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EX-10.4 - EX-10.4 - MOBILEIRON, INC.mobl-20150331ex10437005b.htm
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EX-31.2 - EX-31.2 - MOBILEIRON, INC.mobl-20150331ex3127d9d4a.htm
EX-10.3 - EX-10.3 - MOBILEIRON, INC.mobl-20150331ex1031aee76.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

Form 10-Q


(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2015

or

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission file number 001-36471


MobileIron, Inc.

(Exact name of Registrant as specified in its charter)


 

 

 

 

 

 

 

Delaware

 

26-0866846

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

415 East Middlefield Road

Mountain View, California

 

94043

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:

(650) 919-8100


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer                      Accelerated filer  

    

  Non-accelerated filer  

  

Smaller reporting company  

 

 

 

 

    

(Do not check if a smaller reporting company)

  

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

 

At April 27, 2015, there were 77,991,885 shares of the registrant’s common stock, $0.0001 par value, issued and outstanding.

 

 

 

 


 

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2015

 

 

 

Page

PART I FINANCIAL INFORMATION 

 

 

Item 1. Financial Statements: 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 

 

5

Condensed Consolidated Statements of Operations for the three months ended March  31, 2015 and 2014 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2015 

 

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 

 

Notes to Condensed Consolidated Financial Statements 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

27 

Item 3. Quantitative and Qualitative Disclosure About Market Risk 

 

41 

Item 4. Controls and Procedures 

 

41 

PART II OTHER INFORMATION 

 

43 

Item 1. Legal Proceedings 

 

43 

Item 1A. Risk Factors 

 

43 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

67 

Item 3. Defaults Upon Senior Securities 

 

67 

Item 4. Mine Safety Disclosures 

 

67 

Item 5. Other Information 

 

68 

Item 6. Exhibits 

 

70 

Signatures 

 

72 

 

 

 

2


 

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

 

MobileIron Company Blog (https://www.mobileiron.com/en/smartwork-blog)

 

MobileIron Facebook Page (https://www.facebook.com/mobileiron

 

MobileIron Twitter Account (https://twitter.com/mobileiron); @mobileiron

 

MobileIron LinkedIn Page (https://www.linkedin.com/company/mobileiron)

              

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this quarterly report on Form 10-Q. These channels may be updated from time to time on MobileIron’s investor relations website.

3


 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,””potentially,””predict,” “plan,” “outlook,” “target,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

 

 

 

 

beliefs and objectives for future operations;

 

 

 

 

our business plan and our ability to effectively manage our growth and associated investments;

 

 

 

 

our ability to timely and effectively scale and adapt our existing technology;

 

 

 

 

our ability to innovate new products and bring them to market in a timely manner;

 

 

 

 

our ability to expand internationally;

 

 

 

 

our ability to further penetrate our existing customer base;

 

 

 

 

our expectations concerning renewal rates for subscriptions and services by existing customers;

 

 

 

 

cost of revenue, including changes in costs associated with production, manufacturing and customer support;

 

 

 

 

operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

 

 

 

 

our expectations concerning relationships with third parties, including channel partners and logistics providers;

 

 

 

 

economic and industry trends or trend analysis;

 

 

 

 

the effects of seasonal trends on our results of operations;

 

 

 

 

future acquisitions of or investments in complementary companies, products, subscriptions or technologies; and

 

 

 

 

the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months.

 

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These risks are not exhaustive. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

 

 

4


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

 

2015

    

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

96,702 

 

$

104,287 

 

Short-term investments

 

 

20,369 

 

 

13,869 

 

Accounts receivable, net of allowance for doubtful accounts of $550 at March 31, 2015 and December 31, 2014

 

 

29,998 

 

 

34,676 

 

Prepaid expenses and other current assets

 

 

7,018 

 

 

4,018 

 

Total current assets

 

 

154,087 

 

 

156,850 

 

Long-term investments

 

 

15,370 

 

 

22,220 

 

Property and equipment—net

 

 

4,355 

 

 

3,978 

 

Intangible assets—net

 

 

1,908 

 

 

2,132 

 

Goodwill

 

 

5,475 

 

 

5,475 

 

Other assets

 

 

1,624 

 

 

1,187 

 

TOTAL ASSETS

 

$

182,819 

 

$

191,842 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

4,860 

 

$

1,137 

 

Accrued expenses

 

 

14,143 

 

 

21,169 

 

Deferred revenue-current

 

 

46,921 

 

 

44,096 

 

TOTAL CURRENT LIABILITIES

 

 

65,924 

 

 

66,402 

 

Long-term liabilities:

 

 

 

 

 

 

 

Deferred revenue-noncurrent

 

 

10,173 

 

 

10,078 

 

Other long-term liabilities

 

 

276 

 

 

268 

 

TOTAL LIABILITIES

 

 

76,373 

 

 

76,748 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized, 77,921,699 shares and 76,153,844 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

 

 

 

 

Additional paid-in capital

 

 

318,121 

 

 

305,809 

 

Accumulated deficit

 

 

(211,683)

 

 

(190,723)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

106,446 

 

 

115,094 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

182,819 

 

$

191,842 

 

See accompanying notes.

 

 

 

5


 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

    

2014

 

Revenue

 

 

 

 

 

 

 

Perpetual license

 

$

12,059 

 

$

14,675 

 

Subscription

 

 

10,197 

 

 

5,966 

 

Software support and services

 

 

11,238 

 

 

7,572 

 

Total revenue

 

 

33,494 

 

 

28,213 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

Perpetual license

 

 

599 

 

 

1,111 

 

Subscription

 

 

1,739 

 

 

1,240 

 

Software support and services

 

 

4,157 

 

 

2,886 

 

Total cost of revenue

 

 

6,495 

 

 

5,237 

 

Gross profit

 

 

26,999 

 

 

22,976 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

13,501 

 

 

10,299 

 

Sales and marketing

 

 

25,805 

 

 

21,764 

 

General and administrative

 

 

8,398 

 

 

4,608 

 

Amortization of intangible assets

 

 

 —

 

 

52 

 

Total operating expenses

 

 

47,704 

 

 

36,723 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(20,705)

 

 

(13,747)

 

Other expense - net

 

 

122 

 

 

97 

 

Loss before income taxes

 

 

(20,827)

 

 

(13,844)

 

Income tax expense

 

 

133 

 

 

118 

 

Net loss

 

$

(20,960)

 

$

(13,962)

 

Net loss per share, basic and diluted

 

$

(0.27)

 

$

(1.23)

 

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

76,990 

 

 

11,335 

 

 

See accompanying notes.

