Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on March 12, 2018. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof.
Overview
Mobile and cloud computing are the catalysts for modern work. Mobile lets employees make better decisions and take faster actions because the information and tools they need to do their jobs are always available. Cloud lets developers build innovative services quickly and lets employees start using them easily.
Modern work requires a new security model, however, because both mobile and cloud operate outside the traditional network perimeter. Data no longer resides behind the firewall on locked-down PCs and servers, and so it cannot be secured by firewall-based solutions. Instead, data is spread across an information fabric that spans a wide variety of modern endpoints and cloud services. Modern endpoints are computing devices that run Android, iOS, macOS or Windows 10. While they can be desktops, they are increasingly portable, like smartphones, tablets, laptops, and wearables. Cloud services are SaaS applications such as Box, Concur, Google G Suite, Microsoft Office 365, Salesforce, ServiceNow, Tableau, and Workday, as well as custom applications built on infrastructure such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure.
CIOs face the challenge of giving employees the ability to use the cloud services and endpoints they want without compromising either user experience or data security. To pass a security audit, IT will need to maintain control of company data. This means deleting data if an endpoint is lost, stopping data from being shared with consumer apps, and stopping data from ending up on endpoints that are not secure. But it is not enough to do this for just one cloud service or one type of endpoint. IT will need to do this across the wide range of technologies their users choose.
We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, wearable or IoT device with access to enterprise data, will require a solution like MobileIron’s to secure that data. MobileIron provides a government-grade security platform to protect business data all the way from the cloud to the endpoint. The MobileIron platform combines cloud security, unified endpoint management (UEM), secure connectivity, and threat intelligence into an integrated solution designed to deliver enterprise services to users with a seamless experience that does not compromise data security.
Our platform establishes an adaptive data perimeter outside the firewall to ensure that only trusted users using trusted apps on trusted endpoints can access business information. A trusted user is one who is authorized to access certain business data. Trusted apps and endpoints are those that can then maintain the security of that data. Our cross-stack architecture (multi-cloud, multi-app, multi-OS, multi-identity) allows customers to tap into the innovation of best-of-breed cloud services and modern endpoints while still leveraging their existing infrastructure investments in identity management and network security. Our platform and products protect the customer from being locked into a single-vendor computing stack.
Customers use MobileIron to:
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1.
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Establish a trusted workspace on the endpoint that includes the applications, connectivity, and seamless authentication users need to be productive.
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2.
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Separate business data from personal data both on the endpoint and across the network to prevent the loss of business data and to preserve the privacy of personal data.
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3.
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Block untrusted endpoints and apps from accessing business cloud services so that they cannot move business data outside the company’s control.
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4.
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Detect and remediate zero-day security threats to protect against new vulnerabilities and attacks.
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Our customers can deploy MobileIron as either a cloud service or on-premises software. They can choose subscription or perpetual licensing. We primarily target midsize and large enterprises around the world across a broad range of industries including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology, and telecommunications.
Our total revenue in the three months ended March 31, 2018 was $43.7 million compared to $42.1 million in the three months ended March 31, 2017.
Revenue from licenses, cloud services and software support and services represented 28%, 26% and 46% of total revenue, respectively, in the three months ended March 31, 2018. Revenue from licenses, cloud services and software support and services represented 34%, 21% and 45% of total revenue, respectively, in the three months ended March 31, 2017. This represents a continuing mix shift in our business. Revenue from recurring sources, which includes revenue from the license component of on-premise term subscriptions, cloud services, and software support on perpetual and on-premise term licenses was 77% of total revenue in the three months ended March 31, 2018 compared to 72% in the three months ended March 31, 2017.
Our license revenue in the three months ended March 31, 2018 was $12.4 million, representing a decrease of $2.0 million, or 14%, compared to the three months ended March 31, 2017. The decline in license revenue was primarily due to a decrease in demand for our perpetual licenses and to a mix shift in favor of subscriptions rather than perpetual licenses.
Our cloud services revenue in the three months ended March 31, 2018 was $11.2 million, representing an increase of $2.1 million, or 24%, compared to the three months ended March 31, 2017, reflecting our customers’ preference to purchase cloud services.
When we sell our cloud solutions on a subscription basis, we typically offer 12 months or longer terms and bill in advance.
Our software support and services revenue
in the three months ended March 31, 2018
was $20.1 million, representing an increase of $1.4 million, or 8%, compared to the three months ended March 31, 2017. Software support and services revenue includes support of perpetual license customers, the support component of on-premise subscriptions, and professional services. The growth rate of software support and services revenue is primarily dependent on growth in our installed base of customers that purchase perpetual licenses, renewals of on-premise subscriptions and software support on perpetual licenses, and purchases of professional services as part of our solutions.
Our billings were $46.0 million and $45.4 million in the three months ended March 31, 2018 and 2017, respectively, representing a growth rate of 1%. Our billings were $200.9 million, $182.1 million, and $165.0 million in 2017, 2016 and 2015, respectively, representing growth rates of 10% from both 2016 to 2017 and 2015 to 2016. See “Key Metrics and Non-GAAP Financial Information” and “Recent Accounting Pronouncements” for more information and a reconciliation of billings to total revenue.
We sell a significant portion of our products through our channel partners, including resellers, service providers and system integrators
.
Our sales force develops sales opportunities and works closely with our channel partners to sell our solutions. We have a high touch sales force focused on large organizations, inside sales teams focused on mid-sized enterprises and sales teams that work with service providers that focus on smaller businesses. We prioritize our internal sales and marketing efforts on large organizations because we believe that they represent the largest potential opportunity.
We believe that our market opportunity is large, and sales to customers outside of the United States will remain a significant opportunity for future growth. In the three months ended March 31, 2018, and the full years 2017
and 2016, 57%,
53% and 54%, respectively, of our total revenue was generated from customers located outside of the United States, primarily those located in Europe. International market trends that may affect sales of our products and services
include heightened concerns and legal requirements relating to data security and privacy, the importance of execution on our international channel partner strategy, the importance of recruiting and retaining sufficient international personnel, the effect of exchange rates, and political and financial market instability.
In 2016 and 2017, we focused on driving more efficiency in our business. However, we have continued to incur net losses.
We incurred net losses of $53.4 million and $65.5 million in 2017 and 2016, respectively, and incurred a net loss of $16.4 million in the three months ended March 31, 2018. As a result of this, we do not expect to be profitable for the foreseeable future under our current operating plan. Future profitability is primarily dependent on revenue growth, which may be challenging for a number of reasons including possible continued mix shift towards cloud subscription licensing, increasing and entrenched competition with respect to pricing, product features and other factors, changes in our pricing model, the amount of partner solutions we sell,
our ability to continue to develop and evolve our products,
any failure to capitalize on market opportunities, the ability of our sales organization to retain its key employees and leadership team, and continued stock-based compensation charges from restricted stock unit grants and stock-settled bonuses. Future profitability is also dependent on our ability to manage our expenses, which are being impacted by increasing overhead costs associated with security initiatives, new revenue guidance implementation, office expansion in India, increased depreciation expense from capital expenditures for our new headquarters office and office in India, network and data center upgrades, and software projects. We will need to increase operating efficiency, which may be challenging given our operational complexity. In addition, the new revenue accounting standard may impact our profitability and may make our financial results more difficult to predict.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe that there have been no significant changes in our critical accounting policies from those described in our Annual Report on Form 10-K filed with the SEC on March 12, 2018.
Recent Accounting Pronouncements
For discussion on recent accounting pronouncements, see “Summary of Significant Accounting Policies” under Note 1 “Description of Business and Significant Accounting Policies” included in Item 1, “Financial Statements” of Part I of this Quarterly Report on Form 10-Q.
Application of Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in accordance with U.S. GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, commissions, stock-based compensation expense, goodwill and income taxes.
Revenue Recognition
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine the stand-alone selling price (“SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with software support. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative SSP of the various products and services.
We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer in determining the SSP.
Our products are sometimes sold with a right of refund which we have to consider when estimating the amount of revenue to recognize.
The new standard related to revenue recognition had a material impact on our consolidated financial statements. Refer to Note 1 – Accounting Policies in the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion.
Commissions
Current accounting principles require us to defer commission costs and amortize them in a manner consistent with how we recognize revenue. Key judgments that impact our commission expense includes estimating our customer life and the determination of the impairment of commission assets we deem to be unrecoverable.
Goodwill
We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. We evaluated our goodwill for impairment in the three months ended March 31, 2018 and 2017 and observed no impairment indicators.
Stock-Based Compensation
Stock-based compensation costs related to restricted stock and stock options granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. For stock awards we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.
We estimate the fair value of the rights to acquire stock under our ESPP using the Black-Scholes option pricing formula. Our ESPP typically provides for consecutive 24 month offering periods, consisting of four tranches. We recognize compensation expense on an accelerated-graded basis over the employee’s requisite service period. We account for the fair value of restricted stock units, or RSUs, using the closing market price of our common stock on the date of grant. RSUs typically vest ratably on a quarterly basis over one to four years.
Stock-based compensation expense associated with our stock-settled bonus program is recognized on a straight-line basis over the required service period and the expense is evaluated each quarter based on our Company’s performance relative to the metrics that determine the bonus pool.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
We currently have a full valuation allowance against our U.S. net deferred tax assets of $99.7 million as of December 31, 2017. We continue to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions. The allowance will be released if evidence indicates that it becomes more likely than not that the tax asset may be utilized.
Because we have a full valuation allowance against our U.S. net deferred tax assets, the Tax Cuts and Jobs Act of 2017, or Tax Act, has not materially impacted our balance sheet or statement of operations.
Key Metrics and Non-GAAP Financial Information
To supplement our financial results presented on a U.S. GAAP basis, we provide investors with certain non-GAAP financial measures, including billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share and free cash flow. These non-GAAP financial measures exclude stock-based compensation, amortization of intangible assets and a litigation settlement charge.
Stock-based compensation expenses
In our non-GAAP financial measures, we have excluded the effect of stock-based compensation expenses. We exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe that providing non-GAAP financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between MobileIron operating results and those of other companies. Stock-based compensation expenses will recur in future periods.
Amortization of intangible assets
In our non-GAAP financial measures, we have excluded the effect of the amortization of intangible assets. Amortization of intangible assets can be significantly affected by the timing and size of our acquisitions. Amortization of intangible assets is not expected to recur in future periods.
Litigation settlement charge
In our non-GAAP financial measures, we have excluded the charge for the cost of the settlement of our shareholder litigation. While it is possible that we will have material litigation-related charges in the future, we do not expect it to be a consistently recurring expense.
Non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss, and non-GAAP net loss per share
We believe that the exclusion of stock-based compensation expense, the amortization of intangible assets, and the litigation settlement charge from various non-GAAP financial metrics such as gross profit, gross margin, operating income (loss), operating margin, net income (loss), and net income (loss) per share provides useful measures for management and investors. Stock-based compensation and the amortization of intangible assets have been and can continue to be inconsistent in amount from period to period. We have not historically had a material litigation-related settlement charge. While it is possible that we will have material litigation settlement charges in the future, we do not expect such charges to be a consistently recurring expense. We believe the inclusion of these items makes it difficult to compare periods and understand the growth and performance of our business. In addition, we evaluate our business performance and compensate management based in part on these non-GAAP measures. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by our competitors and exclude expenses that may have a material impact on our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees. Amortization of intangible assets is not expected to be a recurring expense.
Billings and free cash flow
Our non-GAAP financial measures also include: billings, which we define as total revenue plus the change in unearned revenue plus the change in customer arrangements in termination rights minus the change in unbilled accounts receivable in a period; and free cash flow, which we define as cash provided by (used in) operating activities less the amount of property and equipment purchased. We consider billings to be a useful metric for management and investors because subscription billings and software support and services billings drive unearned revenue and customer arrangements with termination rights, which are important indicators of future revenue. There are limitations related to the use of billings. First, billings include amounts that have not yet been recognized as revenue. Second, our calculation of billings may be different from other companies that report similar financial measures. We compensate for these limitations by evaluating billings together with revenue calculated in accordance with GAAP, including recurring revenue. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to invest in our business and fund ongoing operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.
We believe these non-GAAP financial measures are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business, and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business using certain of these non-GAAP measures.
We monitor the following non-GAAP financial measures (unaudited):
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|
|
|
|
|
|
|
|
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Three Months Ended
|
|
|
|
|
March 31,
|
|
|
(in thousands, except percentages and per share data)
|
|
2018
|
|
2017
|
|
|
Billings
|
|
$
|
46,006
|
|
$
|
45,374
|
|
|
Year-over-year percentage increase
|
|
|
1.4
|
%
|
|
—
|
|
|
Non-GAAP gross profit
|
|
$
|
37,194
|
|
$
|
35,694
|
|
|
Non-GAAP gross margin
|
|
|
85.1
|
%
|
|
84.8
|
%
|
|
Non-GAAP operating loss
|
|
$
|
(5,733)
|
|
$
|
(5,504)
|
|
|
Non-GAAP operating margin
|
|
|
(13.1)
|
%
|
|
(13.1)
|
%
|
|
Non-GAAP net loss
|
|
$
|
(5,577)
|
|
$
|
(5,529)
|
|
|
Non-GAAP loss per share
|
|
$
|
(0.06)
|
|
$
|
(0.06)
|
|
|
Free cash flow
|
|
$
|
8,664
|
|
$
|
331
|
|
Reconciliation of Non-GAAP Financial Measures
The following table reconciles the most directly comparable GAAP financial measure to each of the non-GAAP financial measures discussed above.
