MobileIron, Inc.

Sam Wilson - Head, Investor Relations Barry Mainz - Chief Executive Officer Simon Biddiscombe - Chief Financial Officer

Robert Breza - Northland Capital Market Raimo Lenschow - Barclays Michael Kim - Imperial Capital

Thank you, Operator. Good afternoon.

And welcome to MobileIron's first quarter 2017 financial results conference call. Joining me from the company are Barry Mainz, CEO; and Simon Biddiscombe, CFO.

The format of the call will be an introduction by Barry then Simon will provide details on the financials. We will then have time for questions.

If you have not received a copy of today's release, please call MobileIron Investor Relations or go to MobileIron's Investor Relations website at investors.mobileiron.com. Today's conference call contains forward-looking statements that involve risks and uncertainties, including statements regarding MobileIron's revenue, operating expenses, GAAP and non-GAAP financial metrics, projections and trends.

All of these forward-looking statements are subject to a number of significant risks, uncertainties and assumptions. Actual results could differ materially from the statements made on this call.

Please see the Risk Factors section of our SEC filings. All of the statements made on the call are made as of today.

We assume no obligation and do not currently intend to update any such forward-looking statements. If this call is reviewed after today, the information presented during the call may not contain current or accurate information.

With regard to non-GAAP financial metrics, while we believe them to be hopefully in understanding MobileIron’s financial performance, they are not meant to be considered an isolation or as a substitute for the comparable GAAP metrics. They should only be read in conjunction with MobileIron’s consolidated financial statements prepared in accordance with GAAP.

A reconciliation of the non-GAAP financial metrics to the GAAP metrics can be found in our press release and on the Investor Relations page on our website At this time, I'd like to turn the call over to Barry. Please go ahead, sir.

Thank you, Sam, and good afternoon. In my remarks today, I will provide a brief commentary on the first quarter, discuss key highlights and provide progress on our growth initiative in the mobile and cloud security market.

Simon will then provide our detailed financial results. First quarter revenues were $42.3 million, slightly above the midpoint guidance range of $41 million to $43 million that we provided on our last earnings call.

Billings were $45.4 million, above the middle of our $44 million to $46 million guidance and growth of 19% over the first quarter of last year. This marks the third quarter in a row of double-digit growth.

We are seeing the positive result of our strategy and execution and we are off to a great start 2017. At our Analyst Day in February, I communicated our four growth initiatives.

These are core EMM, cloud security, desktop security and the Internet of Things. First we believe the EMM market remains robust and we have lots of room to grow in EMM.

Let me share some recent activities and win. Our cloud platform remains our fastest growing platform, driven by our rich feature set and broadening market demand.

In the U.S. our relationship with Verizon is ramping nicely with the particular emphasis on selling cloud solution.

T-Mobile, the U.S.’ s third largest wireless carrier with over 65 million subscribers placed a renewal and large expand order for MobileIron Cloud.

MobileIron is the preferred internal vendor for the largest three wireless carriers of the U.S. We are seeing increased demand from emerging markets such as Middle East, Russia and Latin America.

You can see this in our cumulative number of customers, which has grown by 1,000 in the last few quarters. Let me share an important win in Brazil, [ph] Brindenie.

Brindenie (4:24) is the world's largest maker of stand with the capacity produce up to 250 million parachutes per year. It was a head-to-head win against one of our largest competitors.

Mobile security is a global need and we are evolving our list to market to address the broader opportunity. We continue to invest deeply to meet the needs of our government and other high security customers, building on our pioneering work with our partners Entrust Datacard to replace smart cards with multifactor-derived personal identity.

We recently announced that the National Institute of Standards and Technology will include our joint technology in their reference architecture for the next-generation security. MobileIron was of the first vendor to provide a working implementation of derived credentials to allow customers like the U.S.

Department of Agriculture to authenticate to agency resources without requiring employees to go through burden and staff. Our investment in the federal market has delivered.

We are winning the largest U.S. federal agencies with very stringent security requirement.

In the quarter we won United State Mint, the fifth largest civilian government agencies. The Mint chose MobileIron Cloud based on its security features, integration with Office 365 and our government accreditation throughout federal.

