can do to add value. And these channel partners know MobileIron, they know mobile, just because somebody had mobile with their pricelist doesn’t mean they are actually going to be affected in selling it. With regard to your third question, in terms of RFP trend, as mobile becomes more strategic, we are certainly seeing our mid to large enterprise customers do RFPs and [indiscernible] actually. If we look at mobile security, mobile security is becoming core to how enterprises think about their mobile fleet. And because it’s strategic, they’re increasingly doing RFPs. The way that works is they will look at the top right of the Gartner Magic Quadrant and pick the top two or maybe top three vendors and do a head to head bake-off. Those trends tend to be towards looking at a full mobility solution in terms of securing iPad, iPhones, Android, Windows phone, they want apps, they want content, they want security for the traffic, they want single authentication. So customers are getting much more sophisticated in terms of their requirements and that actually plays as a benefit for us at MobileIron because we’ve built the platform for securing apps and the content. We actually built the bundling VDI as showing up in RFPs and actually in a lot of cases, customers view it as a net negative, because VDI is actually a legacy technology that forces customers to try and keep old apps around rather than trying to move their world to modern computing. So VDI actually is a conflict of interest with moving customers to a more mobile first world.

[Operator:]

The next question is from Michael Kim with Imperial.

[Michael Kim:]

Can you talk a little bit about the visibility in the sales pipeline for new business? Are you looking at qualified opportunities maybe with a little bit of a different lens and any commentary around sales cycle and the velocity of RFPs, especially in the Global 2000?

[Bob Tinker:]

MobileIron continues to add customers at a good clip and again our focus in on the mid and large customers. We reported that we passed the 8500 customer milestone. Mobile is interesting to a lot of customers and a lot of customers are out looking for the best mobile security solution for them. In terms of sales cycles, I think one of the things we’re seeing is more customers shifting to cloud. But even then, they’re still doing an eval, because they want to make sure the technology and the security really works for them. That shows up actually in our financials in terms of our recurring billings jumping to 65% this last quarter. And finally, in terms of other RFP trends, I don’t think I have any other comments in addition to ones I made on the previous question.

[Michael Kim:]

You alluded earlier in some of your prepared remarks, but are there some specific changes you’re making to your sales approach, who you are going to market, where we can come away with a higher level of confidence that you’ll be able to rebuild the sales pipeline on a thorough foundation?

[Bob Tinker:]

Like I said, we’re making some operational changes, we’re going to be making some improvements and we’ll be sharing more details about what we’re doing there as we get together for our Analyst Day in June.

[Operator:]

There are no more questions at this time. I’ll turn the conference back over to Sam.

[Sam Wilson:]

Thanks, Joe. As Bob just mentioned, we’re looking forward to giving you more details about our plans at our analyst event expected to be on June 12 in San Francisco. Replay numbers for this call are 1877-870-5176 and the PIN number is 904300 and that will be through May 30. Thank you very much, Joe, and thank you everyone.

[Operator:]

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