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Three Months Ended
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|
|
March 31,
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|
|
2018
|
|
2017
|
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|
(in thousands, except percentages and per share data)
|
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|
|
|
|
|
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Billings reconciliation:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
43,689
|
|
$
|
42,109
|
|
|
Total unearned revenue, end of period
|
|
|
80,925
|
|
|
64,043
|
|
|
Less: Total unearned revenue, beginning of period
|
|
|
(77,022)
|
|
|
(60,588)
|
|
|
Total customer arrangements with termination rights, end of period
|
|
|
17,187
|
|
|
14,210
|
|
|
Less: Total customer arrangements with termination rights, beginning of period
|
|
|
(19,546)
|
|
|
(14,198)
|
|
|
Total unbilled accounts receivable, end of period
|
|
|
(2,662)
|
|
|
(3,013)
|
|
|
Less: Total unbilled accounts receivable, beginning of period
|
|
|
3,435
|
|
|
2,811
|
|
|
Total change in unearned revenue
|
|
|
2,317
|
|
|
3,265
|
|
|
Billings
|
|
$
|
46,006
|
|
$
|
45,374
|
|
|
Non-GAAP gross profit reconciliation:
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
35,712
|
|
$
|
34,839
|
|
|
Add: Stock-based compensation expense
|
|
|
1,382
|
|
|
701
|
|
|
Add: Amortization of intangible assets
|
|
|
100
|
|
|
154
|
|
|
Non-GAAP gross profit
|
|
$
|
37,194
|
|
$
|
35,694
|
|
|
Non-GAAP gross margin reconciliation:
|
|
|
|
|
|
|
|
|
GAAP gross margin: GAAP gross profit over GAAP total revenue
|
|
|
81.7
|
%
|
|
82.7
|
%
|
|
GAAP to non-GAAP gross margin adjustments
|
|
|
3.4
|
%
|
|
2.1
|
%
|
|
Non-GAAP gross margin
|
|
|
85.1
|
%
|
|
84.8
|
%
|
|
Non-GAAP operating loss reconciliation:
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
$
|
(16,526)
|
|
$
|
(13,348)
|
|
|
Add: Stock-based compensation expense
|
|
|
10,693
|
|
|
6,547
|
|
|
Add: Amortization of intangible assets
|
|
|
100
|
|
|
154
|
|
|
Add: Litigation settlement charge
|
|
|
—
|
|
|
1,143
|
|
|
Non-GAAP operating loss
|
|
$
|
(5,733)
|
|
$
|
(5,504)
|
|
|
Non-GAAP operating margin reconciliation:
|
|
|
|
|
|
|
|
|
GAAP operating margin: GAAP operating profit over GAAP total revenue
|
|
|
(37.8)
|
%
|
|
(31.7)
|
%
|
|
GAAP to non-GAAP operating margin adjustments
|
|
|
24.7
|
%
|
|
18.6
|
%
|
|
Non-GAAP operating margin
|
|
|
(13.1)
|
%
|
|
(13.1)
|
%
|
|
Non-GAAP net loss reconciliation:
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(16,370)
|
|
$
|
(13,373)
|
|
|
Add: Stock-based compensation expense
|
|
|
10,693
|
|
|
6,547
|
|
|
Add: Amortization of intangible assets
|
|
|
100
|
|
|
154
|
|
|
Add: Litigation settlement charge
|
|
|
—
|
|
|
1,143
|
|
|
Non-GAAP net loss
|
|
$
|
(5,577)
|
|
$
|
(5,529)
|
|
|
Non-GAAP net loss per share reconciliation:
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(0.17)
|
|
$
|
(0.15)
|
|
|
Add: Stock-based compensation expense
|
|
|
0.11
|
|
|
0.08
|
|
|
Add: Amortization of intangible assets
|
|
|
—
|
|
|
—
|
|
|
Add: Litigation settlement charge
|
|
|
—
|
|
|
0.01
|
|
|
Add: Restructuring charge
|
|
|
—
|
|
|
—
|
|
|
Non-GAAP net loss per share
|
|
$
|
(0.06)
|
|
$
|
(0.06)
|
|
|
Free cash flow:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
9,180
|
|
$
|
724
|
|
|
Purchase of property and equipment
|
|
|
(516)
|
|
|
(393)
|
|
|
Free cash flow
|
|
$
|
8,664
|
|
$
|
331
|
|
Results of Operations
Revenue
License
License revenue consists primarily of revenue from on-premises perpetual licenses and the license portion of on-premises subscriptions. From time to time, we enter into multiple element arrangements with customers in which a customer purchases our software with an appliance. Appliance revenues are also included in license revenue and constituted less than 5% of total revenue for the three months ended March 31, 2018 and 2017.
Cloud Services
Cloud services include sales of cloud-based solutions that allow customers to use hosted software over a contract period without taking possession of our software and are typically provided on a subscription or usage basis. We recognize revenue from cloud-based subscriptions ratably over the term of the subscriptions or, if usage based, as the usage is billed.
Software support and services
Software support and services revenue consists of revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses, on-premises subscriptions, and professional services. Revenue from software support for both perpetual and on-premises subscriptions is recognized ratably over the support or subscription term.
Cost of Revenue
License
Our cost of license revenue consists of the cost of third-party software royalties, appliances and amortization of intangible assets.
Cloud Services
Our cloud services cost of revenue consists of cloud service data center operations expense, the portion of our global Customer Success organization (See
Software support and services
below) associated with our cloud services business, and third-party royalties. Cloud service data center operations expenses primarily consist of personnel costs, third-party hosting facilities, telecommunication and information technology costs.
Software support and services
Our software support and services cost of revenue consists of the portion of our global Customer Success organization expenses associated with our software support business and third-party royalties. Costs associated with our global Customer Success organization include our customer support, professional services, customer advocacy and training teams. These costs consist of personnel costs, stock-based compensation, depreciation, facilities and information technology costs.
Gross Margin
Gross margin, or gross profit as a percentage of total revenue, has been and will continue to be affected by various factors, including mix between large and small customers, mix of products sold, mix between perpetual, on-premises and cloud subscription licenses, timing of revenue recognition and the extent to which we expand our global Customer Success organization and data center operations, including costs associated with third-party hosting facilities and stock-based compensation expense associated with grants of equity awards. We expect our gross margins to fluctuate over time depending on the factors described above.
Operating Expenses
Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, sales commissions. While operating expenses, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect them to decrease over the long term as a percentage of total revenue. Stock-based compensation expense may fluctuate depending on the size and timing of restricted stock unit grants and stock-settled bonus plans, if any. For
example, in the three months ended March 31, 2018, stock-based compensation expense in operating expenses was $9.3 million compared to $5.8 million in the three months ended March 31, 2017.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expense consists primarily of personnel costs. Research and development expense also includes costs associated with contractors and consultants, equipment and software to support our development and quality assurance teams, facilities and information technology. While our research and development expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.
Sales and Marketing Expenses
Sales and marketing expense consists primarily of personnel costs, including sales commissions. Sales and marketing expense also includes costs associated with third-party events, lead generation campaigns, promotional and other marketing activities, as well as travel, equipment and software depreciation, consulting, information technology and facilities. While our sales and marketing expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.
General and Administrative Expenses
General and administrative expense consists of personnel costs, travel, information technology, facilities and professional services fees. General and administrative personnel include our executive, finance, human resources and legal organizations. Professional services fees consist primarily of litigation, other legal, accounting and consulting costs. While our general and administrative expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.
Litigation Settlement Charge
The litigation settlement charge is the expense associated with the settlement of shareholder litigation.
Other Income
—
Net
Other income, net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances and interest income earned on our cash and cash equivalents and fixed income securities. All translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations.
Income Tax Expense
Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. Due to our history of losses, we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards, research and development tax credits, capitalized research and development and other book versus tax differences.
Consolidated Results of Operations
The following tables summarize our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of results is not necessarily indicative of results for future periods.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
2017
|
|
Revenue
|
|
|
|
|
|
|
|
License
|
|
$
|
12,441
|
|
$
|
14,420
|
|
Cloud services
|
|
|
11,150
|
|
|
9,023
|
|
Software support and services
|
|
|
20,098
|
|
|
18,666
|
|
Total revenue
|
|
|
43,689
|
|
|
42,109
|
|
Cost of revenue (1)
|
|
|
|
|
|
|
|
License
|
|
|
431
|
|
|
447
|
|
Cloud services
|
|
|
2,571
|
|
|
1,946
|
|
Software support and services
|
|
|
4,975
|
|
|
4,877
|
|
Total cost of revenue
|
|
|
7,977
|
|
|
7,270
|
|
Gross profit
|
|
|
35,712
|
|
|
34,839
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development (1)
|
|
|
21,335
|
|
|
17,193
|
|
Sales and marketing (1)
|
|
|
23,681
|
|
|
23,663
|
|
General and administrative (1)
|
|
|
7,222
|
|
|
6,188
|
|
Litigation settlement charge
|
|
|
—
|
|
|
1,143
|
|
Total operating expenses
|
|
|
52,238
|
|
|
48,187
|
|
Operating loss
|
|
|
(16,526)
|
|
|
(13,348)
|
|
Other income - net
|
|
|
503
|
|
|
174
|
|
Loss before income taxes
|
|
|
(16,023)
|
|
|
(13,174)
|
|
Income tax expense
|
|
|
347
|
|
|
199
|
|
Net loss
|
|
$
|
(16,370)
|
|
$
|
(13,373)
|
|
|
(1)
|
|
Includes Stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
|
March 31,
|
|
|
|
2018
|
|
2017
|
|
Cost of revenue
|
|
$
|
1,382
|
|
$
|
701
|
|
Research and development
|
|
|
4,767
|
|
|
2,766
|
|
Sales and marketing
|
|
|
2,529
|
|
|
1,772
|
|
General and administrative
|
|
|
2,015
|
|
|
1,308
|
|
Total
|
|
$
|
10,693
|
|
$
|
6,547
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2018
|
|
2017
|
|
|
Revenue
|
|
|
|
|
|
|
License
|
|
28
|
%
|
34
|
%
|
|
Cloud services
|
|
26
|
|
21
|
|
|
Software support and services
|
|
46
|
|
45
|
|
|
Total revenue
|
|
100
|
|
100
|
|
|
Cost of revenue
|
|
|
|
|
|
|
License
|
|
1
|
|
1
|
|
|
Cloud services
|
|
6
|
|
5
|
|
|
Software support and services
|
|
11
|
|
11
|
|
|
Total cost of revenue
|
|
18
|
|
17
|
|
|
Gross profit
|
|
82
|
|
83
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Research and development
|
|
49
|
|
41
|
|
|
Sales and marketing
|
|
54
|
|
56
|
|
|
General and administrative
|
|
17
|
|
15
|
|
|
Litigation settlement charge
|
|
—
|
|
3
|
|
|
Total operating expenses
|
|
120
|
|
115
|
|
|
Operating loss
|
|
(38)
|
|
(32)
|
|
|
Other income - net
|
|
2
|
|
—
|
|
|
Loss before income taxes
|
|
(36)
|
|
(32)
|
|
|
Income tax expense
|
|
1
|
|
—
|
|
|
Net loss
|
|
(37)
|
%
|
(32)
|
%
|
Comparison of the Three Months Ended March 31, 2018 and 2017
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
|
License
|
|
$
|
12,441
|
|
$
|
14,420
|
|
$
|
(1,979)
|
|
(14)
|
%
|
|
Cloud services
|
|
|
11,150
|
|
|
9,023
|
|
|
2,127
|
|
24
|
|
|
Software support and services
|
|
|
20,098
|
|
|
18,666
|
|
|
1,432
|
|
8
|
|
|
Total revenue
|
|
$
|
43,689
|
|
$
|
42,109
|
|
$
|
1,580
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
28
|
%
|
|
34
|
%
|
|
|
|
|
|
|
Cloud services
|
|
|
26
|
|
|
21
|
|
|
|
|
|
|
|
Software support and services
|
|
|
46
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
%
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
18,767
|
|
43
|
%
|
$
|
19,434
|
|
46
|
%
|
$
|
(667)
|
|
(3)
|
%
|
|
International
|
|
|
24,922
|
|
57
|
|
|
22,675
|
|
54
|
|
|
2,247
|
|
10
|
|
|
Total revenue
|
|
$
|
43,689
|
|
100
|
%
|
$
|
42,109
|
|
100
|
%
|
$
|
1,580
|
|
4
|
%
|
License revenue decreased $2.0 million, or 14%, in the three months ended March 31, 2018, respectively, compared to the corresponding period of 2017, primarily due to a continued slowdown in perpetual license orders and a shift in favor of cloud services.
Cloud services revenue increased $2.1 million, or 24%, in the three months ended March 31, 2018 compared to the corresponding period of 2017, primarily due customer preference for solutions sold under a cloud-based delivery model.
Software support and services revenue increased $1.4 million, or 8%, in the three months ended March 31, 2018 compared to the corresponding period of 2017,
primarily as a result of growth in our installed base of customers that purchase perpetual licenses, renewals of on-premise subscriptions and software support on perpetual licenses, and increased professional services purchased as part of our solutions.
Professional services revenue was $965,000 and $685,000 in the three months ended March 31, 2018 and 2017, respectively, as a result of completing more professional services engagements.
Revenue from international sales increased 10% in the three months ended March 31, 2018 compared to the corresponding period of 2017 due to an increase in the adoption of our products and an increased cumulative installed base of customers outside of the United States.
Revenue from U.S. sales decreased 3% in the three months ended March 31, 2018, respectively, compared to the corresponding period of 2017. The impact of customers purchasing licenses priced as subscriptions rather than perpetual software licenses was greater in the U.S. than internationally.
Revenue from our largest reseller, AT&T, decreased to 12% of total revenue in the three months ended March 31, 2018, respectively, as compared to 16% of total revenue in the corresponding period of the prior year. No other customer accounted for 10% or more of total revenue in the three months ended March 31, 2018 and 2017
.
Cost of Revenue and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
%
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
431
|
|
1
|
%
|
$
|
447
|
|
1
|
%
|
$
|
(16)
|
|
(4)
|
%
|
|
Cloud services
|
|
|
2,571
|
|
6
|
|
|
1,946
|
|
5
|
|
|
625
|
|
32
|
|
|
Software support and services
|
|
|
4,975
|
|
11
|
|
|
4,877
|
|
11
|
|
|
98
|
|
2
|
|
|
Total cost of revenue
|
|
$
|
7,977
|
|
18
|
%
|
$
|
7,270
|
|
17
|
%
|
$
|
707
|
|
10
|
%
|
|
Gross profit
|
|
$
|
35,712
|
|
|
|
$
|
34,839
|
|
|
|
$
|
873
|
|
|
|
|
Gross margin
|
|
|
|
|
82
|
%
|
|
|
|
83
|
%
|
|
|
|
|
|
Total cost of revenue increased $707,000, or 10%, in the three months ended March 31, 2018 compared to the same period of the prior year. While license cost of sales was flat, cloud services and software support and services cost of revenue increased $625,000 and $98,000, respectively.
In cost of cloud services, data center operations costs increased $440,000 and global customer success expense increased $182,000. In data center operations, infrastructure costs such as third party hosting, software subscriptions and depreciation increased by $229,000 to support the growing cloud services business. Stock-based compensation expense in cost of cloud services increased $262,000 due to higher costs associated with our stock-settled bonus program. In 2017, the non-executive bonus plan was not approved until the second quarter of the year whereas in 2018, the non-executive bonus plan was approved in the first quarter, thus driving up expense in the current period.
In cost of software support and services, global customer success expense was higher in the three months ended March 31, 2018 than the same period of the prior year due primarily to a $419,000 increase in stock-based compensation expense as we received earlier approval of our non-executive stock-settled bonus plan and RSUs granted, which was partially offset by decreases in outside services, travel and facilities and infrastructure expenses.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
(in thousands, except percentages)
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
Revenue
|
|
Amount
|
|
%
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
21,335
|
|
49
|
%
|
$
|
17,193
|
|
41
|
%
|
$
|
4,142
|
|
24
|
%
|
|
Sales and marketing
|
|
|
23,681
|
|
54
|
|
|
23,663
|
|
56
|
|
|
18
|
|
—
|
|
|
General and administrative
|
|
|
7,222
|
|
17
|
|
|
6,188
|
|
15
|
|
|
1,034
|
|
17
|
|
|
Litigation settlement charge
|
|
|
—
|
|
—
|
|
|
1,143
|
|
3
|
|
|
(1,143)
|
|
(100)
|
|
|
Total operating expenses
|
|
$
|
52,238
|
|
120
|
%
|
$
|
48,187
|
|
115
|
%
|
$
|
4,051
|
|
8
|
%
|
Research and development expense increased $4.1 million, or 24%, in the three months ended March 31, 2018 compared to the corresponding period of 2017 primarily due to an increase in personnel costs of $3.1 million, facilities and infrastructure expense of $854,000, and outside professional services expense of $255,000. Stock-based compensation expense, part of personnel costs, increased by $2.0 million primarily because of higher expense associated with restricted stock unit grants and the stock-settled bonus plan, partially offset by lower stock option expense. The remainder of the increase in personnel costs was due primarily to increased headcount and merit increases. Facilities and infrastructure expense increased due to higher India facilities-related expense, which include higher rent expense, exit costs associated with our old Bangalore facility and depreciation on network-related infrastructure and leasehold improvements, as well as other engineering-specific costs for equipment, software applications and other infrastructure. We incurred additional outside professional services expense to supplement our development work.