This is now the third sovereign Mint that has chosen MobileIron. Success and certification in the U.S.

federal community has paid dividend to our international business as well. This quarter the Swedish tax authority replaced its legacy mobile investment with MobileIron, because of our government great security and single sign-on capabilities across iOS, Android and Windows Phone, something their own solution could not handle.

Government agencies are a stronger vertical for us because they are upgrading their legacy BlackBerry technology and expanding to use mobile apps and cloud services. We like our position in this vertical globally and expect our business to grow strongly this year.

Let’s talk about cloud security now. MobileIron Access is our cloud security product that helps enterprises enables secure usage of increasingly popular cloud services.

Access was included in 20% of our largest deal. We are off to a great start with two quarters of Access sales exceeding our expectations.

So why our customers buy MobileIron Access, because they need to be able to ensure that only trusted users on trusted devices using trusted app to get to enterprise data and cloud services like Office 365 and Salesforce. Access can permit or block cloud access based on user, application, IP address, identity, device posture, geolocation, time of day or other criteria.

Users have move beyond email and mobile apps are now the way we get things done. In the U.S.

people spent half their digital media time using smartphone application according to comScore. SaaS vendors are for native mobile apps, which cache and process data, meaning that enterprise data is now persistent on the device.

This can create significant security risk. One missing smartphone can mean a loss of hundred thousand or even millions of customer record, patient data or financial information.

Without stability that MobileIron Access provide to put proper controls in place, enterprises don't have a mean of preventing expensive data from moving to unsecured or unauthorized cloud or apps. And the regulators are catching up.

The EU General Data Protection Regulation or GDPR requires organizations that handle EU customer records, ensure that data remains under the organization's control and that privacy is protected by design. The penalties for noncompliance with GDPR are substantial.

The maximum fine are either €20 million or 4% of the companies worldwide revenue, whichever one is higher. GDPR is an issue for every multinational organization and MobileIron Access provides an unprecedented layer of security and control for enterprise data moving between apps and cloud.

Meanwhile, recently enacted French Right to Disconnect Law, means that organizations have to limit employee access to enterprise services outside predefined workout. With MobileIron Access companies can time set, access to enterprise resources and ensure that employees can't connect to email or other corporate resources.

Just as MobileIron led the way in the transition from device security to application security in 2013, we are now leading the way with MobileIron secures, which we define as a combination of our MobileIron EMM platform plus MobileIron Access. Cloud services are becoming mainstream and the mobile devices connected to them, there are security gap that leads enterprise data vulnerable.

Here is a few examples, an employee installs the Office 365 mobile app on a jailbroken smartphone. Now that data is far more vulnerable to hackers and now because jailbreaking will disable the operating system native encryption.

In this scenario MobileIron Access can ensure that only secured devices with encryption are able to handle enterprise data. Another use case is that a salesperson installs the Salesforce1 app on their personal iPad or logging through the web browser.

At this point they can take a lot of actions, including downloading the data to a device that is not under corporate management creating both security and compliance risk. Finally, here is a scenario that involve both security and compliance issue.

There are dozens of apps that promises streamline in salesperson's workflow and use APIs to connect his salesforce.com, sounds great, but when these apps are not under IT control, you end up with customer data in an unauthorized app and the organization has lost control of its data, the huge issue for heavily regulated industries, because they need to audit where the data goes for regulatory compliance. MobileIron Access provides auditability down to the device and app level around the enterprise to prove they can control -- they have control over their information and that compensated controls like containerization and encryption on play.

We continue to add capabilities to MobileIron Access and in Q1 we added new integrations with top cloud services Concur, Tableau, Workday, and Facebook Workplace and there is more to come. It's no wonder that MobileIron Access was nominated for so many awards during this quarter.

Third, desktop security, the legacy tangle of software and services typically is due of antivirus, VPN, patch management, image management that was controlled and lockdown by IT is transforming to EMM and sub service. In this world we believe MobileIron can provide greater security at lower costs.