 

6


 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

 

 

 

    

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

BALANCE—December 31, 2014

 

76,153,844 

 

$

 

$

305,809 

 

$

(190,723)

 

$

115,094 

 

Issuance of common stock for stock option exercises, net of repurchases

 

1,012,828 

 

 

 —

 

 

2,315 

 

 

 —

 

 

2,315 

 

Vesting of early exercised stock options and restricted stock

 

77,601 

 

 

 —

 

 

90 

 

 

 —

 

 

90 

 

Issuance of common stock pursuant to the Employee Stock Purchase Plan

 

623,634 

 

 

 —

 

 

4,771 

 

 

 —

 

 

4,771 

 

Vesting of restricted stock units

 

53,792 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

5,136 

 

 

 —

 

 

5,136 

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(20,960)

 

 

(20,960)

 

BALANCE—March 31, 2015

 

77,921,699 

 

$

 

$

318,121 

 

$

(211,683)

 

$

106,446 

 

 

See accompanying notes.

 

7


 

MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

    

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(20,960)

 

$

(13,962)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

5,136 

 

 

2,426 

 

Depreciation

 

 

578 

 

 

484 

 

Amortization of intangible assets

 

 

223 

 

 

121 

 

Loss on disposal of equipment

 

 

 —

 

 

21 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

4,678 

 

 

2,052 

 

Other current and noncurrent assets

 

 

(3,186)

 

 

(2,464)

 

Accounts payable

 

 

3,723 

 

 

221 

 

Accrued expenses and other long-term liabilities

 

 

(3,738)

 

 

(1,321)

 

Deferred revenue

 

 

2,920 

 

 

2,085 

 

Net cash used in operating activities

 

 

(10,626)

 

 

(10,337)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(955)

 

 

(496)

 

Proceeds from maturities of investment securities

 

 

4,500 

 

 

 —

 

Purchase of investment securities

 

 

(4,207)

 

 

 —

 

Net cash used in investing activities

 

 

(662)

 

 

(496)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Amount drawn from revolving line of credit

 

 

 —

 

 

3,300 

 

Repayments of revolving line of credit

 

 

 —

 

 

(4,300)

 

Proceeds from the issuance of convertible preferred stock-net of cash issuance costs

 

 

 —

 

 

1,994 

 

Payment of offering costs related to initial public offering

 

 

 —

 

 

(579)

 

Proceeds from Employee Stock Purchase Plan

 

 

1,582 

 

 

 —

 

Proceeds from exercise of stock options

 

 

2,121 

 

 

1,289 

 

Net cash provided by financing activities

 

 

3,703 

 

 

1,704 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(7,585)

 

 

(9,129)

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

104,287 

 

 

73,573 

 

CASH AND CASH EQUIVALENTS—End of period

 

$

96,702 

 

$

64,444 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

99 

 

$

91 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Issuance of shares under the Employee Stock Purchase Plan

 

$

4,771 

 

$

 —

 

Offering costs recorded in accrued liabilities

 

$

 —

 

$

974 

 

 

See accompanying notes.

8


 

MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Description of Business and Significant Accounting Policies

 

Description of Business

 

MobileIron, Inc., and its wholly owned subsidiaries collectively, the “Company”, “we”, “us” or “our”, provides a purpose-built mobile IT platform that enables enterprises to manage and secure mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. We were incorporated in Delaware in July 2007 and are headquartered in Mountain View, California, with additional sales and support presence in North America, Europe, the Middle East, Asia and Australia.

 

Initial Public Offering

 

In June 2014, we completed our initial public offering, or our IPO, in which we issued and sold 12,777,777 shares of common stock, including 1,666,666 million shares of common stock sold pursuant to the full exercise of the underwriters’ over-allotment option, at a price of $9.00 per share. We received aggregate proceeds of $107.0 million from the sale of shares of common stock, net of underwriters’ discounts and commissions, but before deducting offering expenses of approximately $4.1 million. Upon the closing of the initial public offering, all shares of our outstanding convertible preferred stock automatically were converted into 49,646,975 shares of common stock.

 

Basis of Presentation and Consolidation

 

The accompanying unaudited condensed consolidated financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

Certain information and footnote disclosures in this Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of March 31, 2015, our operating results for the three months ended March 31, 2015 and 2014, and our cash flows for the three months ended March 31, 2015 and 2014. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited consolidated financial statements as of that date but does not include all the footnotes required by U.S. GAAP for complete financial statements.

 

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes thereto for the year ended December 31, 2014, included in our Annual Report on Form 10-K filed with the SEC on February 27, 2015.

 

Foreign Currency Translation

 

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments arising are recorded as foreign currency gains (losses) in the consolidated statements of operations. We recognized a foreign currency loss of approximately $174,000 and $76,000 for the three months ended March 31, 2015 and 2014, respectively, in other expense—net in our condensed consolidated statements of operations.

9


 

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include, but are not limited to, revenue recognition, stock-based compensation, stock-settled bonus, goodwill, intangible assets and accounting for income taxes. Actual results could differ from those estimates.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, money market funds and fixed income investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, exceed federally insured limits. We invest in fixed income securities that are of high-credit quality. Substantially all of our money market funds, or $80.2 million, are held in a two funds that are rated “AAA.”

 

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration in the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events and historical experience. As of March 31, 2015 and December 31, 2014 we have an allowance for doubtful accounts of $550,000.

 

One reseller accounted for 20% of total revenue (1% as an end customer) and 26% of total revenue (2% as an end customer) for the three months ended March 31, 2015 and 2014, respectively. The same reseller accounted for 17% and 16% of net accounts receivable as of March 31, 2015 and December 31, 2014, respectively.

 

There were no other resellers or end-user customers that accounted for 10% or more as a percentage of our revenue or net accounts receivable for any period presented.

 

Segments

 

We have one reportable segment.

 

Summary of Significant Accounting Policies

 

Revenue Recognition

 

We derive revenue principally from software-related arrangements consisting of perpetual software licenses, post-contract customer support for such licenses, or PCS or software support, including when and if available updates, and professional services such as consulting and training services. We also offer our software as term-based licenses and cloud-based arrangements. In addition, we install our software on servers that we ship to customers.

 

We begin to recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the sales price is fixed or determinable, and (iv) collection of the related receivable is probable. If collection is not considered probable, revenue is recognized only upon collection.

 

Signed agreements, including by electronic acceptance, are used as evidence of an arrangement. Delivery is considered to occur when we provide a customer with a link and credentials to download our software. Delivery of a hardware appliance (an “appliance”) is considered to occur when title and risk of loss has transferred to the customer, which typically occurs when appliances are delivered to a common carrier. Delivery of services occurs when performed.