Sales and marketing expense was flat in the three months ended March 31, 2018 compared to the corresponding period of 2017. Personnel costs increased by $855,000 compared to the corresponding period of the prior year due primarily to an increase in stock-based compensation expense of $756,000 because of higher expense associated with restricted stock unit grants and the stock-settled bonus plan. Marketing program spending and outside professional services expense decreased by $760,000 due to lower spending on field marketing programs and events.
General and administrative expense increased $1.0 million, or 17%, in the three months ended March 31, 2018 compared to the corresponding period of 2017 primarily due to a $726,000 increase in personnel costs and a $271,000 increase in outsides services expense. The increase in personnel costs included an increase in stock-based compensation expense of $550,000, which was driven primarily by restricted stock unit grants and the stock-settled bonus plan. Other personnel-related costs increased due to merit increases and a slight increase in headcount. Outside services expense increased primarily due to the costs of adopting ASC 606.
We recorded a litigation settlement charge of $1.1 million in the three months ended March 31, 2017 for the expense associated with the settlement of our shareholder litigation.
The settlement received final court approval in the three months ended September 30, 2017.
Other Income—Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
|
Other income—net
|
|
$
|
503
|
|
$
|
174
|
|
$
|
329
|
|
189
|
%
|
Other income—net was primarily comprised of interest income and gains or losses from foreign currency transactions and the translation of foreign-denominated balances to the U.S. dollar. We recorded $261,000 and $148,000 of interest income for the three months ended March 31, 2018 and 2017, respectively, and $181,000 and $8,000 foreign currency gains for the three months ended March 31, 2018 and 2017, respectively.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|
|
Income tax expense
|
|
$
|
347
|
|
$
|
199
|
|
$
|
148
|
|
74
|
%
|
Income tax expense was $347,000 and $199,000 in the three months ended March 31, 2018 and 2017, respectively. The increase in income tax expense was due to an increase in foreign income taxes on profits realized by our foreign subsidiaries as we expanded internationally, most significantly in India. We have a full valuation allowance on our deferred tax assets.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
|
|
March 31,
|
|
December
31,
|
|
|
(in thousands)
|
|
2018
|
|
2017
|
|
|
Cash and cash equivalents
|
|
$
|
96,311
|
|
$
|
85,833
|
|
|
Short term-investments
|
|
|
2,995
|
|
|
6,797
|
|
|
Total cash, cash equivalents and investments
|
|
$
|
99,306
|
|
$
|
92,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Change
|
|
|
(in thousands, except percentages)
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2018
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2017
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Amount
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%
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Net cash provided by operating activities
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|
$
|
9,180
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|
$
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724
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|
$
|
8,456
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|
1,168
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%
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|
Net cash provided by investing activities
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|
|
3,298
|
|
|
24,572
|
|
|
(21,274)
|
|
(87)
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|
|
Net cash used in financing activities
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|
$
|
(2,000)
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|
$
|
(77)
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|
$
|
(1,923)
|
|
2,497
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%
|
At March 31, 2018, we had cash and cash equivalents of $96.3 million. Substantially all of our cash and cash equivalents are held in the United States. At March 31, 2018, we had short-term investments of $3.0 million.
In addition, we have a revolving line of credit with a financial institution with potential borrowing capacity of approximately $15.5 million that expires in June 2018. We are required to maintain an adjusted quick ratio (defined as the ratio of current assets to current liabilities minus deferred revenue) of at least 1.25. At March 31, 2018, we had no borrowings outstanding under this revolving loan facility and we were in compliance with our loan covenants.
We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, the continuing market acceptance of our products, any future acquisitions and similar transactions and the proportion of our perpetual versus subscription sales. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.
Cash Provided by Operating Activities
Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by increases in sales and timing of collections. Our primary use of cash from operating activities has been for personnel costs.
In the three months ended March 31, 2018, we generated $9.2 million of cash from operating activities compared to $724,000 in the corresponding period of the prior year. We incurred a net loss of $16.4 million in the three months ended March 31, 2018 compared to a net loss of $13.4 million in the corresponding period of 2017 as our operating expenses increased 8% and cost of revenue increased 10%. The net loss included non-cash charges of $11.8 million, primarily due to stock-based compensation and depreciation expense, compared to $7.5 million in the three months ended March 31, 2017. Changes in operating assets and liabilities, as sources of cash, consisted of a $14.4 million decrease in accounts receivable as our fourth fiscal quarter is a seasonally high billing quarter compared to our first fiscal quarter and the majority of the cash from those receivables is collected in the quarter following the billing quarter and a $3.9 million increase in unearned revenue, partially offset by a $2.4 million decrease in customer arrangements with termination rights and a $2.5 million decrease in accrued expenses and other long-term liabilities.
In the three months ended March 31, 2017, we generated $724,000 of cash from operating activities. We incurred a net loss of $13.4 million in the three months ended March 31, 2017. The net loss included non-cash charges of $7.5 million, primarily due to stock-based compensation and depreciation expense. Changes in operating assets and liabilities, as sources of cash, consisted of a $5.7 million decrease in accounts receivable as our fourth fiscal quarter is a seasonally high billing quarter compared to our first fiscal quarter and the majority of cash is collected in the quarter following the billing quarter, a $3.5 million increase in unearned revenue, a $3.4 million increase in accrued expenses and other long-term liabilities and a $1.9 million increase in accounts payable, partially offset by changes in other working capital items of $7.8 million that used cash
.
Cash Provided by Investing Activities
Our investing activities have consisted of purchases of property and equipment and purchases of investment securities, offset by maturities of the investment securities.
Cash provided by investing activities was $3.3 million for the three months ended March 31, 2018 as compared to $24.6 million in the corresponding period of 2017. In the three months ended March 31, 2018, we received $6.8 million from maturities of investment securities and invested $3.0 million in new investment securities, compared to the three months ended March 31, 2017 where we received $25.0 million from maturities of our investments and invested no amounts in new investment securities. Cash paid for the purchase of property and equipment was $516,000 and $393,000 for the three months ended March 31, 2018 and 2017, respectively.
Cash Used in Financing Activities
Our financing activities have historically consisted of proceeds from the issuance of common stock, the exercise of stock options, and our ESPP. Beginning 2017, our financing activities have included cash used to pay employee payroll taxes as part of the net settlement of our stock-settled bonus programs.
In the three months ended March 31, 2018, our financing activities used $2.0 million of cash. We received $655,000 from the exercise of stock options and $1.1 million from ESPP contributions. We used $3.7 million to pay employee payroll taxes as part of the net settlement of our stock-settled bonus.
In the three months ended March 31, 2017, our financing activities used $77,000 of cash. We received $1.8 million from the exercise of stock options and $1.1 million from ESPP contributions
. We used $3.0 million to pay employee payroll taxes as part of the net settlement of our stock-settled bonus.
Off-Balance-Sheet Arrangements
Through March 31, 2018, we do not have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Segment Information
We have one primary business activity and operate in one reportable segment.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management believes that there have been no material changes to our or quantitative and qualitative disclosures about market risks during the three months ended March 31, 2018, compared to those disclosed in
Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended
December 31, 2017 filed with the SEC on March 12, 2018
.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018. The term “disclosure controls and procedures,” as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on our evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of March 31, 2018, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2018, we implemented new controls which enabled us to prepare our financial statements under ASC 606 on a full retrospective basis effective January 1, 2018. We also implemented new revenue and commission modules to enable the adoption of ASC 606.
There were no other changes in our internal controls over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We continually evaluate uncertainties associated with litigation and record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and (ii) the loss or range of loss can be reasonably estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements. We evaluate, on a quarterly basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, if any, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss, and such amounts could be material. An estimate of a reasonably possible loss (or a range of loss) cannot be made in our lawsuits at this time.
Risks Related to Our Business and Industry
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including the section of this report titled
“
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risk described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.
We have a limited operating history, which makes it difficult to evaluate our prospects and future financial results and may increase the risk that we will not be successful.
As a result of our limited operating history, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and expect to continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing markets. If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer. Any success that we may experience in the future will depend, in large part, on our ability to, among other things:
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retain and expand our customer base on a cost-effective basis;
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increase revenues from existing customers as they add users or devices;
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increase revenues from existing customers as they purchase additional solutions;
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successfully compete in our markets;
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continue to add features and functionality to our solutions to meet customer demand;
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gain market traction with our MobileIron cloud platform and our more recently introduced products and services such as MobileIron Access and MobileIron Threat Defense;
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continue to invest in research and development and bring new products to market;
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scale our engineering and internal business operations in an efficient and cost-effective manner;
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scale our global Customer Success organization to make our customers successful in their mobile IT deployments;
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continue to expand our solutions across mobile and modern operating systems and device platforms;
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hire, integrate and retain professional and technical talent;
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make our service provider partners successful in their deployments of our solutions and technology;
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successfully expand our business domestically and internationally; and
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successfully protect our intellectual property and defend against intellectual property infringement claims.
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We have had net losses each year since our inception and may not achieve or maintain profitability in the future.
We have incurred net losses each year since our inception, including net losses of $53.4 million and $65.5 million in 2017 and 2016, respectively, and $16.4 million and $13.4 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2017, our accumulated deficit was $377.4 million.
Our revenue growth rate from 2016 to 2017 slowed compared to the revenue growth rate from 2015 to 2016, and we may not be able to sustain or increase our growth rate or achieve or sustain profitability in the future. The revenue growth rate has slowed, and may additionally slow or revenue may decline, for a number of reasons, including, but not limited to
our customers’ and/or prospective customers’ failure to widely deploy mobile apps within their businesses,
increasing and entrenched competition, changes in pricing model, customers’ failure to renew or expand their deployments of our software, product and billing model mix shift, a decrease in size or growth of the mobile IT market, or any failure to capitalize on market opportunities. In addition, we
plan to continue to invest for future growth, in part by making additional investments in research and development, and as a result, we do not expect to be profitable for the foreseeable future. In addition, we will need to increase operating efficiency, which may be challenging given our operational complexity, the expenses outlined above, and expenses associated with being a public company. As a result of these increased expenditures, we will have to generate and sustain increased revenues to achieve future profitability. We may incur significant losses in the future for a number of reasons, including without limitation the other risks and uncertainties described in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K that was filed with the SEC on March 12, 2018. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed.
Our operating results may fluctuate significantly, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future. The timing and size of sales of our solutions makes our revenue highly variable and difficult to predict and can result in significant fluctuations in our revenue from period to period. Historically, a substantial portion of our revenue has been generated from sales of software solutions sold as perpetual licenses to large enterprise companies, which tend to close near the end of a given quarter. Further, our customers’ and prospective customers’ buying patterns and sales cycles can vary significantly from quarter to quarter and are not subject to an established pattern over the course of a quarter.
Accordingly, at the beginning of a quarter, we have limited visibility into the level of sales that will be made in that quarter. If expected revenue at the end of any quarter is reduced or delayed for any reason, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenue, and even a small shortfall in revenue could disproportionately and adversely affect our operating margin, operating results or other key metrics for a given quarter.
Our operating results may fluctuate due to a variety of other factors, many of which are outside of our control, and any of which may cause our stock price to fluctuate. In addition to other risks listed in this “Risk Factors” section, factors that may affect our operating results include, but are not limited to:
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the inherent complexity, length and associated unpredictability of our sales cycles for our solutions;
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the extent to which our customers and prospective customers delay or defer purchase decisions in a quarter, particularly in the last few weeks of the quarter, which is when we typically complete a large portion of our sales for a quarter;
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our ability to develop and release in a timely manner new solutions, features and functionality that meet customer requirements;
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changes in pricing due to competitive pricing pressure or other factors;
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reductions and reprioritizations in customers’ IT budgets and delays in the purchasing cycles of our customers and prospective customers;
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variation in sales channels or in mix of solutions sold, including the mix of solutions sold on a perpetual license versus a subscription or monthly recurring contract, or MRC, basis
1
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the timing of recognizing revenue in any given quarter as a result of revenue recognition accounting rules, including the extent to which revenue from sales transactions in a given period may not be recognized until a future period or, conversely, the satisfaction of revenue recognition rules in a given period resulting in the recognition of revenue from transactions initiated in prior periods;
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changes in our mix of revenue as a result of our different deployment options and licensing models and the ensuing revenue recognition effects;
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the effect of litigation;
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changes in foreign currency exchange rates; and
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general economic conditions in our domestic and international markets.
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1
In the MRC model, revenue and billings are based on active devices or users of the service provider’s customer and are reported to us by the service provider on a monthly basis over time and billed by us one month in arrears. Under the MRC model, we receive no billings or revenue for MRC at the time the deal is booked, but instead the MRC is billed and revenue is recognized each month based on active usage. Unlike one-year and other term subscriptions, MRC is not reflected in deferred revenue.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.
If our customers do not place significant follow-on orders to deploy our solutions widely throughout their companies, or if they do not renew with us or if they do not purchase additional solutions, our future revenue and operating results will be harmed.
In order to increase our revenues we must continually grow our customer base and increase the depth and breadth of the deployments of our solutions with our existing customers. While customers may initially purchase a relatively modest number of licenses, it is important to our revenue growth that they later expand the use of our software on substantially more devices or for more users throughout their business. We also need to upsell—to sell additional solutions—to the same customers. Our strategy also depends on our existing customers renewing their software support or subscription agreements with us. Because of the number of participants, consolidation in the mobile IT market and competing priorities within customers’ IT budgets, customers may delay making initial purchase orders or expanding orders as they take into account the evolving mobile IT landscape. Also, if we do not successfully develop and market new solutions, features and functionality that meet our customers’ needs, they may not place upsell orders or expand orders. The rate at which our customers purchase additional solutions depends on a number of factors, including the relative prioritization of the IT budget allocated to mobile projects versus other IT projects, perceived need for additional solutions, features or functionality, the reliability of our solutions and other competitive factors, such as pricing and competitors’ offerings. If our efforts to sell additional licenses to our customers and to upsell additional solutions to our customers are not successful, our business may suffer. In addition, we have entered into enterprise license arrangements with certain large customers under which they pay an amount up front and in turn can deploy an unlimited number of devices in a certain period, thereby lowering potential future additional orders from those customers.
Further, existing customers that purchase our solutions have no contractual obligation to purchase additional solutions after the initial subscription or contract period, and given our limited operating history, we are unable to accurately predict our customer expansion or renewal rates. Our customers’ expansion and renewal rates may decline or fluctuate as a result of a number of factors, including the level of their satisfaction with our solutions or our customer support, customer budgets, the pricing and breadth of our solutions compared with the solutions offered by our competitors, and the impact of our competitors’ selling enterprise mobility management or mobile security as a component of a broader suite, any of which may cause our revenue to grow more slowly than expected, if at all. Competition from larger companies has in the past and may in the future lengthen the renewal process and require us to recompete for renewal business.