We have hundred customers trialing Windows 10 on both tablet and desktops with our EMM software to realize example. During the quarter, we announced the global partnership with Lenovo to accelerate our presence in this market and help us build scale.

Lenovo is the world's leading PC manufacturer and ship 22% of all traditional PCs globally in the fourth quarter. The addition of MobileIron security platform rounds out Lenovo's modern enterprise computing portfolio, a collection of offerings that provides modern computing, security and infrastructure products.

Lenovo’s customers will be able to purchase MobileIron's comprehensive security separate or as part of a bundle package purchase at the same time as Lenovo PCs, tablets and smartphones. Lenovo will sell MobileIron directly to customers entering nearly 20,000 U.S.

channel partners. We are Lenovo's first and preferred desktop security provider and we believe that this partnership will help us shift the market for Win 10 security to our security model.

Finally, during the first quarter we announced an IoT division headed by IoT expert, Santhosh Nair. IoT is an important marketing agency to EMM.

Many of the security and scale concerns customers have in their IoT initiatives run parallel to the challenges we saw for EMM. We entered into the market at the behest of our customers whose IT department now entrust us to secure their mobile devices and date.

As IoT security need become more define, these customers look to us to bring our mobile expertise to connect it. We believe our pioneering work in the mobile market is readily transferable to IoT.

Right now the majority of the IoT market is custom software. What we bring is the track record of building commercial software that can already do lifecycle management, gateway inventory, configuration and update, certificate-based identity and authentication, and network access control.

These are technologies we believe are directly usable in current IoT environment. We should have a revenue ready product by the end of the year and believe that IoT will be meaningful to our business in the years to come.

To reiterate, as we look ahead to the rest of the year and beyond, we see our core EMM business, cloud security, desktop security and IoT powering our growth. In closing, the company had a great first quarter, our second quarter of positive cash flow and our third quarter of double-digit growth.

We believe we are well-positioned for continued success in 2017 and I want to thank our employees, our shareholders, our partners and our customers for their commitment. Now I will turn the call over to Simon.

Thanks, Barry, and good afternoon. The first quarter of 2017 saw a continued marked improvement in our financial performance.

Billings and revenue were above the midpoint of our guidance range, our sales execution was solid, new product contribution increased and renewal rates remained high. Operating expenses were below our expected range as a result of improved expense management across all functions.

All of this combined led to the company delivering the second consecutive quarter of positive cash flow. As a reminder, our discussion today refers to non-GAAP financial measures unless otherwise noted.

Our press release, Form 8-K and website provide a reconciliation of GAAP to non-GAAP financial results. For the first quarter ended March 31, 2017, gross billings were $45.4 million, up 19% year-over-year.

This marks the third quarter in a row with gross billings growth in the double digits. Our recurring gross billings in the fourth quarter were $34 million, up 27% year-over-year and makeup 75% of total billings.

This is $136 million annualized run rate business. Revenues were $42.3 million, up 11% from the prior year.

Breaking down revenues into the segments, revenues from perpetual license sales were $9.9 million, down 5% year-over-year, new customers continued to show a strong preference for subscription solutions, but that was offset by existing perpetual customers expanding. Revenue from subscriptions consisting of both term subscriptions and monthly recurring charges or MRC was $16.9 million, up 16% year-over-year.

Term subscription revenue $11.1 million, up 37% from a year ago, MRC revenue $5.8 million, down 11% from a year ago. During the first quarter, we had a couple of customers switched from MRC to term subscription in order to achieve cost savings by moving to fixed term contracts.

Revenue from software support and services was $15.5 million, up 19% year-over-year. We continue to enjoy high renewal rates in excess of 90%.

Revenue from recurring sources for the first quarter was $31.2 million, up 17% year-over-year. We believe that recurring revenue reflects combined performance data on seats contract lengths, billings mix and renewal ASPs, and since ASPs have been generally flat, the rate of growth of our recurring revenues has been highly correlated to the rate of growth of cumulative seats.

We believe recurring revenue is the best proxy for organic growth. Non-GAAP gross margin in the first quarter was 84.8%.