 

10


 

Prior to January 1, 2013, we had not established vendor specific objective evidence, or VSOE, of fair value for any of the elements in our multiple-element arrangements. As of January 1, 2013, we determined that we had sufficient history to establish VSOE of fair value for PCS and professional services. Prior to January 1, 2013, we did not have VSOE of fair value for our software-related undelivered elements due to limited history of stand-alone sales transactions and inconsistency in pricing. We established VSOE of fair value when we had a substantial majority of stand-alone sales transactions of software support and services pricing within a narrow pricing band. In our VSOE analysis, we generally include stand-alone sales transactions completed during a rolling 12 month period unless a shorter period is appropriate due to changes in our pricing structure.

 

We typically enter into multiple-element arrangements with our customers in which a customer may purchase a combination of software on a perpetual or subscription license, PCS, and professional services. The professional services are not considered essential to the functionality of the software. All of these elements are considered separate units of accounting. Our standard agreements do not include rights for customers to cancel or terminate arrangements or to return software to obtain refunds.

 

We use the residual method to recognize revenue when a perpetual license arrangement includes one or more elements to be delivered at a future date provided the following criteria are met: (i) VSOE of fair value does not exist for one or more of the delivered items but exists for all undelivered elements, (ii) all other applicable revenue recognition criteria are met and (iii) the fair value of all of the undelivered elements is less than the arrangement fee. VSOE of fair value is based on the normal pricing practices for those products and services when sold separately by us and contractual customer renewal rates for post-contract customer support services. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue in the period in which it was earned. If evidence of the fair value of one or more undelivered elements does not exist, then the revenue is deferred and recognized when delivery of those elements occurs, or when fair value can be established, or ratably over the PCS period if the only undelivered element is PCS—we refer to these deferred revenue elements as the “Deferred Portion.”

 

Revenue from subscriptions to our on-premise term licenses, arrangements where perpetual and subscriptions to our on-premise term licenses are sold together, and subscriptions to our cloud service are recognized ratably over the contractual term for all periods presented and are included as a component of subscription revenue within our consolidated statements of operations. We refer to arrangements where perpetual and subscriptions to our on-premise term licenses are sold together as “Bundled Arrangements.”

 

Occasionally, we enter into multiple-element arrangements with our customers in which a customer may purchase a combination of software on a perpetual or term basis, PCS, professional services, and appliances. We generally provide the appliances and software upon the commencement of the arrangement and provide software-related elements throughout the support period. We account for appliance-bundled arrangements under the revised accounting standard related to multiple-element arrangements, Accounting Standard Update, or ASU, No. 2009-13, Multiple Element Arrangements, and determine the revenue to be recognized based on the standard’s fair value hierarchy and then determine the value of each element in the arrangement based on the relative selling price of the arrangement. Amounts related to appliances are generally recognized upon delivery with the remaining consideration allocated to software and software-related elements, which are recognized as described elsewhere in this policy.

 

Revenue from PCS is recognized ratably over the support term and is included as a component of software support and service revenue within the consolidated statements of operations.

 

Revenue related to professional services is recognized upon delivery and is included as a component of software support and services revenue within the consolidated statements of operations.

 

Prior to establishing VSOE of fair value for PCS and professional services on January 1, 2013, we recognized revenue for multiple element software and software-related arrangements ratably from the date of service commencement over the contractual term of the related PCS arrangement. After January 1, 2013, the deferred revenue related to these arrangements continues to be recognized ratably over the remaining contractual term of the PCS arrangement. Approximately $771,000 and $1.6 million of perpetual license revenue in three months ended 

11


 

March 31, 2015 and 2014, respectively, is related to sales made prior to January 1, 2013. Approximately $1.4 million and $2.1 million of deferred revenue as of March 31, 2015 and December 31, 2014, respectively, is related to sales made prior to January 1, 2013.

 

We allocated the revenue from all multiple-element arrangements entered into prior to the establishment of VSOE of fair value for our PCS and professional services to each respective revenue caption using our best estimate of value of each element based on the facts and circumstances of the arrangements, our go-to-market strategy, price list and discounts from price list as applicable. We believe that the allocation between the revenue captions allows for greater transparency and comparability of revenue from period to period even though VSOE of fair value may not have existed at that time.

 

Appliance revenue was less than 10% of total revenue for all periods presented and is included as a component of perpetual license revenue within the consolidated statements of operations.

 

Generally, sales made through resellers are fulfilled to the end customer and processed in the same period. The inventory of licenses held by the resellers was immaterial for all periods presented.

 

Shipping charges and sales tax billed to partners are excluded from revenue.

 

Sales commissions and other incremental costs to acquire contracts are also expensed as incurred and are recorded in sales and marketing expense.

 

For all arrangements, any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue in the consolidated balance sheets.

 

Cash Equivalents

 

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of March 31, 2015 and December 31, 2014 cash and cash equivalents consist of cash deposited with banks, money market funds and investments that mature within three months of their purchase.

Held-To-Maturity Investments 

We determine the appropriate classification of our fixed income investments at the time of purchase and reevaluate their classifications each reporting period. Investments are classified as held-to-maturity since the Company has positive intent and the ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

 

Comprehensive Loss

 

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three months ended March 31, 2015 and 2014, there were no differences between net loss and comprehensive loss. Therefore, the consolidated statements of comprehensive loss have been omitted.

 

12


 

Net Loss per Share of Common Stock

 

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, unvested restricted stock and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three months ended March 31, 2015 and 2014, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

 

Inventory

 

We have appliances (industry standard hardware servers available from multiple vendors) that are available for customers to purchase, on which we will preinstall our software prior to shipment. Inventory is stated at the lower of cost or net realizable value. We value our inventory using the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value—such adjustments were not material for any period presented. The entire inventory is comprised of finished goods. As of March 31, 2015 and as of December 31, 2014, we had inventory of $467,000 and $528,000, respectively, which is included in prepaid expenses and other current assets in the consolidated balance sheets.

 

Software Development Costs Incurred in Connection with Software to be Sold or Marketed

 

The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

 

Internal Use Software

 

We capitalize costs incurred during the application development stage related to our internally used software. Such costs are primarily incurred by third party vendors and consultants. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Amounts capitalized in all periods presented were not significant.

 

All software development costs incurred in connection with our cloud offering, or SaaS, are also sold or marketed to partners or end customers, therefore we start capitalizing costs when technological feasibility is achieved. No costs were capitalized in any periods presented as we believe that our current process for developing software is essentially completed concurrent with the establishment of technological feasibility.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives, determined to be three years for computers and equipment and software, five years for furniture and fixtures, and the lesser of the remaining lease term or estimated useful life for leasehold improvements. Expenditures for repairs and software support are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected as operating expenses in the consolidated statements of operations.