For smaller or simpler deployments, the switching costs and time are relatively minor compared to traditional enterprise software deployments and a customer may decide not to renew with us and switch to a competitor’s offerings. Accordingly, we must invest significant time and resources in providing ongoing value to our customers. If these efforts fail, or if our customers do not renew for other reasons, or if they renew on terms less favorable to us, our revenue may decline and our business will suffer.
We are in a highly competitive market, and competitive pressures from existing and new companies may harm our business, revenues, growth rates and market share. In addition, there has been consolidation in our market, and a number of our current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.
Our market is intensely competitive, and we expect competition to increase in the future from established competitors, consolidations and new market entrants. Our major competitors include Blackberry, Citrix, IBM, Microsoft and VMware. A number of our historical competitors have been purchased by large corporations. For example, AirWatch was acquired by VMware and Good Technology was acquired by Blackberry. These large corporations have longer operating histories, greater name recognition, larger and better established customer bases, more channel partners, and significantly greater financial, technical, sales, marketing and other resources than we have. Because these competitors possess greater resources, they may be able to adapt more quickly to new technologies and changes in customer requirements, devote greater resources to the promotion and sale of their solutions, purchase companies or new technologies, initiate or withstand substantial price competition, and/or develop and expand their products and features more quickly than we can. In addition, certain of our competitors may be able to leverage their relationships with customers based on an installed base of solutions or to incorporate functionality into existing solutions to gain business in a manner that discourages customers from including us in competitive bidding processes, evaluating and/or purchasing our solutions. They have done this in the past, and may in the future do this, by selling at zero or negative margins,
through solution bundling or through enterprise license deals. Some potential customers, especially Forbes Global 2000 Leading Companies, have already made investments in, or may make investments in, substantial personnel and financial resources and established deep relationships with these much larger enterprise IT vendors, which may make them reluctant to evaluate our solutions or work with us regardless of solution performance or features. Potential customers may prefer to purchase a broad suite of solutions from a single provider, or may prefer to purchase mobile IT solutions from an existing supplier rather than a new supplier, regardless of performance or features.
We expect competition to intensify in the future as new and existing competitors introduce new solutions into our market. In addition, some of our competitors have entered into partnerships or other strategic relationships or purchased companies to offer a more comprehensive solution than they individually had offered. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. This competition has resulted in the past and could in the future result in increased pressure on pricing and renewals, increased sales and marketing expenses, or harm to our market share, any of which could harm our business. Competitors’ offerings may in the future have better performance or features, lower prices and/or broader acceptance than our solutions. Competitors’ products could also include new technologies, which could render our existing solutions obsolete or less attractive to customers, or be bundled with legacy enterprise security and management products as a “one-stop-shop” offering, which certain customers with large installed bases of those legacy products may prefer. If we fail to keep up with technological changes or to convince our customers and potential customers of the value of our solutions, our business, operating results and financial condition could be materially and adversely affected.
We compete in rapidly evolving markets and must develop new solutions and enhancements to our existing solutions. If we fail to predict and respond rapidly to emerging technological trends and our customers’ changing needs, we may not be able to remain competitive. In addition, we may not generate positive returns on our research and development investments, which may harm our operating results.
Our markets are characterized by rapidly changing technology, changing customer needs, evolving operating system standards and frequent introductions of new offerings. To succeed, we must effectively anticipate, and adapt in a timely manner to, customer and multiple operating system requirements and continue to develop or acquire new solutions and features that meet market demands and technology trends. Likewise, if our competitors introduce new offerings that compete with ours or incorporate features that are not available in our solutions, we may be required to reposition our solutions or introduce new solutions in response to such competitive pressure. We may not have access to or have adequate notice of new operating system developments, and we may experience unanticipated delays in developing new solutions and cloud services or fail to meet customer expectations for such solutions. If we fail to timely develop and introduce new solutions or enhancements that respond adequately to new challenges in the mobile IT market, our business could be adversely affected, especially if our competitors are able to more timely introduce solutions with such increased functionality.
We have invested significant time and financial resources in the development of our platforms and infrastructure and believe that we must continue to dedicate substantial resources to our research and development efforts to maintain our competitive position. Developing our products is expensive, and the investment in product development may not generate additional revenue in the near-term or at all. The research and development of new technologically advanced products is also a complex and uncertain process requiring high levels of innovation and investment, as well as the accurate forecasts of technology, market trends and consumer needs. Our failure to successfully develop new and improved products, services and technologies may reduce our future growth and profitability and may adversely affect our business, results and financial condition.
We have invested in MobileIron Access and MobileIron Threat Defense but have not yet gained substantial market traction in these product lines. Should our MobileIron Access or MobileIron Threat Defense fail to achieve substantial market traction, we would lose the value of our investment and our business and operating results may be harmed.
Further, we may be required to commit significant resources to developing new solutions before knowing whether our investments will result in solutions that the market will accept. We are in the process of phasing out our older cloud-based product in favor of MobileIron Cloud, our newer and more scalable cloud-only platform. The failure to successfully market MobileIron Cloud as a replacement and improvement to our older cloud-based product or the
failure of our customers and prospective customers to adopt MobileIron Cloud for any reason could result in a decline in our revenue.
These risks are greater in the mobile IT market because our software is deployed on endpoints (E.g., phones, tablets or laptops) that run on different operating systems, and these multiple operating systems change frequently in response to consumer demand. As a result, we may need to release new software updates at a much greater pace than a traditional enterprise software company that supports only traditional PCs. We may experience technical design, engineering, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new solutions and enhancements on both of our technology platforms. As a result, we may not be successful in modifying our current solutions or introducing new ones in a timely or appropriately responsive manner, or at all. If we fail to address these changes successfully, our business and operating results could be materially harmed.
Finally, all of our additional solutions require customers to use our MobileIron platform, whether deployed on-premise or through our cloud service. As such, virtually all of our revenue depends on the continued adoption and use of our MobileIron platform. If customers and prospective customers decided to stop using or purchasing the MobileIron platform, our product strategy and business would be harmed.
An increasing portion of our sales has been generated from subscription licenses, which involves certain risks.
An increasing portion of our sales has been generated from subscription licenses. This mix shift towards subscription licensing, and differing revenue recognition patterns between the different types of subscriptions that we offer under the new revenue accounting guidelines, present a number of risks to us. We recognize a substantial portion of our subscription revenues over the term of the subscription agreement as compared to sales of perpetual licenses, which are recognized up-front at the time of delivery. Under the new revenue accounting guidelines, a portion of subscriptions to on-premises software will be recognized up-front, while the remainder of the subscription will be recognized over the subscription term. That revenue recognition pattern is different from subscriptions to cloud offerings, for which all revenue will be recognized ratably over the term of the subscription. Customers in a subscription arrangement may elect not to renew their contractual arrangement with us upon expiration, or they may attempt to renegotiate pricing or other contract provisions on terms that are less favorable to us. MRC revenue, which is currently included in subscription revenue in our statements of operations, is recognized monthly on the basis of active users or devices and thus will fluctuate from month to month. Service providers that operate on an MRC billing model typically report to us in arrears on a monthly basis the number of actual users or devices deployed, and then we generate invoices based on those reports. Therefore, invoicing and collection logistics often result in a longer collection cycle. In addition, service providers may bundle our solution with their offerings and price aggressively, which could result in an decrease in MRC billings. These factors could negatively affect our cash flow to the extent subscription revenue includes MRC revenue.
Changes in features and functionality by operating system providers and mobile device manufacturers could cause us to make short-term changes in engineering focus or product development or otherwise impair our product development efforts or strategy, increase our costs, and harm our business.
Our platform depends on interoperability with operating systems, such as those provided by Apple, Google and Microsoft, as well as device manufacturers. Because mobile and other modern operating systems are released more frequently than legacy PC operating systems, and we typically have limited advance notice of changes in features and functionality of operating systems and mobile devices, we may be forced to divert resources from our preexisting product roadmap in order to accommodate these changes. As a result of this limited advance notice, we also have a short time to implement and test changes to our product to accommodate these new features, which increases the risk of product defects. In addition, if we fail to enable IT departments to support operating system upgrades upon release, our business and reputation could suffer. This could disrupt our product roadmap and cause us to delay introduction of planned solutions, features and functionality, which could harm our business.
Operating system providers have included, and may continue to include, features and functionality in their operating systems that are comparable to certain of our solutions, features and/or functionality, thereby making our platform less valuable. The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our mobile IT solutions in mobile or other modern operating systems may have an adverse effect on our ability to market and sell our solutions. Even if the functionality offered by mobile operating system
providers is more limited than our solutions, a significant number of potential customers may elect to accept such limited functionality in lieu of purchasing our solutions. Furthermore, some of the features and functionality in our solutions require interoperability with operating system APIs, and if operating system providers decide to restrict our access to their APIs, that functionality would be lost and our business could be impaired. Finally, we have entered into contractual arrangements with operating systems providers and/or mobile device manufactures, under which we are obligated to certain development priorities, which can further limit our engineering flexibility.
We have experienced substantial turnover, and the loss of key personnel or an inability to attract, retain and motivate qualified personnel may impair our ability to expand our business.
Our success is substantially dependent upon the continued service and performance of our senior management team and key technical, marketing, sales and operations personnel. Over the last three years, we have experienced substantial turnover in our sales, engineering and executive teams, and this could continue in the future. The replacement of any members of our senior management team or other key personnel likely would involve significant time and costs and may harm our business, operating results and financial condition. Our future success also depends, in part, on our ability to continue to attract, integrate and retain highly skilled personnel, in particular engineers and sales personnel. Competition for highly skilled personnel is frequently intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for highly skilled personnel, including, in particular, engineers. We must offer competitive compensation and opportunities for professional growth in order to attract and retain these highly skilled employees. Failure to successfully attract, integrate or retain qualified personnel to fulfill our current or future needs may negatively impact our growth.
A failure of our product strategy could harm our business.
Our product and business strategy is highly dependent on current and future customers continuing to adopt our solutions, features, and functionality, including expanding to newer products, such as MobileIron Access and MobileIron Threat Defense, and with existing on-premise customers migrating to MobileIron Cloud. Slow adoption by enterprises of mobile business applications may slow the adoption of our platform, because customers who are not deploying business apps other than email may not see value in our more advanced application security and management capabilities. If customers shift from client-side apps to web apps as the preferred interface for end-users, it would reduce the value of our security solution because less confidential data would reside on the endpoint. Operating system providers and larger software companies could harm our strategy by creating competitive solutions and/or bundling those solutions in a broader portfolio of products. For example, Microsoft bundled certain enterprise mobility management capabilities into Microsoft 365 in an attempt to dissuade customers from using solutions like MobileIron. If our product strategy is not successful for these or other reasons, the value of our investment would be lost and our results of operations would be harmed.
If we are not able to scale our business and manage our expenses, our operating results may suffer.
We have expanded, decreased and/or relocated specific functions over time in order to scale efficiently, including restructurings in 2016 and 2017 to improve our cost structure and help scale our business. Our need to scale our business has placed, and will continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other resources. Our ability to manage our operations will require significant expenditures and allocation of valuable management resources to improve internal business processes and systems, including investments in automation. Further international expansion may also be required for our continued business growth, and managing any international expansion will require additional resources and controls. If our operations infrastructure and business processes fail to keep pace with our business and customer requirements, customers may experience disruptions in service or support or we may not scale the business efficiently, which could adversely affect our reputation and adversely affect our revenues. There is no guarantee that we will be able to continue to develop and expand our infrastructure and business processes at the pace necessary to scale the business, and our failure to do so may have an adverse effect on our business. If we fail to efficiently expand our engineering, operations, customer support, professional services, cloud infrastructure, IT and financial organizations and systems, or if we fail to implement or maintain effective internal business processes, controls and procedures, our costs and expenses may increase more than we planned or we may fail to execute on our product roadmap or our business plan, any of which would likely seriously harm our business, operating results and financial condition.
A security breach of our cloud service infrastructure or a disruption of our cloud service availability for any reason could result in liabilities, lost business and reputational harm.
In connection with providing our cloud service to customers, we obtain access to certain data, such as employees’ names, registration credentials, mobile device ID, geolocation of last device check-in, business email addresses, mobile phone numbers, business contact information and the list of applications installed on the mobile devices. Any security breach of the systems used to provide the cloud service, whether through third-party action or employee error or malfeasance, could result in damage, loss, misuse or theft of such data. A breach could also give rise to litigation or require us to incur financial and operational expenses in connection with fulfillment of certain indemnity obligations to our cloud service customers, settling or defending claims made against us, or complying with specific laws or regulations such as breach notification requirements. Techniques used to sabotage or obtain unauthorized access to information processing systems change frequently. In addition, they generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures in a timely manner. Because our software is designed to enable IT administrators to secure and manage sensitive data transmitted to or stored on employees’ mobile devices, the publicity associated with an actual or perceived breach of our cloud service infrastructure would likely result in particular reputational damage, as well as loss of potential sales and existing customers. In addition, unexpected increases in demand at one customer may affect the overall service in unanticipated ways and may cause a disruption in service for other customers of this platform. We have experienced, and may in the future experience, disruptions, outages and other performance problems with our cloud service. These problems may be caused by a variety of factors, including, but not limited to, infrastructure changes, human or software errors, viruses, malicious code, denial of service or other security attacks, fraud, spikes in customer usage and interruption or loss of critical third party hosting, power or Internet connectivity services. If we sustain disruptions of our cloud services for any reason, our reputation, business and results of operations would be seriously harmed.
Defects in our solutions could harm our business, including as a result of customer dissatisfaction, data breaches or other disruption, and subject us to substantial liability.
Because the mobile IT market involves multiple operating platforms, we provide frequent incremental releases of solution updates and functional enhancements. Such new versions frequently contain undetected errors when first introduced or released. We have found defects in new releases of our solutions, and new errors in our existing solutions may be detected in the future. Defects in our solutions may also result in vulnerability to security attacks, which could result in claims by customers and users for losses that they sustain.
Because our customers use our solutions for important aspects of their business, any errors, defects, disruptions in service or other performance problems with our solutions could hurt our reputation and may damage our customers’ businesses. In certain instances, our customers have stopped using or failed to expand use of, our solutions as a result of defects, and this may happen in the future. In addition, customers may delay or withhold payment to us, elect not to renew and make warranty claims or other claims against us. In addition, we rely on positive customer experience in order to sell additional products to other customers or sell to new customers. Defects or disruptions in our solution could result in reputational harm and loss of future sales. In addition, regardless of the party at fault, errors of these kinds divert the attention of our engineering personnel from our development efforts, damage our reputation and the reputation of our solutions, cause significant customer relations problems and can result in product liability claims.
Security breaches and other disruptions of our information systems could significantly impair our operations, compromise our ability to conduct our business and deliver our products and services, and result in significant data losses, theft of our intellectual property, significant liability, damage to our reputation, and loss of current and future business.