This was stronger than expected based on product mix and our continued operating efficiency in the customer success organization. Total non-GAAP operating expenses were $40.8 million, which was below of $41 million to $43 million guidance, maybe due to seasonal factors.

We believe there is about a $1 million of expenses that we originally forecast for the first quarter that will shift to the second quarter. We continue to focus on operating efficiency and in the quarter we were able to deliver 19% growth in billings while reducing operating expenses by 3% year-over-year.

Operating margin improved by roughly 17% for the first quarter of last year. Turning to the bottomline, for the first quarter, we reported a GAAP net loss of $12.8 million and a non-GAAP net loss of $5 million.

GAAP EPS was a loss of $0.14 and non-GAAP EPS was a loss of $0.06. These are based on weighted average basic share count of 19.4 million shares.

Moving to the balance sheet, we ended the quarter with $90.5 million in cash and short-term investments, up from $90.2 million in the prior quarter. In the first quarter, cash from operations was a positive $700,000.

This mark second quarter in a row of positive cash from operations and positive free cash. I would like to call out a particular use of cash during the quarter.

As we continue to grow cash flow and improve profitability, we are seeking to reduce equity dilution. By most companies we have an annual bonus program.

We pay our bonuses during the first quarter using our skews. Now that the company is cash flow positive, we paid the withholding tax portion with cash.

We believe this is a good use of cash, given our stock price and thereby reducing dilution from the program. Let’s have the news on the litigation front.

We reached an agreement in principle to settle the remaining stockholder class action lawsuits. In the proposed settlement we will contribute up to $1.1 million with our [ph] dealer (19:11) insurance paying the remaining debt of $7.5 million total payment to the plaintiffs.

The settlement is subject to final documentation in court approval. While we believe that the plaintiff's claims were meritless, we are happy to put this behind us in order to avoid expense and distraction of continued litigation.

The $1.1 million charge is taken on the first quarter’s income statement and will flow through cash from operations in the second quarter or third quarter. DSOs for the first quarter of 2017 were 76 days, up five days from last quarter.

In general, our DSOs remain in the 70-day to 80-day range and typically moved up or down based on intra-quarter linearity and some seasonal factors. This quarter was not particularly backend loaded.

Deferred revenue was $91.2 million at the end of March versus $70.2 million the prior year, up 30% year-over-year. Turning to our second quarter of 2017 guidance, we expect gross billings for the quarter to be in the range of $47 million to $49 million, up 14% to 19% year-over-year.

At the midpoint, we suggest the billings growth of approximately 16% year-over-year and we believe that's faster than the market and it will be our fourth quarter of double-digit growth in a row. We are projecting a revenue range of $42.5 million to $44.5 million, up 9% to 14% year-over-year.

We expect non-GAAP gross margins to be approximately 82% to 84% as we plan to make some incremental investments in customer success and professional services. And we expect that non-GAAP operating expenses will be in the range of $43 million to $45 million, primarily driven by seasonal factors mentioned earlier and our annual user conference.

With first quarter performance behind us, we are reiterating our annual guidance given just three months ago. Forgetting our first time, mix shift from perpetual to subscription is starting to slow as shown by only 4% decline year-over-year.

We are modeling the number to decline by roughly 45% throughout 2017. As with any new product introduction, we are attempting to be very conservative with billings related to mobile and Access and Windows 10 in 2017.

We expect the blended ASPs will be at least flat in 2017 and we believe renewal rates will remain stable for the year. We are going to make incremental investments in R&D and professional services, so we would expect that COGS plus OpEx will pick up in absolute dollars.

And we will plan for operating expenses continue to make success based investments throughout the year. With all that said, we expect that gross billings in 2017 will be in the range of $195 million to $210 million, depending on mix and the overall business trends, for growth of approximately 11% at the midpoint.

This should translate into revenue of approximately $175 million to $190 million and our plan is to exit 2017 fourth quarter with non-GAAP operating margin around zero percent, so we will provide in the range of negative 2% to positive 2%. And we believe that we can generate cash from operations for 2017, but we're not going to forecast a level for the full year.

As a reminder, all of these forward-looking statements are subject to a number of significant risks and uncertainties and assumptions. Actual results could differ materially from statements made on this call.