 

13


 

Goodwill and Intangible Assets

 

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 record purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased intangible assets are being amortized using the straight-line method over their remaining estimated useful lives, which range from three to five years. We evaluate the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period.

 

We have determined that our intangible assets have not been impaired during the three months ended March 31, 2015.

Long-Lived Assets with Finite Lives

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including purchased intangible assets and property and equipment, by comparison of its carrying amount to the future undiscounted cash flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

 

Stock-Based Compensation

 

We use the estimated grant-date fair value method of accounting in accordance with Accounting Standards Codification, or ASC, Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends. We estimated the forfeiture rate for the three months ended March 31, 2015 and the corresponding period of 2014 based on our historical experience for annual grant years where the majority of the vesting terms have been satisfied. We recognize compensation costs for awards with service and performance vesting conditions on an accelerated method over the requisite service period of the award. For stock options, restricted stock units or restricted stock grants with no performance condition, 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.

 

Research and Development

 

Research and development, or R&D, costs are charged to expense as incurred.

 

Advertising

 

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three months ended March 31, 2015 and 2014 was not significant.

 

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 use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. The

14


 

standard also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

 

In May 2014, the FASB, jointly with the International Accounting Standards Board, issued a comprehensive new standard on revenue recognition from contracts with customers. The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance will require significantly expanded disclosures about revenue recognition. Provisions of this new standard are effective for annual reporting periods (including interim reporting periods within those annual periods) beginning after December 15, 2016. Early adoption is not permitted. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. We are currently evaluating the potential effect on our consolidated financial statements from adoption of this standard.

 

 

2.Significant Balance Sheet Components

 

Property and Equipment —Property and equipment at March 31, 2015 and December 31, 2014 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 2015

    

December 31, 2014

 

Computers and appliances

 

$

6,770 

 

$

6,405 

 

Purchased software

 

 

1,742 

 

 

1,698 

 

Furniture and fixtures

 

 

283 

 

 

182 

 

Leasehold improvements

 

 

1,162 

 

 

717 

 

Total property and equipment

 

 

9,957 

 

 

9,002 

 

Accumulated depreciation and amortization

 

 

(5,602)

 

 

(5,024)

 

Total property and equipment—net

 

$

4,355 

 

$

3,978 

 

 

 

Accrued Expenses —Accrued expenses at March 31, 2015 and December 31, 2014 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 2015

    

December 31, 2014

 

Accrued commissions

 

$

3,634 

 

$

6,199 

 

Accrued vacation

 

 

2,809 

 

 

3,589 

 

Employee Stock Purchase Plan liability

 

 

1,091 

 

 

4,280 

 

Other accrued payroll-related expenses

 

 

2,425 

 

 

2,231 

 

Liability for early exercised stock options (Note 9)

 

 

204 

 

 

294 

 

Other accrued liabilities

 

 

3,980 

 

 

4,576 

 

Total accrued expenses

 

$

14,143 

 

$

21,169 

 

 

15


 

Deferred Revenue —Current and non-current deferred revenue at March 31, 2015 and December 31, 2014 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 2015

    

December 31, 2014

 

Perpetual license

 

$

2,036 

 

$

3,045 

 

Subscription

 

 

22,134 

 

 

19,981 

 

Software support

 

 

30,981 

 

 

29,213 

 

Professional services

 

 

1,943 

 

 

1,935 

 

Total current and noncurrent deferred revenue

 

$

57,094 

 

$

54,174 

 

 

Included in deferred perpetual license revenue was $1.4 million and $2.1 million at March 31, 2015 and at December 31, 2014, respectively, of revenue deferred for multiple element software license arrangements billed prior to January 1, 2013 for which we did not recognize revenue immediately due to lack of VSOE of fair value for software support and services. See Note 1 entitled “Description of Business and Significant Accounting Policies” of these condensed consolidated financial statements.

 

3.Fair Value Measurement

 

With the exception of our held-to-maturity fixed income investments, we report all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC 820 (formerly FASB Statement No. 157, Fair Value Measurements). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

 

ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

 

 

 

 

 

 

 

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

 

 

 

 

 

 

 

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

 

 

 

 

 

 

 

 

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

 

 

Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of March 31, 2015 or December 31, 2014.

 

16


 

Our financial instruments measured at fair value as of March 31, 2015 and December 31, 2014 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2015

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money market funds

 

$

80,226 

 

$

 —

 

$

 —

 

$

80,226 

 

Corporate debt securities

 

 

 —

 

 

19,616 

 

 

 —

 

 

19,616 

 

Commercial paper

 

 

 —

 

 

15,294 

 

 

 —

 

 

15,294 

 

Securities and obligations of U.S. government agencies

 

 

 —

 

 

12,237 

 

 

 —

 

 

12,237 

 

Total

 

$

80,226 

 

$

47,147 

 

$

 —

 

$

127,373 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2014

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Money market funds

 

$

77,522 

 

$

 —

 

$

 —

 

$

77,522 

 

Corporate debt securities

 

 

 —

 

 

19,738 

 

 

 —

 

 

19,738 

 

Commercial paper

 

 

 —

 

 

16,393 

 

 

 —

 

 

16,393 

 

Securities and obligations of U.S. government agencies

 

 

 —

 

 

13,636 

 

 

 —

 

 

13,636 

 

Total

 

$

77,522 

 

$

49,767 

 

$

 —

 

$

127,289 

 

 

 

 

 

4.Investments 

 

Our portfolio of fixed income securities consists of commercial paper, corporate debt securities and securities and obligations of U.S. government agencies. All our investments in fixed income securities are classified as held-to-maturity. These investments are carried at amortized cost.