We rely on our IT systems for almost all of our business operations, including internal operations, product development, sales and marketing, and communications with customers and other business partners. The secure processing, maintenance and transmission of both our own sensitive information and our customers’ data is critical to our operations and business strategy. Despite our security measures, our information technology systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any cyber security attack could result in the damage, loss, theft or misappropriation of our proprietary information or our
customers’ data and/or cause interruptions of our internal business operations or the delivery of our solutions to customers. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or readily detect or take remedial action against an attack. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. We also depend on our employees to handle confidential data appropriately and deploy our information resources in a secure fashion that does not expose our network systems to security breaches and the loss of data. Any breach as a result of cyber criminals or employee malfeasance or error could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Our insurance may not be sufficient to cover all of our losses from any future breaches of our systems. We have also outsourced a number of our business functions to third parties, and we rely on distributors, resellers, system vendors, and system integrators to sell our products and services. Thus our business operations also depend, in part, on their cybersecurity measures. Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, investigations by law enforcement or regulatory bodies, liability under laws that protect the privacy of personal information, regulatory penalties, could disrupt our operations and the solutions we provide to customers, could compromise our ability to protect our intellectual property rights, and could damage our reputation, which could adversely affect our business, financial condition, and operating results.
We depend and rely upon technologies from third parties to operate our products, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.
We rely on applications from third parties in order to operate critical functions of our products. If these services become unavailable due to extended outages, interruptions, errors or defects or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and supporting our customers could
be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business.
Real or perceived errors, failures or bugs in our software could adversely affect our business, results of operations, financial condition, and growth prospects.
Our software is complex, and therefore, undetected errors, failures or bugs may occur in the future. Our software is used in IT environments with different operating systems, system management software, applications, devices, databases, servers, storage, middleware, custom and third-party applications and equipment and networking configurations, which may cause errors or failures in the IT environment into which our software is deployed. This diversity increases the likelihood of errors or failures in those IT environments. Despite testing by us, real or perceived errors, failures or bugs may not be found until our customers use our software. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of or delay in market acceptance of our software and harm our brand, weakening of our competitive position, claims by customers for losses sustained by them or failure to meet the stated service level commitments in our customer agreements. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend significant additional resources in order to help correct the problem. Any errors, failures or bugs in our software could impair our ability to attract new customers, retain existing customers or expand their use of our software, which would adversely affect our business, results of operations and financial condition.
Disruptions of the third-party data centers that host our cloud service could result in delays or outages of our cloud service and harm our business.
We currently host our cloud service from third-party data center facilities operated by several different providers located around the world, such as Equinix and Amazon Web Services. Any damage to, or failure of, our cloud service that is hosted by these third parties, whether as a result of our actions, actions by the third-party data centers, actions by other third parties, or acts of God, could result in interruptions in our cloud service and/or the loss of data. While the third-party hosting centers host the server infrastructure, we manage the cloud services through our site reliability engineering team and need to support version control, changes in cloud software parameters and the evolution of our solutions, all in a multi-OS environment. As we continue to add data centers and capacity in our existing data centers, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful
data transfers may impair the delivery of our service. In some cases, we have entered into contractual service level commitments to maintain uptime of at least 99.9% for our cloud services platform and if we or our third-party data center facilities fail to meet these service level commitments, we may have to issue service credits to these customers. Impairment of, or interruptions in, our cloud services may reduce our subscription revenues, subject us to claims and litigation, cause our customers to terminate their subscriptions and adversely affect our subscription renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our services are unreliable.
We do not control, or in some cases have limited control over, the operation of the data center facilities we use, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct, and to adverse events caused by operator error. We cannot rapidly switch to new data centers or move customers from one data center to another in the event of any adverse event. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism or other act of malfeasance, a decision to close the facilities without adequate notice, or other unanticipated problems at these facilities could result in lengthy interruptions in our service and the loss of customer data and business.
The prices of our solutions may decrease or we may change our licensing and subscription programs, renewal programs or bundling arrangements, which may reduce our revenue and adversely impact our financial results.
The prices for our solutions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of solutions toward subscription, enterprise-wide licensing arrangements, bundling of solutions, features and functionality by us or our competitors, potential changes in our pricing, anticipation of the introduction of new solutions, or promotional programs for customers or channel partners. Competition and consolidation continue to increase in the markets in which we participate, and we expect competition to further increase in the future, leading to increased pricing pressures. Larger competitors with more diverse product lines may reduce the price of solutions or services that compete with ours or may bundle their solutions with other solutions and services. Furthermore, we anticipate that the sales prices and gross profits for our solutions will decrease over product life cycles. If we are unable to increase sales to offset any decline in our prices, our business and results of operations would be harmed.
We continually re-evaluate our licensing and subscription programs and renewal programs, including specific license and subscription models and terms and conditions. We have in the past implemented, and could in the future implement, new licensing and subscription programs, renewal programs or bundling arrangements, including promotional programs or specified enhancements to our current and future solutions, enterprise licensing arrangements, discounted pricing and/or conversion of service providers or customers from one billing model to another. Such billing model, renewal programs or licensing and subscription arrangement changes may result in delayed revenue recognition.
Our ability to sell our solutions is highly dependent on the quality of our support, which is made complex by the requirements of mobile IT. Our failure to deliver high quality support would have a material adverse effect on our sales and results of operations.
Once our solutions are deployed, our customers depend on our support organization or that of our channel partners to resolve any issues relating to our solutions. Our failure to provide effective support has in the past, and could in the future, adversely affect our ability to sell our solutions or increase the number of licenses sold to existing customers. Our customer support is especially critical because the mobile IT market requires relatively frequent software releases. Mobile IT requires a complex set of features, functionality and controls, which makes support critical and difficult. In addition, we target companies on the Forbes Global 2000 Leading Companies list, many of whom have complex networks and require higher levels of support than smaller customers. As customers deploy more licenses and purchase a broader array of our solutions, the complexity and difficulty of our support obligations increase. If we fail to meet the requirements of the larger customers, it may be more difficult to increase our deployments either within our existing Forbes Global 2000 Leading Companies list or other customers or with new Forbes Global 2000 Leading Companies list customers. We face additional challenges in supporting our non-U.S. customers, including the employment and retention of qualified support personnel and the need to rely on channel partners to provide support.
We rely substantially on channel partners for the sale and distribution of our solutions and, in some instances, for the support of our solutions. A loss of certain channel partners, a decrease in revenues from certain of these channel partners or any failure in our channel strategy could adversely affect our business.
A substantial portion of our sales are through channel partners – either telecommunications carriers, which we call service providers, or other resellers – and thus we depend on our channel partners and on our channel partner strategy for the vast majority of our revenue. Our international resellers often enter into agreements directly with our mutual customers to host our software and provide other value-added services, such as IT administration.
Our service provider partners often provide support to our customers and enter into similar agreements directly with our mutual customers to host our software and/or provide other value-added services. Our agreements and operating relationships with our service provider partners are complex and require a significant commitment of internal time and resources. In addition, our service provider partners are large corporations with multiple strategic businesses and relationships, and thus our business may not be significant to them in the overall context of their much larger enterprise. Even if the service provider partner considers us to be an important strategic relationship, internal processes at these large partners are sometimes difficult and time-consuming to navigate. Thus, any loss of a major channel partner or failure of our channel strategy could adversely affect our business. AT&T, as a reseller, is our largest service provider partner and was responsible for 12% of our total revenue for the three months ended March 31, 2018 and 14% of our total revenue for the year ended December 31, 2017.
Our agreements with AT&T and our other channel partners are non-exclusive and most of our channel partners have entered, and may continue to enter, into strategic relationships with our competitors. Our channel partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire solutions or services that compete with our solutions. If our channel partners do not effectively market and sell our solutions, if they choose to place greater emphasis on solutions of their own or those offered by our competitors, or if they fail to provide adequate support or otherwise meet the needs of our customers, our ability to grow our business and sell our solutions may be adversely affected. The loss of our channel partners, in particular AT&T, the failure to recruit additional channel partners, or any reduction or delay in sales of our solutions by our channel partners could materially and adversely affect our results of operations.
In addition, we have sold and will sell directly to end-user customers, which may adversely affect our relationship with our channel partners.
Our sales cycles for large enterprises are often long, unpredictable and expensive. As a result, our sales and revenue are difficult to predict and may vary substantially from period to period, which may cause our operating results to fluctuate significantly.
Our sales efforts involve educating our customers about the use and benefits of our solutions, including the technical capabilities of our solutions and the business value of our solutions. Many of our large customers have very complex IT systems, mobile environments and data privacy and security requirements. Accordingly, many of these customers undertake a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors, and has resulted in lengthy sales cycles. We spend substantial time, money and effort on our sales activities without any assurance that our efforts will produce any sales. In addition, purchases of our solutions are frequently subject to budget constraints, multiple purchase approvals, lengthy contract negotiations and unplanned administrative, processing and other delays. Moreover, the evolving nature of the mobile IT market may lead prospective customers to postpone their purchasing decisions pending adoption of technology by others or pending potential consolidation in the market, and may require evaluation of our product my multiple functions within their company. As a result of our lengthy sales cycle, it is difficult to predict whether and when a sale will be completed, and our operating results may vary significantly from quarter to quarter. Even if sales are completed, the revenues we receive from these customers may not be sufficient to offset our upfront investments.
We seek to sell our solutions to large enterprises. Sales to and support of these types of enterprises involve risks that could harm our business, financial position and results of operations.
Our growth strategy is dependent, in part, upon increasing sales of our solutions to large enterprises. Sales to large customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller entities. These risks include:
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more complicated network requirements, which result in more difficult and time-consuming implementation processes;
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more intense and time-consuming customer support practices;
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increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us;
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more customer-favorable contractual terms, including penalties;
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longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer that ultimately elects not to purchase our solution or purchases fewer licenses than we had anticipated;
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closer relationships with, and dependence upon, large technology companies that offer competitive solutions;
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an RFP process that may favor incumbent or larger technology companies;
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increased reputational risk as a result of data breaches or other problems involving high profile customers; and
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more pressure for discounts.
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If we are unable to increase sales of our solutions to large enterprises while mitigating the risks associated with serving such customers, our business, financial position and results of operations may suffer.
Our failure to comply with privacy and data protection laws could have a material adverse effect on our business.
Personal privacy and data protection have become significant issues in the United States, Europe and elsewhere where we offer our solutions.
We collect contact and other personal or identifying information from our customers, and our customers increasingly use our cloud services to store and process personal information and other regulated data. We also maintain personal data of our employees in connection with our HR and benefits administration and share that information with third party payroll and benefits providers.
Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, disclosure and retention of personal information,
with which we must comply. The variety, complexity and changing nature of the privacy law landscape worldwide is challenging.
If our solutions fail to adequately separate personal information and to maintain the security of enterprise applications and data, the market perception of the effectiveness of our solutions could be harmed, employee adoption of mobile initiatives could be slowed, we could lose potential sales and existing customers, and we could incur significant liabilities.
If any of our customers or prospective customers decide not to purchase our software as a result of this regulatory uncertainty, our revenues could decline and our business could suffer. Any inability to adequately address privacy concerns, whether valid or not, or to comply with applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability to us, damage our reputation, inhibit sales of our solutions
and harm our business. Furthermore, the attention garnered by the National Security Agency’s bulk intelligence collection programs may result in further concerns surrounding privacy and technology products, which could harm our business.
The European Union data protection law, the General Data Protection Regulation (“GDPR”), which will become effective in May 2018, is wide-ranging in scope. To adapt to these new requirements, we are investing resources necessary to enhance our policies and controls across our business units, products and services relating to how we collect and use personal data relating to customers, distributors, resellers, personnel and suppliers. Additionally, we expect that the international transfer of personal data will present ongoing compliance challenges and complicate our business transactions as we negotiate and implement suitable arrangements with international customers and international and domestic suppliers. Failure to comply may lead to fines of up to €20 million or up to 4% of the annual global revenues of the infringer, whichever is greater. EU data protection laws and their interpretations continue to develop, and may be inconsistent from jurisdiction to jurisdiction, which may further impact our information processing activities. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities. In addition, countries outside the EU are considering or have passed legislation that requires local storage and processing of data, which could increase the cost and complexity of delivering our products and services. Our current arrangements for the transfer of personal data will need to continue to adapt to future judicial decisions and regulatory activity as laws on privacy and the protection of personal data continue to evolve in the countries in which we and our customers do business. If we do not adapt to such changes in the laws or regulations, our business and reputation could be harmed.
The failure of third parties to comply with privacy and data security laws could harm our business.
The regulatory framework for privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future, in particular as it relates to cloud computing vendors. Our existing contractual provisions may not protect us from claims for data loss or regulatory noncompliance made against cloud computing providers with whom we contract. Any failure by us or our channel partners or cloud computing vendors to comply with posted privacy policies, other privacy-related or data protection laws and regulations, or the privacy commitments contained in contracts could result in legal or regulatory proceedings and/or fines, which could harm our business and reputation.
Employee adoption of mobile initiatives depends on the credible and clear separation of enterprise applications and data and personal information on the device, as well as the privacy of such data. For our customers, it is also essential to maintain the security of enterprise data properly while retaining the native experience users expect. While we contractually obligate our customers to make the required disclosures and gain the required consents from their employees in order to comply with applicable law regarding the processing of personally identifiable information that the employer may access, we do not control whether they in fact do so, and in some jurisdictions such employee consent may not be enforceable. Any claim by an employee that his or her employer had not complied with applicable privacy laws in connection with the deployment and use of our software on the employee’s mobile device could harm our reputation and business and subject us to liability, whether or not warranted.
We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.
As part of our business strategy, we may make investments in complementary companies, solutions or technologies. We may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals. In addition, if we are unsuccessful at integrating such acquisitions or developing the acquired technologies, the revenue and operating results of the combined company could be adversely affected. We have in the past and could in the future record impairment losses in connection with acquisitions. Further, the integration of an acquired company typically requires significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or utilize the acquired technology or personnel or accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could adversely affect our financial condition or the value of our common stock. The sale of equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed
obligations and could also include covenants or other restrictions that would impede our ability to manage our operations.
We have indemnity obligations under our contracts with our customers and channel partners, which could have a material adverse effect on our business.
The mobile industry has been characterized by substantial patent infringement lawsuits. In our agreements with customers and channel partners, we typically agree to indemnify them for losses related to, among other things, claims by third parties of intellectual property infringement and sometimes data breaches resulting in the compromise of personal data. If any such indemnification obligations are triggered, we could face substantial liabilities or be forced to make changes to our solutions or terminate our customer agreements and refund monies. In addition, provisions regarding limitation of liability in our agreements with customers or channel partners may not be enforceable in some circumstances or jurisdictions or may not protect us from claims and related liabilities and costs. We maintain insurance to protect against certain types of claims associated with the use of our solutions, but our insurance may not adequately cover any such claims. In addition, even claims that ultimately are unsuccessful could result in expenditures of and divert management’s time and other resources. Furthermore, any legal claims from customers and channel partners could result in reputational harm and the delay or loss of market acceptance of our solutions.
A portion of our revenues are generated by sales to heavily regulated organizations and governmental entities, which are subject to a number of challenges and risks.
Some of our customers are either in highly regulated industries or are governmental entities and may be required to comply with more stringent regulations in connection with the implementation and use of our solutions. Selling to these entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will successfully complete a sale or that the organization will deploy our solution at scale. Highly regulated and governmental entities often require contract terms that differ from our standard arrangements and impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. If we are unable to gain any required federal clearance or certificate in a timely manner, or at all, we would likely be prohibited from selling to particular federal customers. In addition, government demand and payment for our solutions and services may be impacted by public sector budgetary cycles and funding authorizations, particularly in light of U.S. budgetary challenges, with funding reductions or delays adversely affecting public sector demand for our solutions. The additional costs associated with providing our solutions to governmental entities and highly regulated customers could harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently provide our solutions to them and to grow or maintain our customer base.