All statements on the call are made as of today. Operator, we are ready for questions.

Hi. This is [ph] Annie (23:28) for James.

Just a quick question about -- a couple of quick questions, one, on the Lenovo partnership, it certainly sounds very interesting. Is it something where that could contribute kind of revenue this year or when should we expect that Lenovo partnership to gain speed?

And then the second question, you mentioned some of the MRC’s switching over, but then traditionally been kind of AT&T revenues, so just wondering, is that a change the dynamic of AT&T relationship or just how should we think of the MRC switching over to more standard contracts? Thanks.

Okay. [Ph] Annie (24:08), this is Barry.

Thanks for the question. First talk about Lenovo, yeah, I think that it absolutely help us gained some not only traction in the Win 10 marketplace but also revenues and billings this year.

It got 20,000 bars in North America and a big set of sellers in North America and around the world. And we are actually training their channel and reps.

As we speak, so we’d be working through our detailed go-to-market plan over the quarter here and we expect that to ramp up in coming quarters. These are as you asked question on billings and revenue.

Now the question on MRC.

Yeah. I will take the MRC piece Barry.

So, no change in the relationship that. We typically on a quarter-to-quarter basis we will have a handful of customers who decide that they want to move an MRC model to a term subscription model primarily because the economics resulting and being favorable for the customer.

AT&T in the quarter was 16% of revenues, typically in that 15% to 20% range and they remain clearly a very important rate to market for us. So, that just come down the handful of customers that particular seek the economic value and making a long-term commitment to us.

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

Great. Just -- so -- that’s obviously exciting, but circling back, when would training be kind of expected to be complete or when kind of do you guys expect the Lenovo partnership to gain speed.

Understand there might be revenue this year, but is it something we should expect in the Q3 or in Q4, just trying to get a sense of when you expect that relationship to start gaining a little bit more speed?

[Ph] Annie (25:57) it will be done this quarter and we will update you over the coming quarters.

Okay. Thanks.

Thanks, [ph] Annie (26:00). Next question.

Hi, everybody. Thanks for taking my questions and nice solid quarter.

Barry, just one question for you and one for Simon, as you think about Access, obviously off to a very, very strong start. How should we think about that, A, I know it’s still early, but from a penetration perspective or maybe talk to how you incenting the Salesforce to cross sell the product, I love to just get a little bit more color on the underlying drivers that that you're using internally?

And then, Simon, I know you mentioned in your commentary about the legal charge and it would hit cash flows, maybe I know you’re not wanting to provide quarter-by-quarter guidance, but maybe if you can talk just qualitatively or non-qualitatively about how we should think about that, maybe seasonal trends on the cash flow, that would be helpful? Thank you.

Yeah. So, first, thanks for the congrats on our performance and we were really happy with the performance, I am really excited.

The great example of our executioner progress over the several quarters, yeah, so thanks. Appreciate it.

You asked the question about the Access and how we are incenting and where we're going to market. Let me give you a little bit of color on that so that maybe hope it get a framework to hang things on.

First, MobileIron Access ties into our strategy perfectly. We go talk about our desktop security.

We talk about cloud security. That really builds off EMM.

So we go and talk to customers about what’s their sort of next step along their mobile first journey to really about rolling out that. And as we said in previous quarters that, hey, we saw email is really the first killer app, now we are starting to see more of the we call them packaged dots or cloud services rolling out be wanting to used on a mobile device and MobileIron Access ensure that trusted users, trusted devices using trusted apps get access to enterprise data and the cloud in a secure way.

So the story really ties on nice if you our current story. In the field we have some sales specialist that can go and help articulate value props and also work with the ecosystem to make sure we bring in, say like, Tableau or Concur to help endorse our value prop.

So, right now we are early stages, but, again, like I said, we are really pleased with the performance and look forward to the business moving forward.

So, Rob, it’s Simon, I will take the cash flow positive questions. So you are absolutely right that we got to steer clear of providing detailed guidance on the quarter-to-quarter basis, very specifically talked about the fact, I expected on a full year basis, the business will generate cash from operations.