 

Our investments in fixed income securities as of March 31, 2015 and December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2015

 

 

    

Amortized

    

    

 

    

    

 

    

Fair

 

(in thousands)

 

cost

 

Gains

 

Losses

 

Value

 

Corporate debt securities

 

$

19,608 

 

$

11 

 

$

(3)

 

$

19,616 

 

Commercial paper

 

 

15,292 

 

 

 

 

 —

 

 

15,294 

 

Securities and obligations of U.S. government agencies

 

 

12,236 

 

 

 

 

(4)

 

 

12,237 

 

Total

 

$

47,136 

 

$

18 

 

$

(7)

 

$

47,147 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

    

Amortized

    

    

 

    

    

 

    

Fair

(in thousands)

 

cost

 

Gains

 

Losses

 

Value

Corporate debt securities

 

$

19,756 

 

$

 

$

(21)

 

$

19,738 

Commercial paper

 

 

16,391 

 

 

 

 

 —

 

 

16,393 

Securities and obligations of U.S. government agencies

 

 

13,641 

 

 

 

 

(7)

 

 

13,636 

Total

 

$

49,788 

 

$

 

$

(28)

 

$

49,767 

 

17


 

 

The following table summarizes the balance sheet classification of our investments:

 

 

 

 

 

 

 

 

 

 

    

As of March 31, 

 

As of December 31,

(in thousands)

 

2015

 

2014

Cash equivalents

 

$

11,397 

 

$

13,699 

Short-term investments

 

 

20,369 

 

 

13,869 

Long-term investments

 

 

15,370 

 

 

22,220 

Total investments

 

$

47,136 

 

$

49,788 

 

The gross amortized cost and estimated fair value of our held-to-maturity investments at March 31, 2015 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2015

 

As of December 31, 2014

 

 

    

Gross

    

 

 

Gross

    

 

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(in thousands)

 

Cost

 

Value

 

Cost

 

Value

 

Due in one year or less

 

$

31,766 

 

$

31,768 

 

$

27,568 

 

$

27,565 

 

Due after one year through five years

 

 

15,370 

 

 

15,379 

 

 

22,220 

 

 

22,202 

 

Total

 

$

47,136 

 

$

47,147 

 

$

49,788 

 

$

49,767 

 

   

 

We monitor our investment portfolio for impairment on a periodic basis. In order to determine whether a decline in fair value is other-than-temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value; our financial condition and business outlook, including key operational and cash flow metrics, current market conditions and future trends in our industry; our relative competitive position within the industry; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. A decline in the fair value of the security below amortized cost that is deemed other-than-temporary is charged to earnings, resulting in the establishment of a new cost basis for the affected securities. In the three months ended March 31, 2015, we had an insignificant amount of unrealized gains or losses, and we did not recognize any other-than-temporary impairments. 

 

 

5.Goodwill and Intangibles

 

The following table reflects intangible assets subject to amortization as of March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 2015

 

 

    

Gross Carrying

    

Accumulated

    

 

 

    

Net Book

 

 

 

Amount

 

Amortization

 

Impairment

 

Value

 

Technology

 

 

3,080 

 

 

(1,172)

 

 

 —

 

 

1,908 

 

Total

 

$

3,080 

 

$

(1,172)

 

$

 —

 

$

1,908 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2014

 

 

    

Gross Carrying

    

Accumulated

    

 

 

    

Net Book

 

 

 

Amount

 

Amortization

 

Impairment

 

Value

 

Technology

 

 

3,080 

 

 

(948)

 

 

 —

 

 

2,132 

 

Total

 

$

3,080 

 

$

(948)

 

$

 —

 

$

2,132 

 

 

Amortization of the technology intangible assets was recorded in cost of revenue. The weighted average remaining life of our intangible assets on March 31, 2015 was 2.6 years.

 

18


 

Estimated remaining intangible assets amortization expense for the next five fiscal years and thereafter is as follows (in thousands):

 

 

 

 

 

 

 

Year

    

    

 

 

2015 (remaining)

 

$

646 

 

2016

 

 

617 

 

2017

 

 

545 

 

2018

 

 

100 

 

2019

 

 

 —

 

Total

 

$

1,908 

 

 

At March 31, 2015 and December 31, 2014, the carrying value of goodwill was as follows (in thousands):

 

 

 

 

 

 

 

 

    

 

    

 

Balance, December 31, 2014

 

$

5,475 

 

Additions

 

 

 —

 

Balance, March 31, 2015

 

$

5,475 

 

 

 

 

 

 

 

6.Line of Credit

 

In August 2012, we entered into a $10.0 million revolving line of credit with a financial institution. The revolving line of credit can be used to (a) borrow for working capital and general business requirements, (b) issue letters of credit, and (c) enter into foreign exchange contracts. Amounts borrowed accrue interest at a floating per annum rate equal to the greater of (1) the prime rate plus 1% or (2) 4.25%. A default interest rate shall apply during an event of default at a rate per annum equal to 5% above the otherwise applicable interest rate. The line of credit is collateralized by substantially all of our assets, except intellectual property, and requires us to comply with working capital, net worth and other nonfinancial covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, and the borrowing capacity is limited to eligible accounts receivable.

 

In December 2013, we amended the revolving line of credit with the same financial institution to increase the potential borrowing capacity to $20.0 million and extend the maturity date to August 2015. All other material terms and conditions remained the same with the exception of the added requirement that we maintain an adjusted quick ratio (defined as the ratio of current assets to current liabilities minus deferred revenue) of at least 1.15.

 

During the three months ended March 31, 2014, we withdrew $3.3 million and repaid $4.3 million under our line of credit.  There were no outstanding amounts under the line of credit at March 31, 2015 

 

As of March 31, 2015 and December 31, 2014, we were in compliance with all financial covenants. 

 

7.Preferred Stock

 

In January 2014, we issued 200,903 shares of Series F for net cash proceeds of $2.0 million.

 

Upon completion of our IPO in June 2014, all shares of our issued and outstanding convertible preferred stock were automatically converted into 49,646,975 shares of common stock.

 

We amended and restated our certificate of incorporation in June 2014 to authorize the future issuance of up to 10,000,000 shares of convertible preferred stock. No shares of convertible preferred stock were issued and outstanding as of March 31, 2015.

 

 

19


 

 

8.Common Stock

 

We were authorized to issue 300,000,000 shares of common stock with a par value of $0.0001 per share as of March 31, 2015 and December 31, 2014. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available therefore, when and if declared by the board of directors, subject to the approval and priority rights of holders of all classes of preferred stock outstanding.

 

As of March 31, 2015 and December 31, 2014, we reserved shares of common stock for issuance as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31,

 

 

 

2015

 

2014

 

Options outstanding

 

15,452,533 

 

16,435,568 

 

Unvested restricted stock units outstanding

 

3,795,972 

 

478,789 

 

Unvested restricted stock outstanding

 

64,141 

 

93,805 

 

Unvested early exercised stock options

 

69,250 

 

117,187 

 

Shares available for grant under the 2014 Equity Incentive Plan

 

7,809,624 

 

7,392,158 

 

Shares available for purchase under the Employee Stock Purchase Plan

 

2,211,442 

 

2,071,428 

 

Total

 

29,402,962 

 

26,588,935 

 

 

 

 

9.Share Based Awards

 

2008 Plan

 

The 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant. When options are subject to our repurchase right, we may buy back any unvested shares at their original exercise price in the event of an employee’s termination prior to full vesting.