If our solutions do not interoperate with our customers’ IT infrastructures, sales of our solutions could be negatively affected.
Our solutions need to interoperate with our customers’ existing IT infrastructures, which have varied and complex specifications. As a result, we must attempt to ensure that our solutions interoperate effectively with these different, complex and varied back-end environments. To meet these requirements, we have and must continue to undertake development and testing efforts that require significant capital and employee resources. We may not accomplish these development efforts quickly or cost-effectively, or at all. If our solutions do not interoperate effectively, orders for our solutions could be delayed or cancelled, which would harm our revenues, gross margins and reputation, potentially resulting in the loss of existing and potential customers. The failure of our solutions to interoperate effectively within the enterprise environment may divert the attention of our engineering personnel from our development efforts and cause significant customer relations problems. In addition, if our customers are unable to implement our solutions successfully, they may not renew or expand their deployments of our solutions, customer perceptions of our solutions may be impaired and our reputation and brand may suffer.
Although technical problems experienced by users may not be caused by our solutions, our business and reputation may be harmed if users perceive our solutions as the cause of a device failure.
The ability of our solutions to operate effectively can be negatively impacted by many different elements unrelated to our solutions. For example, a user’s experience may suffer from an incorrect setting in his or her mobile device, an issue relating to his or her employer’s corporate network or an issue relating to the underlying mobile operating system, none of which we control. Even though technical problems experienced by users may not be caused by our solutions, users often perceive the underlying cause to be a result of poor performance of our solution. This perception, even if incorrect, could harm our business and reputation.
Our customers may exceed their licensed device or user count, and it is sometimes difficult to collect payments as a result of channel logistics, which could harm our business, financial position and results of operations.
Our customers license our solutions on either a per-device or per-user basis. Because we sell the vast majority of our solutions through channel partners, and in some cases multiple tiers of channel partners, the logistics of collecting payments for excess usage can sometimes be time-consuming. We may also encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. If we are unable to collect from our customers for their excess usage or otherwise or if we have to write down our accounts receivable, our revenues and operating results would suffer.
If the market for our solutions shrinks or does not continue to develop as we expect, our growth prospects may be harmed.
The success of our business depends on the continued growth and proliferation of mobile and other modern IT infrastructure as an increasingly important computing platform for businesses. Our business plan assumes that the demand for mobile and other modern IT solutions and the deployment of business apps on mobile devices will increase. However, the mobile IT market has slowed and may not develop as quickly as we expect, or at all, and businesses may not continue to elect to utilize mobile IT solutions as an advanced business platform. This market for our solutions may not develop for a variety of reasons, including that larger, more established companies will enter the market or that mobile operating system companies will offer substantially similar functionality or that companies may not deploy business apps at scale and thus may be satisfied with less advanced technologies. Accordingly, demand for our solutions may not continue to develop as we anticipate, or at all, and the growth of our business and results of operations may be adversely affected. In addition, because we derive substantially all of our revenue from the adoption and use of our platform, a decline or slowing growth in the mobile IT market would harm the results of our business operations more seriously than if we derived significant revenue from a variety of other products and services.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to our market opportunity and the expected growth in the mobile IT market and other markets may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth will be affected by many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.
Seasonality may cause fluctuations in our revenue.
We believe there are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. We believe this variability is largely due to our customers’ budgetary and spending patterns, as many customers spend the unused portions of their discretionary budgets prior to the end of their fiscal years. For example, we have historically recorded our highest level of total revenue in our fourth quarter, which we believe corresponds to the fourth quarter of a majority of our customers. In addition, the type of budget (operating versus capital) available to a customer may affect its decision to purchase a perpetual license or a subscription license. As our rate of
growth has slowed, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may be adversely affected.
Economic or political uncertainties or downturns could materially adversely affect our business.
Economic downturns or uncertainty could adversely affect our business operations or financial results. Negative conditions in the general economy and political sphere both in the United States and abroad, including conditions resulting from financial and credit market fluctuations and terrorist attacks on the United States, Europe, Asia Pacific or elsewhere, could cause a decrease in corporate spending on enterprise software in general and negatively affect the rate of growth of our business.
Economic downturns or economic and/or political uncertainty make it difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decision to purchase our products, which could delay and lengthen our sales cycles, or to deprioritize the portion of their IT budget focused on mobility. We cannot predict the timing, strength or duration of any economic slowdown, economic or political instability or recovery, generally or within any particular industry or geography. If the economic conditions of the general economy or industries in which we operate worsen from present levels, our business operations and financial results could be adversely affected.
Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by manmade problems such as network security breaches, computer viruses or terrorism.
Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire or flood, occurring near our headquarters could have a material adverse impact on our business, operating results and financial condition. Despite the implementation of network security measures, our networks also may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering. In addition, natural disasters, acts of terrorism or war could cause disruptions in our or our customers’ businesses or the economy as a whole. We also rely on information technology systems to communicate among our workforce and with third parties. Any disruption to our communications or systems, whether caused by a natural disaster or by manmade problems, such as power disruptions, could adversely affect our business.
If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Management’s assessment needs to include disclosure of any material weaknesses identified in our internal controls over financial reporting. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the date we are no longer an “emerging growth company,” as defined in the JOBS Act. We continued to qualify as an “emerging growth company,” as defined in the JOBS Act, and our independent registered public accounting firm was not required to attest to the effectiveness of our internal controls over financial reporting for the year ended December 31, 2017. Implementation of internal controls over financial reporting can be time-consuming, costly and complicated. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall below expectations of financial analysts and investors, resulting in a decline in our stock price.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock-based compensation and income taxes. Moreover, the new revenue recognition guidance, Topic 606 – Revenue from Contracts with Customers, requires more judgment than did the prior guidance.
Impairment of goodwill and other intangible assets would result in a decrease in earnings.
We have in the past and may in the future acquire intangible assets. Current accounting rules require that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events and circumstances considered in determining whether the carrying value of amortizable intangible assets and goodwill may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, or a significant decline in our stock price and/or market capitalization for a sustained period of time. To the extent such evaluation indicates that the useful lives of intangible assets are different than originally estimated, the amortization period is reduced or extended and the quarterly amortization expense is increased or decreased. Any impairment charges or changes to estimated amortization periods could have a material adverse effect on our financial results.
Risks Related to Our Intellectual Property
We have been sued by third parties for alleged infringement of their proprietary rights and may be sued in the future.
There is considerable patent and other intellectual property development activity in our industry. Our success depends in part on not infringing the intellectual property rights of others. From time to time, our competitors or other third parties have claimed, and we expect they will continue in the future to claim, that we are infringing their intellectual property rights, and we may be found to be infringing such rights.
For example, in December 2015, we and Good Technology announced the settlement of our three year mutual global patent litigation between us. The settlement included a narrow, non-material license agreement between us and Good Technology and a mutual dismissal of claims.
In the future, we may receive additional claims that our solutions infringe or violate the claimant’s intellectual property rights. However, we may be unaware of the intellectual property rights of others that may cover some or all of our solutions. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our solutions, or require that we comply with other unfavorable terms. If any of our customers are sued, we would in general be required to defend and/or settle the litigation on their behalf. In addition, if we are unable to obtain licenses or modify our solutions to make them non-infringing, we might have to refund a portion of perpetual license fees paid to us and terminate those agreements, which could further exhaust our resources. In addition, we may pay substantial settlement amounts or royalties on future solution sales to resolve claims or litigation, whether or not legitimately or successfully asserted against us. Even if we were to prevail in the actual or potential claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our
management and key personnel from our business operations. Such disputes, with or without merit, could also cause potential customers to refrain from purchasing our solutions or otherwise cause us reputational harm.
We have been sued by non-practicing entities, or NPEs, for patent infringement in the past and may be sued by NPEs in the future. While we have settled such litigation in the past, these lawsuits, with or without merit, require management attention and can be expensive.
If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.
Our ability to compete effectively is dependent in part upon our ability to protect our proprietary technology. We protect our proprietary information and technology through licensing agreements, third-party nondisclosure agreements and other contractual provisions, as well as through patent, trademark, copyright and trade secret laws in the United States and similar laws in other countries. There can be no assurance that these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or solutions. The laws of some foreign countries, including countries in which our solutions are sold, may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. In addition, third parties may seek to challenge, invalidate or circumvent our patents, trademarks, copyrights and trade secrets, or applications for any of the foregoing. There can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to compete could be significantly impaired.
To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and there can be no assurance that we will be successful in such action.
Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.
Our use of open source software could impose limitations on our ability to commercialize our solutions.
Our solutions contain software modules licensed for use from third-party authors under open source licenses, including the GNU Public License, the GNU Lesser Public License, the Apache License and others. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary solutions with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary solutions to the public or offer our solutions to users at no cost. This could allow our competitors to create similar solutions with lower development effort and time and ultimately could result in a loss of sales for us.
The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-engineer our solutions or to discontinue the sale of our solutions in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our business and operating results.
Risks Related to Our International Operations
Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our international revenue.
We derive a significant portion of our revenues from customers outside the United States. For the three months ended March 31, 2018 and for years ended December 31, 2017 and 2016, 57%, 53%, and 54% of our revenue, respectively, was attributable to our international customers, primarily those located in Europe. As of December 31, 2017, approximately 47% of our employees were located abroad.
We expect that our international activities will be dynamic over the foreseeable future as we continue to pursue opportunities in international markets, which will require significant management attention and financial resources. Therefore, we are subject to risks associated with having worldwide operations.
We have a limited history of marketing, selling and supporting our solutions internationally. As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining an international staff, and specifically staff related to sales and engineering, we may experience difficulties in foreign markets. In addition, business practices in the international markets that we serve may differ from those in the United States and may require us to include non-standard terms in customer contracts, such as extended warranty terms. To the extent that we may enter into customer contracts in the future that include non-standard terms related to payment, warranties or performance obligations, our operating results may be adversely affected. International operations are subject to other inherent risks, and our future results could be adversely affected by a number of factors, including:
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difficulties in executing an international channel partners strategy;
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burdens of complying with a wide variety of foreign laws, including heightened concerns and legal requirements relating to data and privacy;
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economic or political instability
and security concerns in countries outside the United States in which we operate or have customers
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unfavorable contractual terms or difficulties in negotiating contracts with foreign customers or channel partners as a result of varying and complex laws and contractual norms;
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difficulties in providing support and training to channel partners and customers in foreign countries and languages;
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heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results or result in fines and penalties;
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difficulties and costs of attracting and retaining employees and managing foreign operations
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import restrictions and the need to comply with export laws;
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difficulties in protecting intellectual property;
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difficulties in enforcing contracts and longer accounts receivable payment cycles;
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the effect of foreign exchange fluctuations on the competitiveness of our prices;
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potentially adverse tax consequences;
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the increased cost of terminating employees in some countries; and
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variability of foreign economic, political and labor conditions.
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As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and manage effectively these and other risks associated with our international operations. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, operating results and financial condition.
We rely on channel partners to sell our solutions in international markets, the loss of which could materially reduce our revenue.
We sell our solutions in international markets almost entirely through channel partners. We believe that establishing and maintaining successful relationships with these channel partners is, and will continue to be, critical to our financial success. Recruiting and retaining qualified channel partners and training them to be knowledgeable about our solutions requires significant time and resources. In some countries, we rely on a sole or very few channel partners and thus the loss of the channel partner could have a significant impact on our sales and support in those countries. To develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support our channel, including investment in systems and training. In particular, foreign-based service provider partners are large and complex businesses, and we may have difficulty negotiating and building successful business relationships with them.
In addition, existing and future channel partners will only partner with us if we are able to provide them with competitive offerings on terms that are commercially reasonable to them. If we fail to maintain the quality of our solutions or to update and enhance them or to offer them at competitive discounts, existing and future channel partners may elect to partner with one or more of our competitors. In addition, the terms of our arrangements with our channel partners must be commercially reasonable for both parties. If we are unable to reach agreements that are beneficial to both parties, then our channel partner relationships will not succeed. In addition, international channel partners often rely on business models that favor our on premises product over our cloud product because in the former, the channel partner may host and manage the software for, and provide additional administrative, support, training and other services to, the mutual customer for additional fees. This situation could impede sales of our cloud product in certain international markets.
If we fail to maintain relationships with our channel partners, fail to develop new relationships with other channel partners in new markets, fail to manage, train or incentivize existing channel partners effectively, or fail to provide channel partners with competitive solutions on terms acceptable to them, or if these partners are not successful in their sales efforts, our revenue may decrease and our operating results could suffer.
We have no long-term contracts or minimum purchase commitments with any of our channel partners, and our contracts with channel partners do not prohibit them from offering solutions that compete with ours, including solutions they currently offer or may develop in the future and incorporate into their own systems. Some of our competitors may have stronger relationships with our channel partners than we do, and we have limited control, if any, as to whether those partners sell our solutions, rather than our competitors’ solutions, or whether they devote resources to market and support our competitors’ solutions, rather than our solutions. Our failure to establish and maintain successful relationships with channel partners could materially adversely affect our business, operating results and financial condition.
Failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our activities outside the United States could subject us to penalties and other adverse consequences.
A significant portion of our revenues is and will continue to be from jurisdictions outside of the United States. As a result, we are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S.
companies and their intermediaries from making payments to corrupt foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, we may be held liable for actions taken by strategic or local partners or representatives. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies that we acquire.
In many foreign countries, particularly in countries with developing economies, including many countries in which we operate, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other similar laws and regulations. Although we have contractual provisions in our agreements with channel partners that require them to comply with the FCPA and similar laws, we have not engaged in formal FCPA training of our channel partners. Our channel partners could take actions in violation of our policies, for which we may be ultimately held responsible. Our development of infrastructure designed to identify FCPA matters and monitor compliance is at an early stage. If we or our intermediaries fail to comply with the requirements of the FCPA or other anti-corruption laws, governmental authorities in the U.S. or elsewhere could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.
We are subject to export controls, and our customers and channel partners are subject to import controls.
Certain of our solutions are subject to U.S. export controls and may be exported to certain countries outside the U.S. only by first obtaining an export license from the U.S. government, or by utilizing an existing export license exception, or after clearing U.S. government agency review. Obtaining the necessary export license or accomplishing a U.S. government review for a particular export may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain solutions to U.S. embargoed or sanctioned countries, governments and persons. If we were to fail to comply with U.S. export law requirements, U.S. customs regulations, U.S. economic sanctions or other applicable U.S. laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers and the possible loss of export or import privileges. U.S. export controls, sanctions and regulations apply to our channel partners as well as to us. Any failure by our channel partners to comply with such laws, regulations or sanctions could have negative consequences, including reputational harm, government investigations and penalties.
In addition, various countries regulate the import of certain encryption and other technology by requiring an import permit, authorization, pre-classification, import certification and/or an import license. Some countries have enacted laws that could limit our customers’ ability to implement our solutions in those countries.
Changes in our solutions or changes in export and import regulations may create delays in the introduction of our solutions into international markets, prevent our customers with international operations from deploying our solutions globally or, in some cases, prevent the export or import of our solutions to certain countries, governments or persons altogether. In addition, any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our solutions by, or in our decreased ability to export or sell our solutions to, existing or potential customers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business, financial condition and operating results.