Q2 is always kind of the dip if you will, probably, because the collective Q1 billings and Q1 is typically the seasonally lowest quarter from the billings perspective in the year and then secondly, obviously, this quarter, because we have got the litigation settlement as well. So that gave you the absolute dollars.

I would expect that the operating level of business will consume some cash in the current period, nothing but you should be at all concerned about and then I would expect as we move through the year that the cash performance will continue to improve primarily given off the billings trends that we would be able to collect moving forward.

Great. Thanks.

Nice quarter.

Thank you.

Thanks. Next questions.

Hey. Let me congratulate you as well and a great performance in Q1.

And quick question and first of all, can you talk a little bit about, with Access fully coming in, with IoT slowly coming in. How do you see the mix of business changing over time?

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

Yes. Yeah.

So as we mentioned as you can actually start to look at what we are seeing today, right. So by far with vast majority the revenues obviously continue to be from the core EMM market.

We expect that will continue to grow robustly, as Barry said in his prepared remarks. The next biggest contributor over the course of the remainder of the year will be Access and Windows 10 and then obviously IoT really doesn’t kicking until begin of the 2018 from a revenue ready product and that also was covered in Barry’s prepared remarks.

So, I think, as we look forward over the course of next year, for argument sake, biggest drivers continues to be our core EMM business. When you look at where the most significant percentage of the growth will come from, it's going to come from Access and then come from Windows 10 as well.

Does that helpful…

Okay.

Did you get an answer of question?

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

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

Okay. Perfect.

Okay. Sounds good.

Thank you. Well done.

Thank you.

You’re welcome.

Hi. Good afternoon, guys.

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

Yeah. Hey, Michael.

Yes, there are couple things. We have already invested in GDPR.

So we are poised for not only working with our robust ecosystem, but also with the sellers that are and maybe the service providers, where we work also very close in Europe. So I think from investment standpoint the go-to-market channel we are perfectly fine.

I also believe Europe is poised as, again, they are moving and will continue to move towards cloud services. They are little bit kind of lagging especially in countries like Germany or maybe the DACH region, if you will.

So as those come online, I think, that be able to take advantage of cloud and cloud security value prop that we are have been going around selling. We will have additional opportunities there.

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

Yeah. So, if we find the right person, we will update you at that point.

I mean, the team is executing really well as you can see in the numbers. I am very pleased with how they are operating on the go-to-market execution.

I am really involved currently as well. That’s actually great because not only, I get kind of hear the voice of the customer, but having that sort of layer between what’s happening at the super geo and then our executive team to be able to have that velocity and agility is helped out.

I would also say, just being part of the sales team, I can give you some color here. The sales organization suggest about the new products and the sort of I think stated that new strategies opening up new doors.

And I mean, I think, there's Frost & Sullivan they gave us an award the Product Line Strategy Leadership Award. They said it that.

They said, MobileIron harness innovation, expertise and a partner ecosystem to create an EMM product line and security architecture that expeditely aged customers on the mobility and IoT journey. I mean, that’s what I hear resonating and I can hear that all speaking out from customers.

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

No. I think as I look at it, I mean, clearly, first quarter behind us, just above the midpoint of the guidance to be able to provide guide that maintains the annual guidance was obviously critical for us and I think as we move through the backend, back half of the year, clearly mix continues to be something that we are paying particular attention to.

We actually nailed the mix in the most recent period. We said we expect it to shift by four points to five points, actually shifted by four points.

So we are pleased that the mix impact appears to be playing out exactly the way we expected it to and as we gave you the annual guide, we are obviously be a conservative relative to that mix shift. And the second part is just the new product contribution.

So when you look at the new product contributions associate with the overall quite security start here in Access, the client platform within EMM and Windows 10, we are just being conservative as it relates to those drivers of growth in the second part of the year pointed that. So we are pleased with as Barry said, very pleased with the progress in Q1, very pleased with where we stand, moving into Q2 and very optimistic for the remainder of the year.

Great. Well, probably, we are going to be comparing early in the year.

Thank you so much.

Appreciate it. Thank you.

Thanks.

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

Thank you.