 

Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or the 2014 Plan, became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

 

2014 Equity Incentive Plan

 

Our board of directors adopted our 2014 Plan on April 17, 2014, and our stockholders subsequently approved the 2014 Plan on May 27, 2014. The 2014 Plan became effective on the date that our registration statement was declared effective by the SEC. The 2014 Plan is the successor to and continuation of our 2008 Plan. Upon the effective date of the 2014 Plan, no further grants can be made under our 2008 Plan.

 

Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

 

The initial number of shares of our common stock available to be issued under our 2014 Plan was 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Plan that would have otherwise returned to our 2008 Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202.

 

20


 

Additionally, the number of shares of our common stock reserved for issuance under our 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. On January 1, 2015, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by 3,818,242 shares.

 

 

2014 Employee Stock Purchase Plan

 

Our board of directors adopted our 2014 Employee Stock Purchase Plan, or ESPP, on April 17, 2014, and our stockholders subsequently approved the ESPP on May 27, 2014. The ESPP became effective immediately upon the execution and delivery of the underwriting agreement related to our IPO. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The ESPP permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee’s base compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our common stock on either the first day of the offering or the last day of the applicable purchase period, whichever is lower.

 

The initial number of shares of our common stock reserved for issuance under our ESPP was 2,071,428 shares. The number of shares of our common stock reserved for issuance under our ESPP will increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2015, we increased the number of shares available for issuance under the ESPP by 763,648 shares.

 

 

Restricted Stock and Restricted Stock Units

 

Restricted stock activity for the three months ended March 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

    

Restricted Stock

 

 

 

Time-based

 

Time-and-

performance based

 

Total

 

 

 

shares

    

shares

    

shares

 

Unvested, December 31, 2014

 

61,259 

 

32,546 

 

93,805 

 

Granted

 

 —

 

 —

 

 —

 

Vested

 

(17,459)

 

(12,205)

 

(29,664)

 

Cancelled/Forfeited

 

 —

 

 —

 

 —

 

Unvested, March 31, 2015

 

43,800 

 

20,341 

 

64,141 

 

 

For stock-based compensation expense, we measure the value of the restricted stock based on the fair value of our common stock on the date of grant. Our restricted stock grants may be subject to service only or service and performance-based vesting conditions. We expense the fair value of restricted stock grants with service only vesting conditions on a straight-line basis over the vesting period of the awards.

 

For shares subject to service and performance conditions, we evaluate the probability of meeting the vesting conditions at the end of each reporting period to determine how much compensation expense to record. We amortize the fair value, net of estimated forfeitures, as stock-based compensation expense using the graded vesting method over the vesting periods of the awards. To the extent that actual results or updated estimates differ from our original estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period those estimates are revised.

 

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In 2014 we began granting restricted stock units under our 2014 Plan.  For stock-based compensation expense, we measure the value of the restricted stock units based on the fair value of our common stock on the date of grant. Our restricted stock unit grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their vesting periods.

 

Our restricted stock unit activity for the three months ended March 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock Units

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Number of

 

Grant Date

 

 

    

Shares

    

Fair Value

 

Unvested, December 31, 2014

 

478,789 

 

$

9.45 

 

Granted

 

3,427,978 

 

 

9.22 

 

Vested

 

(53,792)

 

 

9.21 

 

Forfeitures

 

(57,003)

 

 

9.24 

 

Unvested, March 31, 2015

 

3,795,972 

 

$

9.25 

 

 

In February 2015, our board of directors approved the 2015 Executive Bonus Plan and 2015 Non-executive Bonus Plan, or Bonus Plans, each effective as of January 1, 2015. The Bonus Plans are funded based on the achievement of certain Company metrics.

 

Amounts earned under the Bonus Plans, if any, will be issued in shares of unrestricted common stock in the first quarter of 2016. Any shares issued from the Bonus Plans will reduce the 2014 Plan shares available for issuance. We record stock-based compensation expense related to the Bonus Plans, if any, on a straight-line basis over the service period of eligible employees based on forecasted performance relative to the Company metrics. For the three months ended March 31, 2015, no expense was recorded for the Bonus Plans.

 

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Stock Options

 

Stock option activity under the 2008 Plan and 2014 Plans for the three months ended March 31, 2015 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Options Outstanding

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Average

 

Aggregate

 

 

 

Shares

 

 

 

Weighted-

 

Remaining

 

Intrinsic

 

 

 

Available

 

Number of

 

Average

Contractual

 

Value

 

 

 

for Issuance

 

Shares

    

Exercise Price

    

Term (Years)

    

(In thousands)

  

Balance—December 31, 2014

 

7,392,158 

 

16,435,568 

 

$

4.15 

 

7.83 

 

$

95,791 

 

Authorized

 

3,818,242 

 

 —

 

 

 

 

 

 

 

 

 

Stock options granted

 

(390,500)

 

390,500 

 

 

9.55 

 

 

 

 

 

 

Restricted stock units granted

 

(3,427,978)

 

 —

 

 

 

 

 

 

 

 

 

Exercised (2)

 

9,019 

 

(1,030,680)

 

 

2.35 

 

 

 

 

 

 

Stock options canceled

 

342,855 

 

(342,855)

 

 

5.60 

 

 

 

 

 

 

Restricted stock units canceled

 

57,003 

 

 —

 

 

 

 

 

 

 

 

 

Repurchased

 

8,825 

 

 —

 

 

1.64 

 

 

 

 

 

 

Balance—March 31, 2015

 

7,809,624 

 

15,452,533 

 

$

4.38 

 

7.79 

 

$

76,089 

 

Vested and exercisable—March 31, 2015

 

 

 

7,186,755 

 

 

 

 

 

 

$

46,825 

 

Vested and expected to vest(1)—March 31, 2015

 

 

 

14,664,602 

 

 

 

 

 

 

$

73,628 

 

 

(1)

Options expected to vest reflect an estimated forfeiture rate.