Risks Related to Ownership of Our Common Stock
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to
limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
The price of our common stock has been and may continue to be weak, and you could lose all or part of your investment.
The trading price of our common stock has declined since our Initial Public Offering, and the shares are thinly traded. The trading price of our common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.
Since shares of our common stock were sold at our initial public offering, our stock price has ranged from as low as $2.56 to as high as $12.96 through March 31, 2018. These fluctuations could cause you to lose all or part of your investment in our common stock, because you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following:
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failure to meet quarterly guidance with regard to revenue, billings, cash flow breakeven or other key metrics;
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price and volume fluctuations in the overall stock market from time to time;
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volatility in the market prices and trading volumes of high technology stocks;
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changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
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sales of shares of our common stock by us or our stockholders;
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failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
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announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;
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the public’s reaction to our press releases, other public announcements and filings with the SEC;
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rumors and market speculation involving us or other companies in our industry;
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actual or anticipated changes in our results of operations or fluctuations in our operating results;
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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
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litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
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developments or disputes concerning our intellectual property or other proprietary rights;
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announced or completed acquisitions of businesses or technologies by us or our competitors;
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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
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changes in accounting standards, policies, guidelines, interpretations or principles;
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any major change in our management;
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general economic conditions and slow or negative growth of our markets; and
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other events or factors, including those resulting from war, incidents of terrorism or responses to these events.
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In addition, broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigation has often been instituted against these companies. Litigation of this type has been instituted against us, and could result in substantial costs and a diversion of our management’s attention and resources.
If financial or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. If any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely decline. Financial analysts have in the past ceased coverage of our stock or published adverse reports, and this may recur in the future. Any cessation of coverage or adverse reports would likely cause our stock price or trading volume to decline.
Insiders continue to have substantial control over our company, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 39% of the outstanding shares of our common stock as of March 31, 2018. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deter certain public investors from purchasing our common stock and might ultimately affect the market price of our common stock.
We have in the past failed, and may in the future fail, to meet our publicly announced guidance or other expectations about our business and future operating results, which has in the past caused, and would in the future cause, our stock price to decline.
We have provided and may continue to provide guidance about our business and future operating results as part of our press releases, conference calls or otherwise. In developing this guidance, our management must make certain assumptions and judgments about our future performance. Our business results may vary significantly from such guidance due to a number of factors, many of which are outside of our control, and which could adversely affect our operations and operating results. Furthermore, if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock would decline.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we are or will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NASDAQ Global Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations may further increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results.
Being a public company has made it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These and other factors, including the decline in our stock price and the other risks described in this “Risk Factors” section, could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit committee and compensation committee.
We are an “Emerging Growth Company,” and any decision on our part to comply only with certain reduced disclosure requirements applicable to Emerging Growth Companies could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the year in which we have more than $1.0 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the year ending after the fifth anniversary of the completion of our initial public offering. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile. For the year ended December 31, 2017, we continued to qualify as an “emerging growth company” as defined in the JOBS Act.
Our future capital needs are uncertain, and we may need to raise additional funds in the future. If we require additional funds in the future, those funds may not be available on acceptable terms, or at all.
We may need to raise substantial additional capital in the future to:
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fund our operations;
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continue our research and development;
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develop and commercialize new solutions; or
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acquire companies, in-licensed solutions or intellectual property.
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Our future funding requirements will depend on many factors, including:
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market acceptance of our solutions;
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the cost of our research and development activities;
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the cost of defending and resolving litigation or other legal disputes;
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the cost and timing of establishing additional sales, marketing and distribution capabilities;
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the cost and timing of establishing additional technical support capabilities;
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the effect of competing technological and market developments; and
|
|
|
|
|
|
|
—
|
the market for different types of funding and overall economic conditions.
|
|
|
|
|
We may require additional funds in the future, and we may not be able to obtain those funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders.
If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our solutions. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our development programs. We also may have to reduce marketing, customer support or other resources devoted to our solutions or cease operations. Any of these actions could harm our operating results.
Sales of substantial amounts of our common stock in the public markets, or the perception that these sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. At March 31, 2018, we have 100,608,155 shares of common stock outstanding, excluding any potential exercises of our outstanding stock options and vesting of RSUs.
In the future, we may issue additional shares of common stock, or securities with convertible features into our common stock, from time to time in connection with our employee equity plans, financings, acquisitions and investments or otherwise.
In February 2016, our Compensation Committee approved the issuance of 1,653,371 shares of common stock under our 2015 Non-Executive Bonus Plan. No shares were issued under our 2015 Executive Bonus Plan. For 2016, we implemented two stock-settled bonus plans, one for executives and one for non-executives, which resulted in the issuance of 1,010,550 shares of common stock in the first quarter of 2017. On June 14, 2017, our shareholders approved in a proxy vote the amendment and restatement of our 2014 Employee Stock Purchase Plan, or ESPP, to provide for a one-time increase of 1,200,000 shares of common stock available for issuance under the ESPP. In February of 2018, we issued 1,220,822 shares of common stock under our 2017 Executive and Non-Executive Stock-Settled Bonus Plans. In March and April 2018, we approved 2018 Non-Executive and Executive Stock-Settled Bonus Plans. The issuance of shares of common stock under RSUs, future bonus programs, or our ESPP could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.
Certain provisions in our charter documents and Delaware law could limit attempts by our stockholders to replace or remove our board of directors or current management and limit the market price of our common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
|
|
|
|
|
|
—
|
our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
|
|
|
|
|
|
|
—
|
our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;
|
|
|
|
|
|
|
—
|
our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
|
|
|
|
|
|
|
—
|
stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
|
|
|
|
|
|
|
—
|
our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
|
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of our company.
Our executive officers are entitled to accelerated vesting of their stock options pursuant to the terms of their employment arrangements under certain conditions following a change of control of the Company. In addition to the arrangements currently in place with some of our executive officers, we may enter into similar arrangements in the future with other officers. Such arrangements could delay or discourage a potential acquisition of the Company.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
U.S. GAAP are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. For example, in May 2014, the FASB issued accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. We were required to implement this guidance in the first quarter of our fiscal year 2018. The most significant impact relates to our accounting for subscriptions to our on-premise licenses, specifically, as under the new standard we recognize revenue from those subscriptions predominantly at the time of billing rather than ratably over the license term, potentially making revenue more volatile and difficult to predict. In addition, accounting for commissions is impacted significantly as we capitalize and amortize most commissions under the new standard instead of expensing commissions as incurred. Due to the complexity of certain of our contracts, the revenue recognition treatment required under the new standard is dependent on contract-specific terms. Any difficulties in adequately accounting under the new standard could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and h
arm investors’ confidence in us. In addition, to adopt the new standard we implemented a new revenue recognition module in our accounting system,
hired consultants and increased our spending on audit fees, thereby increasing our general and administrative expense through March 31, 2018 and we will incur higher audit fees going forward.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The majority of restricted stock units are subject to vesting. The underlying shares of common stock are issued when the restricted stock units vest. The majority of participants choose to participate in broker-assisted automatic sales program to satisfy their applicable tax withholding requirements. We do not treat the shares sold pursuant to this automatic sales program as common stock repurchases (see
Note 9
to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q).
We withheld shares through net settlements (where the award holder receives the net of the shares vested, after surrendering a portion of the shares back to the company for tax withholding) for our stock-settled bonus programs (the
2017 Executive Bonus Plan and 2017 Non-executive Bonus Plan)
. The following table provides a summary of the purchase activity upon the employee vesting and release of shares under the stock-settled bonus programs to satisfy tax withholding obligations in 2018:
|
|
|
|
|
|
|
|
|
|
|
Total number of shares
|
|
|
|
|
Period
|
|
repurchased
|
|
Average
price
paid
per
share
|
|
|
February 1, 2018 through February 28, 2018
|
|
752,564
|
|
$
|
4.95
|
|
|
Total shares repurchased
|
|
752,564
|
|
$
|
4.95
|
|
These purchases represent shares cancelled when surrendered in lieu of cash payments for tax obligations due from employees. These shares were not purchased as part of a publicly announced program to purchase shares
Through of March 31, 2018, we have used proceeds from our IPO to fund our operations, including hiring employees in all major functional areas. We maintain the remaining cash received from our IPO in cash and cash equivalents and short-term investments. As of March 31, 2018, no portion of the proceeds from our IPO have been paid by us directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates, other than payments in the ordinary course of business to officers for salaries and bonuses, and payments to our directors for service on our Board of Directors or on committees of our Board of Directors.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
2017 Selected Quarterly Financial Information, as amended for adoption of ASC 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOBILEIRON, INC.
|
|
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Amounts in thousands, except for per share data)
|
|
(Unaudited)
|
|
|
|
Three Months Ended
|
|
|
|
March 31.
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
14,420
|
|
$
|
14,778
|
|
$
|
16,531
|
|
$
|
18,306
|
|
Cloud services
|
|
|
9,023
|
|
|
9,549
|
|
|
9,539
|
|
|
10,617
|
|
Software support and services
|
|
|
18,666
|
|
|
18,752
|
|
|
19,437
|
|
|
20,140
|
|
Total revenue
|
|
|
42,109
|
|
|
43,079
|
|
|
45,507
|
|
|
49,063
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License (2)
|
|
|
447
|
|
|
534
|
|
|
708
|
|
|
514
|
|
Cloud services (1)
|
|
|
1,946
|
|
|
2,248
|
|
|
2,318
|
|
|
2,335
|
|
Software support and services (1)
|
|
|
4,877
|
|
|
5,249
|
|
|
4,681
|
|
|
4,369
|
|
Restructuring charges
|
|
|
-
|
|
|
-
|
|
|
311
|
|
|
-
|
|
Total cost of revenue
|
|
|
7,270
|
|
|
8,031
|
|
|
8,018
|
|
|
7,218
|
|
Gross profit
|
|
|
34,839
|
|
|
35,048
|
|
|
37,489
|
|
|
41,845
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (1)
|
|
|
17,193
|
|
|
19,666
|
|
|
19,581
|
|
|
18,910
|
|
Sales and marketing (1)
|
|
|
23,663
|
|
|
26,145
|
|
|
23,920
|
|
|
23,079
|
|
General and administrative (1)
|
|
|
6,188
|
|
|
7,840
|
|
|
7,210
|
|
|
6,853
|
|
Litigation settlement charge
|
|
|
1,143
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Restructuring expense
|
|
|
-
|
|
|
-
|
|
|
489
|
|
|
549
|
|
Total operating expenses
|
|
|
48,187
|
|
|
53,651
|
|
|
51,200
|
|
|
49,391
|
|
Operating loss
|
|
|
(13,348)
|
|
|
(18,603)
|
|
|
(13,711)
|
|
|
(7,546)
|
|
Other income - net
|
|
|
174
|
|
|
339
|
|
|
188
|
|
|
287
|
|
Loss before income taxes
|
|
|
(13,174)
|
|
|
(18,264)
|
|
|
(13,523)
|
|
|
(7,259)
|
|
Income tax expense
|
|
|
199
|
|
|
324
|
|
|
358
|
|
|
261
|
|
Net loss
|
|
$
|
(13,373)
|
|
$
|
(18,588)
|
|
$
|
(13,881)
|
|
$
|
(7,520)
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.15)
|
|
$
|
(0.20)
|
|
$
|
(0.15)
|
|
$
|
(0.08)
|
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
|
|
90,439
|
|
|
92,963
|
|
|
95,024
|
|
|
96,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cloud services
|
|
|
82
|
|
|
268
|
|
|
225
|
|
|
262
|
|
Software support and services
|
|
|
619
|
|
|
958
|
|
|
707
|
|
|
651
|
|
Research and development
|
|
|
2,766
|
|
|
4,366
|
|
|
3,914
|
|
|
3,474
|
|
Sales and marketing
|
|
|
1,772
|
|
|
2,582
|
|
|
2,258
|
|
|
2,047
|
|
General and administrative
|
|
|
1,308
|
|
|
2,450
|
|
|
1,974
|
|
|
1,048
|
|
|
|
$
|
6,547
|
|
$
|
10,624
|
|
$
|
9,078
|
|
$
|
7,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Includes amortization of intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual license
|
|
$
|
154
|
|
$
|
154
|
|
$
|
137
|
|
$
|
100
|
|
|
|
$
|
154
|
|
$
|
154
|
|
$
|
137
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31.
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
(in thousands)
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
Disaggregation of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual license
|
|
$
|
11,138
|
|
$
|
10,957
|
|
$
|
11,393
|
|
$
|
14,552
|
|
Professional services
|
|
|
685
|
|
|
709
|
|
|
844
|
|
|
902
|
|
Non-recurring revenue
|
|
|
11,823
|
|
|
11,666
|
|
|
12,237
|
|
|
15,454
|
|
Upfront on-premise subscription
|
|
|
3,282
|
|
|
3,821
|
|
|
5,137
|
|
|
3,754
|
|
Ratable on-premise subscription
|
|
|
3,735
|
|
|
3,593
|
|
|
3,583
|
|
|
3,868
|
|
Cloud services
|
|
|
9,023
|
|
|
9,549
|
|
|
9,539
|
|
|
10,617
|
|
Software support on perpetual licenses
|
|
|
14,246
|
|
|
14,450
|
|
|
15,011
|
|
|
15,370
|
|
Recurring revenue
|
|
|
30,286
|
|
|
31,413
|
|
|
33,270
|
|
|
33,609
|
|
Total revenue
|
|
$
|
42,109
|
|
$
|
43,079
|
|
$
|
45,507
|
|
$
|
49,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOBILEIRON, INC.
|
|
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
|
|
(Amounts in thousands, except for per share data and percentages)
|
|
(Unaudited)
|
|
|
|
Three Months Ended
|
|
|
|
March 31.
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
|
Non-GAAP gross profit reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross profit
|
|
$
|
34,839
|
|
$
|
35,048
|
|
$
|
37,489
|
|
$
|
41,845
|
|
|
Stock-based compensation expenses
|
|
|
701
|
|
|
1,226
|
|
|
932
|
|
|
913
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
137
|
|
|
100
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
311
|
|
|
-
|
|
|
Non-GAAP gross profit
|
|
$
|
35,694
|
|
$
|
36,428
|
|
$
|
38,869
|
|
$
|
42,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP gross margin reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross margin: GAAP gross profit over total revenue
|
|
|
82.7
|
%
|
|
81.4
|
%
|
|
82.4
|
%
|
|
85.3
|
%
|
|
GAAP to non-GAAP gross margin adjustments
|
|
|
2.1
|
%
|
|
3.2
|
%
|
|
3.0
|
%
|
|
2.1
|
%
|
|
Non-GAAP gross margin: Non-GAAP gross profit over total revenue
|
|
|
84.8
|
%
|
|
84.6
|
%
|
|
85.4
|
%
|
|
87.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating loss reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
$
|
(13,348)
|
|
$
|
(18,603)
|
|
$
|
(13,711)
|
|
$
|
(7,546)
|
|
|
Stock-based compensation expenses
|
|
|
6,547
|
|
|
10,624
|
|
|
9,078
|
|
|
7,482
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
137
|
|
|
100
|
|
|
Litigation settlement charge
|
|
|
1,143
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
800
|
|
|
549
|
|
|
Non-GAAP operating loss
|
|
$
|
(5,504)
|
|
$
|
(7,825)
|
|
$
|
(3,696)
|
|
$
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating margin reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin: GAAP operating loss over total revenue
|
|
|
(31.7)
|
%
|
|
(43.2)
|
%
|
|
(30.1)
|
%
|
|
(15.4)
|
%
|
|
GAAP to non-GAAP operating margin adjustments
|
|
|
18.6
|
%
|
|
25.0
|
%
|
|
22.0
|
%
|
|
16.6
|
%
|
|
Non-GAAP operating margin: Non-GAAP operating loss over total revenue
|
|
|
(13.1)
|
%
|
|
(18.2)
|
%
|
|
(8.1)
|
%
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(13,373)
|
|
$
|
(18,588)
|
|
$
|
(13,881)
|
|
$
|
(7,520)
|
|
|
Stock-based compensation expenses
|
|
|
6,547
|
|
|
10,624
|
|
|
9,078
|
|
|
7,482
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
137
|
|
|
100
|
|
|
Litigation settlement charge
|
|
|
1,143
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
800
|
|
|
549
|
|
|
Non-GAAP net loss
|
|
$
|
(5,529)
|
|
$
|
(7,810)
|
|
$
|
(3,866)
|
|
$
|
611
|
|
|
Non-GAAP net loss per share reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share
|
|
$
|
(0.15)
|
|
$
|
(0.20)
|
|
$
|
(0.15)
|
|
$
|
(0.08)
|
|
|
Stock-based compensation expenses
|
|
|
0.08
|
|
|
0.12
|
|
|
0.10
|
|
|
0.08
|
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Litigation settlement charge
|
|
|
0.01
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
0.01
|
|
|
0.01
|
|
|
Non-GAAP net loss per share
|
|
$
|
(0.06)
|
|
$
|
(0.08)
|
|
$
|
(0.04)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
42,109
|
|
$
|
43,079
|
|
$
|
45,507
|
|
$
|
49,063
|
|
|
Total unearned revenue, end of period
|
|
|
64,043
|
|
|
63,712
|
|
|
66,932
|
|
|
77,022
|
|
|
Less: Total unearned revenue, beginning of period
|
|
|
(60,588)
|
|
|
(64,043)
|
|
|
(63,712)
|
|
|
(66,932)
|
|
|
Total customer arrangements with termination rights, end of period
|
|
|
14,210
|
|
|
16,323
|
|
|
18,581
|
|
|
19,546
|
|
|
Less: Total customer arrangements with termination rights, beginning of period
|
|
|
(14,198)
|
|
|
(14,210)
|
|
|
(16,323)
|
|
|
(18,581)
|
|
|
Total unbilled accounts receivable, end of period
|
|
|
(3,013)
|
|
|
(3,008)
|
|
|
(3,636)
|
|
|
(3,435)
|
|
|
Less: Total unbilled accounts receivable, beginning of period
|
|
|
2,811
|
|
|
3,013
|
|
|
3,008
|
|
|
3,636
|
|
|
Billings
|
|
$
|
45,374
|
|
$
|
44,866
|
|
$
|
50,357
|
|
$
|
60,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
724
|
|
$
|
(3,840)
|
|
$
|
(4,249)
|
|
$
|
10,399
|
|
|
Purchase of property and equipment
|
|
|
(393)
|
|
|
(529)
|
|
|
(4,124)
|
|
|
(1,408)
|
|
|
Free cash flow
|
|
$
|
331
|
|
$
|
(4,369)
|
|
$
|
(8,373)
|
|
$
|
8,991
|
|
2016 Selected Quarterly Financial Information, as amended for adoption of ASC 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOBILEIRON, INC.
|
|
QUARTERLY CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Amounts in thousands, except for per share data)
|
|
(Unaudited)
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
14,777
|
|
$
|
15,063
|
|
$
|
17,042
|
|
$
|
19,465
|
|
Cloud services
|
|
|
7,327
|
|
|
7,106
|
|
|
8,043
|
|
|
8,617
|
|
Software support and services
|
|
|
15,941
|
|
|
17,160
|
|
|
17,674
|
|
|
17,967
|
|
Total revenue
|
|
|
38,045
|
|
|
39,329
|
|
|
42,759
|
|
|
46,049
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License (2)
|
|
|
866
|
|
|
697
|
|
|
726
|
|
|
607
|
|
Cloud services (1)
|
|
|
1,896
|
|
|
2,167
|
|
|
2,201
|
|
|
2,110
|
|
Software support and services (1)
|
|
|
4,508
|
|
|
5,253
|
|
|
4,701
|
|
|
4,635
|
|
Restructuring charges
|
|
|
-
|
|
|
-
|
|
|
181
|
|
|
-
|
|
Total cost of revenue
|
|
|
7,270
|
|
|
8,117
|
|
|
7,809
|
|
|
7,352
|
|
Gross profit
|
|
|
30,775
|
|
|
31,212
|
|
|
34,950
|
|
|
38,697
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (1)
|
|
|
16,927
|
|
|
18,019
|
|
|
16,238
|
|
|
16,213
|
|
Sales and marketing (1)
|
|
|
26,283
|
|
|
27,871
|
|
|
23,772
|
|
|
24,402
|
|
General and administrative (1)
|
|
|
7,548
|
|
|
8,265
|
|
|
6,961
|
|
|
6,921
|
|
Restructuring expense
|
|
|
-
|
|
|
-
|
|
|
871
|
|
|
-
|
|
Total operating expenses
|
|
|
50,758
|
|
|
54,155
|
|
|
47,842
|
|
|
47,536
|
|
Operating loss
|
|
|
(19,983)
|
|
|
(22,943)
|
|
|
(12,892)
|
|
|
(8,839)
|
|
Other income (expense) - net
|
|
|
135
|
|
|
30
|
|
|
19
|
|
|
(39)
|
|
Loss before income taxes
|
|
|
(19,848)
|
|
|
(22,913)
|
|
|
(12,873)
|
|
|
(8,878)
|
|
Income tax expense
|
|
|
176
|
|
|
198
|
|
|
298
|
|
|
310
|
|
Net loss
|
|
$
|
(20,024)
|
|
$
|
(23,111)
|
|
$
|
(13,171)
|
|
$
|
(9,188)
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.24)
|
|
$
|
(0.27)
|
|
$
|
(0.15)
|
|
$
|
(0.10)
|
|
Weighted-average shares used to compute net loss per share, basic and diluted
|
|
|
82,977
|
|
|
85,317
|
|
|
86,713
|
|
|
88,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cloud services
|
|
|
100
|
|
|
241
|
|
|
183
|
|
|
207
|
|
Software support and services
|
|
|
290
|
|
|
814
|
|
|
564
|
|
|
644
|
|
Research and development
|
|
|
2,601
|
|
|
3,812
|
|
|
2,709
|
|
|
2,606
|
|
Sales and marketing
|
|
|
3,119
|
|
|
2,992
|
|
|
2,307
|
|
|
2,056
|
|
General and administrative
|
|
|
2,139
|
|
|
2,686
|
|
|
2,109
|
|
|
2,210
|
|
|
|
$
|
8,249
|
|
$
|
10,545
|
|
$
|
7,872
|
|
$
|
7,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Includes amortization of intangible assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual license
|
|
$
|
154
|
|
$
|
154
|
|
$
|
154
|
|
$
|
154
|
|
|
|
$
|
154
|
|
$
|
154
|
|
$
|
154
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
(in thousands)
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
Disaggregation of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual license
|
|
$
|
11,549
|
|
$
|
10,845
|
|
$
|
12,760
|
|
$
|
15,579
|
|
Professional services
|
|
|
760
|
|
|
905
|
|
|
821
|
|
|
583
|
|
Non-recurring revenue
|
|
|
12,309
|
|
|
11,750
|
|
|
13,581
|
|
|
16,162
|
|
Upfront on-premise subscription
|
|
|
3,228
|
|
|
4,218
|
|
|
4,282
|
|
|
3,886
|
|
Ratable on-premise subscription
|
|
|
3,450
|
|
|
3,625
|
|
|
3,548
|
|
|
3,677
|
|
Cloud services
|
|
|
7,327
|
|
|
7,106
|
|
|
8,043
|
|
|
8,617
|
|
Software support on perpetual licenses
|
|
|
11,731
|
|
|
12,630
|
|
|
13,305
|
|
|
13,707
|
|
Recurring revenue
|
|
|
25,736
|
|
|
27,579
|
|
|
29,178
|
|
|
29,887
|
|
Total revenue
|
|
$
|
38,045
|
|
$
|
39,329
|
|
$
|
42,759
|
|
$
|
46,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOBILEIRON, INC.
|
|
|
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
|
|
|
(Amounts in thousands, except for per share data and percentages)
|
|
|
(Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
|
Non-GAAP gross profit reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross profit
|
|
$
|
30,775
|
|
$
|
31,212
|
|
$
|
34,950
|
|
$
|
38,697
|
|
|
Stock-based compensation expenses
|
|
|
390
|
|
|
1,055
|
|
|
747
|
|
|
851
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
181
|
|
|
-
|
|
|
Non-GAAP gross profit
|
|
$
|
31,319
|
|
$
|
32,421
|
|
$
|
36,032
|
|
$
|
39,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP gross margin reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross margin: GAAP gross profit over total revenue
|
|
|
80.9
|
%
|
|
79.4
|
%
|
|
81.7
|
%
|
|
84.0
|
%
|
|
GAAP to non-GAAP gross margin adjustments
|
|
|
1.4
|
%
|
|
3.0
|
%
|
|
2.6
|
%
|
|
2.2
|
%
|
|
Non-GAAP gross margin: Non-GAAP gross profit over total revenue
|
|
|
82.3
|
%
|
|
82.4
|
%
|
|
84.3
|
%
|
|
86.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating loss reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating loss
|
|
$
|
(19,983)
|
|
$
|
(22,943)
|
|
$
|
(12,892)
|
|
$
|
(8,839)
|
|
|
Stock-based compensation expenses
|
|
|
8,249
|
|
|
10,545
|
|
|
7,872
|
|
|
7,723
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
1,052
|
|
|
-
|
|
|
Non-GAAP operating loss
|
|
$
|
(11,580)
|
|
$
|
(12,244)
|
|
$
|
(3,814)
|
|
$
|
(962)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating margin reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin: GAAP operating loss over total revenue
|
|
|
(52.5)
|
%
|
|
(58.3)
|
%
|
|
(30.2)
|
%
|
|
(19.2)
|
%
|
|
GAAP to non-GAAP operating margin adjustments
|
|
|
22.1
|
%
|
|
27.2
|
%
|
|
21.2
|
%
|
|
17.1
|
%
|
|
Non-GAAP operating margin: Non-GAAP operating loss over total revenue
|
|
|
(30.4)
|
%
|
|
(31.1)
|
%
|
|
(8.9)
|
%
|
|
(2.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss
|
|
$
|
(20,024)
|
|
$
|
(23,111)
|
|
$
|
(13,171)
|
|
$
|
(9,188)
|
|
|
Stock-based compensation expenses
|
|
|
8,249
|
|
|
10,545
|
|
|
7,872
|
|
|
7,723
|
|
|
Amortization of intangible assets
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
154
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
1,052
|
|
|
-
|
|
|
Non-GAAP net loss
|
|
$
|
(11,621)
|
|
$
|
(12,412)
|
|
$
|
(4,093)
|
|
$
|
(1,311)
|
|
|
Non-GAAP net loss per share reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss per share
|
|
$
|
(0.24)
|
|
$
|
(0.27)
|
|
$
|
(0.15)
|
|
$
|
(0.10)
|
|
|
Stock-based compensation expenses
|
|
|
0.10
|
|
|
0.12
|
|
|
0.08
|
|
|
0.09
|
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Restructuring charge
|
|
|
-
|
|
|
-
|
|
|
0.02
|
|
|
-
|
|
|
Non-GAAP net loss per share
|
|
$
|
(0.14)
|
|
$
|
(0.15)
|
|
$
|
(0.05)
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
38,045
|
|
$
|
39,329
|
|
$
|
42,759
|
|
$
|
46,049
|
|
|
Total unearned revenue, end of period
|
|
|
50,831
|
|
|
50,892
|
|
|
53,959
|
|
|
60,588
|
|
|
Less: Total unearned revenue, beginning of period
|
|
|
(50,014)
|
|
|
(50,831)
|
|
|
(50,892)
|
|
|
(53,959)
|
|
|
Total customer arrangements with termination rights, end of period
|
|
|
7,838
|
|
|
9,664
|
|
|
11,586
|
|
|
14,198
|
|
|
Less: Total customer arrangements with termination rights, beginning of period
|
|
|
(7,678)
|
|
|
(7,838)
|
|
|
(9,664)
|
|
|
(11,586)
|
|
|
Total unbilled accounts receivable, end of period
|
|
|
(2,396)
|
|
|
(2,400)
|
|
|
(2,897)
|
|
|
(2,811)
|
|
|
Less: Total unbilled accounts receivable, beginning of period
|
|
|
1,662
|
|
|
2,396
|
|
|
2,400
|
|
|
2,897
|
|
|
Billings
|
|
$
|
38,288
|
|
$
|
41,212
|
|
$
|
47,251
|
|
$
|
55,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
(3,546)
|
|
$
|
(10,126)
|
|
$
|
(6,525)
|
|
$
|
8,468
|
|
|
Purchase of property and equipment
|
|
|
(1,589)
|
|
|
(463)
|
|
|
(297)
|
|
|
(581)
|
|
|
Free cash flow
|
|
$
|
(5,135)
|
|
$
|
(10,589)
|
|
$
|
(6,822)
|
|
$
|
7,887
|
|
Item 6. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
|
Exhibit
Number
|
|
Description
|
|
Exhibit
Number
|
|
Filing
|
|
Filing
Date
|
|
File No.
|
|
Filed
Herewith
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of MobileIron, Inc.
|
|
3.1
|
|
8-K
|
|
June 17, 2014
|
|
001-36471
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of MobileIron, Inc.
|
|
3.4
|
|
S-1/A
|
|
May 29, 2014
|
|
333-195089
|
|
|
|
4.1
|
|
Reference is made to Exhibits 3.1 and 3.2 above
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Amended and Restated Investors’ Rights Agreement, dated August 29, 2013
|
|
4.2
|
|
S-1
|
|
April 7, 2014
|
|
333-195089
|
|
|
|
10.1
(1)
|
|
2018 Executive Bonus Plan
|
|
10.1
|
|
8-K
|
|
April 25, 2018
|
|
001-36471
|
|
|
|
10.2
|
|
2018 Non-Executive Bonus Plan
|
|
|
|
|
|
|
|
|
|
X
|
|
10.3
|
|
Offer Letter between the Company and Sohail Parekh, dated March 12, 2018
|
|
|
|
|
|
|
|
|
|
X
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
31.2
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
32.1
(2)
|
|
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
EX—101.INS
|
|
XBRL Instance Document
|
|
|
|
|
EX—101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
EX—101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
EX—101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
EX—101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
EX—101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
(1)
|
|
Management contract or compensation plan or arrangement.
|
|
|
(2)
|
|
The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
MOBILEIRON, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Simon Biddiscombe
|
|
|
|
|
Simon Biddiscombe
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Shawn Ayers
|
|
|
|
|
Shawn Ayers
|
|
|
|
|
Interim Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer and Accounting Officer)
|
Dated: May 4, 2018