(2)

9,019 shares withheld to cover cost of option exercise in net settlement arrangement

 

 

Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

    

2014

 

Contra-revenue

 

$

 —

 

$

25 

 

Cost of revenue

 

 

430 

 

 

101 

 

Research and development

 

 

1,728 

 

 

1,248 

 

Sales and marketing

 

 

1,835 

 

 

616 

 

General and administrative

 

 

1,143 

 

 

436 

 

Total

 

$

5,136 

 

$

2,426 

 

 

We used the Black-Scholes Model to estimate the fair value of our stock options granted to employees with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2015

 

2014

 

Expected dividend yield

 

 —

 

 —

 

Risk-free interest rate

 

1.6% 

 

1.9% - 2.1%

 

Expected volatility

 

45% 

  

54% - 56%

 

Expected life (in years)

 

6.1 

 

5.6 - 6.5

 

 

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We used the Black-Scholes model to estimate the fair value of our Employee Stock Purchase Plan awards with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

    

Three Months Ended,

 

 

March 31, 

 

 

2015

Expected dividend yield

 

 

 

 

Risk-free interest rate

 

 

 

0.3 

%

Expected volatility

 

 

 

35 

%

Expected life (in years)

 

 

 

1.3 

 

 

As required by Topic 718 Compensation—Stock Compensation, we estimate expected forfeitures and recognize compensation costs only for those equity awards expected to vest.

 

 

 

 

 

 

 

 

 

 

Unrecognized

 

Remaining

 

 

Stock-based

 

Weighted-Average

 

 

Compensation

 

Recognition

 

 

Expense

 

Period

 

   

(in millions)

   

(in years)

Stock options

 

$

20.4 

 

2.3 

Restricted stock units

 

 

29.0 

 

3.8 

ESPP

 

 

2.8 

 

0.7 

Total

 

$

52.2 

 

3.0 

 

Early Exercise of Common Stock

 

In the three months ended March 31, 2014, we issued 40,443 shares of common stock on the exercise of common stock options prior to their vesting dates, or early exercises. No shares were issued for early exercising stock options during the three months ended March 31, 2015. Cash received from the early exercise of stock options is recorded in accrued expenses on the consolidated balance sheets and reclassified to stockholders’ equity as the options vest. The unvested shares are subject to our repurchase right at the original purchase price.

 

As of March 31, 2015 and December 31, 2014 there were 69,250 and 117,187 shares, respectively, legally outstanding, but not included within common stock outstanding for accounting purposes, as a result of the early exercise of common stock options which were not yet vested.

 

As of March 31, 2015 and December 31, 2014, the aggregate price of shares subject to repurchase recorded in accrued expenses totaled $204,000 and $294,000, respectively.

 

10.Employee Benefit Plan

 

We maintain a defined contribution 401(k) plan. The plan covers all full-time U.S. employees over the age of 21. Each employee can contribute up to $17,500 annually. We have the option to provide matching contributions, but have not done so to date.

 

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11.Commitments and Contingencies

 

Operating Leases

 

We lease our office facilities under noncancelable agreements expiring between 2014 and 2019. Rent expense for the three months ended March 31, 2015 and 2014 was $1.1 million and $499,000, respectively. The leases expire at various dates up to 2020. The aggregate future minimum lease payments under the agreements are as follows (in thousands):

 

 

 

 

 

 

 

Year

    

 

    

 

2015 (remaining)

 

$

2,831 

 

2016

 

 

2,777 

 

2017

 

 

1,780 

 

2018

 

 

971 

 

2019

 

 

777 

 

Thereafter

 

 

12 

 

Total

 

$

9,148 

 

 

Litigation

 

We are involved in legal proceedings arising in the ordinary course of business, including intellectual property litigation. Although management currently is of the opinion that these matters will not have a material adverse effect on our condensed consolidated financial statements, the ultimate outcome of these matters cannot be predicted at this time, due to the inherent uncertainties in litigation.

 

On November 14, 2012, Good Technology filed a lawsuit against us in federal court in the Northern District of California alleging false and misleading representations concerning their products and infringement of four patents held by them. On March 1, 2013, we counterclaimed against Good Technology for patent infringement of one of our patents. On October 13, 2014, the court issued a claims construction order. Good Technology responded by filing new patent infringement suits against us in Delaware (which was recently transferred from Delaware to the Northern District of California) and internationally, as well as inter partes review proceedings. We have counterclaimed against them in the Delaware case on two of our next generation patents. We are contesting Good Technology’s claims vigorously. Both we and Good have moved for summary judgment on various issues in the California patent case, and a trial date has been set for July 2015. The final outcome, including our liability, if any, with respect to Good Technology’s claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

On May 1, 2015, a purported stockholder class action lawsuit was filed in the United States District Court for the Northern District of California against the Company and certain of its officers, captioned Panjwani v. MobileIron, Inc., et al. The action is purportedly brought on behalf of a putative class of all persons who purchased or otherwise acquired the Company’s securities between February 13, 2015, and April 22, 2015.  It asserts claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  The complaint seeks, among other things, compensatory damages and attorneys’ fees and costs on behalf of the putative class. The Company intends to defend the litigation vigorously

 

Indemnification 

Under the indemnification provisions of our standard sales related contracts, we agree to defend and/or settle claims brought by third parties against our customers alleging that the customer’s use of our software infringes the third party’s intellectual property right, such as a patent right.  These indemnification obligations are typically not subject to limitation; however if it is commercially impractical for us to either procure the right for the customer to continue to use our software or modify our software so that it’s not infringing, we typically can terminate the customer agreement and refund the customer a portion of the license fees paid, prorated over the three year period from initial delivery.  We also on occasion indemnify our customers for other types of third party claims.  In addition, we indemnify our officers,

25


 

directors, and certain key employees while they are serving in such capacities in good faith. Through March 31, 2015, we have not received any written claim under any indemnification provision.

 

12.Segment Information

 

We conduct business globally. Our chief operating decision maker (Chief Executive Officer) reviews financial information presented on a consolidated basis accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one business activity, and there are no segment managers who are held accountable for operations, operating results and plans for levels, components or types of products or services below the consolidated unit level. Accordingly, we are considered to be in a single reportable segment and operating unit structure.

 

Revenue by geographic region based on the billing address was as follows:

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

 

 

March 31, 

 

(in thousands)

    

2015

    

2014

  

Revenue

 

 

 

 

 

 

 

United States

 

$

17,826 

 

$

16,363 

 

International

 

 

15,668 

 

 

11,850 

 

Total

 

$

33,494 

 

$

28,213 

 

 

Substantially all of our long-lived assets were attributable to operations in the United States as of March 31, 2015 and December 31, 2014.

 

13.Net Loss per Share

 

The following table sets forth the computation of basic and diluted net loss per share for the three months ended March 31, 2015 and 2014 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

    

2014

 

Numerator:

 

 

 

 

 

 

 

Net loss

 

$

(20,960)

 

$

(13,962)

 

Denominator:

 

 

 

 

 

 

 

Weighted–average shares outstanding

 

 

77,162 

 

 

13,587 

 

Less: weighted average shares subject to repurchase

 

 

(172)

 

 

(2,252)

 

Weighted–average shares used to compute basic and diluted net loss per share

 

 

76,990 

 

 

11,335 

 

Basic and diluted net loss per share

 

$

(0.27)

 

$

(1.23)

 

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Because we have reported a net loss for the three months ended March 31, 2015 and 2014, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

 

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The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

March 31, 

 

 

    

2015

    

2014

 

Convertible preferred stock

 

 —

 

49,646,975 

 

Options to purchase common stock and unvested restricted stock and restricted stock units

 

19,381,896 

 

18,121,000 

 

Total

 

19,381,896 

 

67,767,975 

 

 

 

 

 

 

 

 

 

 

 

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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 February 27, 2015. 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

 

We invented a purpose-built mobile IT platform for enterprises to secure and manage mobile applications, or apps, content and devices while providing their employees with device choice, privacy and a native user experience. Customers use our platform as the technology foundation in their journey to become “Mobile First” organizations, embracing mobility as a primary computing platform for their employees. Mobile First organizations transform their businesses by giving their employees secure access to critical business applications and content on devices employees want with a native user experience they love. Our platform is extensible and fosters a growing ecosystem of application developers and technology partners who augment the functionality and add value to our platform, creating positive network effects for our customers, our ecosystem and our company.

 

Our mobile IT platform helps address the requirements to become Mobile First organizations. It provides value to both end-users and IT departments. End-users get apps and content that they need to get their job done on the mobile device of their choice with a native device experience. Enterprise IT departments get a security and management platform that easily integrates into their existing IT or cloud infrastructure and allows them to protect and manage corporate data and apps, independent of the mobile device, for both corporate-owned, bring your own device, or BYOD, and mixed device ownership environments.

 

Our business model is based on winning new customers, expanding sales within existing customers, upselling new products and renewing subscriptions and software support agreements. We win customers using a sales force that works closely with our channel partners, including resellers, service providers and system integrators.

 

We derive revenue from sales of our software solutions to customers, which are sold either (i) on a perpetual license basis with annual software support when deployed on-premise or (ii) on a subscription basis as a cloud service or when deployed on premise.

 

Subscription revenue is an increasing portion of our revenue. When we sell our solutions on a subscription basis, we offer a 12 months or longer term and bill in advance, or certain service providers often operate under a monthly recurring charge, or MRC, model. In the MRC model, revenue and billings are based on active devices or users of the service provider’s customer and are billed to us by the service provider on a monthly basis over time and one month in arrears. Thus, 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 term subscriptions, MRC is not reflected in deferred revenue. This important difference between MRC billings and perpetual and term subscription billings can lead to significant variability of billings in a given quarter depending on the type of billing model that the customer chooses and the overall mix of billing types for all customers within a quarter.

 

Our total revenue was $33.5 million in the three months ended March 31, 2015, representing a growth rate of 19% from the corresponding period of 2014. Growth slowed relative to prior quarters primarily due to a mix shift in favor of subscription revenue, including MRC revenue, and the effect of some large deals from U.S. customers that did not close as expected.

 

Because we had not established VSOE of the fair value of software support and services prior to January 1, 2013, we recognized perpetual license revenue ratably over the term of the related software support agreement. Upon

28


 

establishing VSOE on January 1, 2013, we began to recognize perpetual license revenue upon delivery assuming all other revenue recognition criteria are met. As a result, our total revenue includes amounts related to licenses delivered in previous years. Excluding $771,000 and $1.6 million, respectively, of revenue recognized in the three months ended March 31, 2015 and 2014, respectively, from perpetual licenses delivered prior to 2013, our total revenue was $32.7 million and $26.7 million in each of those quarters, respectively, representing a growth rate of 23%.

 

Revenue from subscription and perpetual licenses represented approximately 30% and 36%, respectively, of total revenue in the three months ended March 31, 2015. The balance, constituting 34% of total revenue in the three months ended March 31, 2015, was software support and services revenue, which consists of revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses. This represents a mix shift in favor of subscription, and in particular MRC revenue, and software support and services revenue, as we recognized 21% of our total revenue from subscriptions, 52% from perpetual licenses and 27% from software support and services in the three months ended March 31, 2014. Like the portion of subscription revenue that is generally billed annually in advance, our MRC revenue has continued to grow as a percentage of total revenue, comprising approximately 13%  for the three months ended March 31, 2015 compared to 9% of our total revenue for both the three months ended March 31, 2014 and the full 2014 year. 

 

Our perpetual license revenue for the three months ended March 31, 2015 was $12.1 million, representing a decrease of $2.6 million, or 18%, compared to the corresponding period of 2014. The decline in perpetual license revenue was primarily due to a mix shift in favor of software licenses priced as subscriptions, including MRC, rather than perpetual licenses,  the effect of some large deals from U.S. customers that did not close as expected, and a $787,000 decrease in revenue recognized from licenses that were delivered prior to 2013, but for which the revenue is being recognized ratably over the contractual terms of the related software support agreements due to lack of VSOE for software support and  services prior to January 1, 2013.

 

Our gross billings were $36.4 million in the three months ended March 31, 2015, representing a growth rate of 20% from the corresponding period of 2014. Our gross billings were $145.7 million in 2014 compared to $100.8 million in 2013, representing a growth rate of 45%. The slowing of gross billings growth in the three months ended March 31, 2015 was due to the same reasons as noted above for revenue. See “Key Metrics and Non-GAAP Financial Information” for more information and a reconciliation of gross 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 the Forbes Global 2000 Leading Companies list, 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 potential customers that are members of the Forbes Global 2000 Leading Companies list because we believe that they represent the largest potential opportunity.

 

We believe that our market opportunity is large and global and sales to customers outside of the United States will remain a significant opportunity for future growth. In the three months ended March 31, 2015 and the corresponding period of 2014, 47% and 42%, 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 partners strategy, the importance of recruiting and retaining sufficient international personnel and the effect of exchange rates.

 

Over the past year, we have significantly increased our expenditures to support the development and expansion of our business, which has resulted in continuing losses. We have incurred net losses of $61.9 million, $32.5 million and $46.5 million for the years ended December 31, 2014, 2013 and 2012, respectively, and $21.0 million and $14.0 million for the three months ended March 31, 2015 and 2014, respectively. As a result of this, we do not expect to be profitable for the foreseeable future under our current operating plan. Future profitability is dependent on revenue growth, which may be challenging for a number of reasons including a continued mix shift towards MRC and other subscription licensing, increasing and entrenched competition, changes in our pricing model, or any failure to capitalize on growth

29


 

opportunities. In addition, we will need to increase operating efficiency, which may be challenging given our growth, operational complexity, and the additional expenses associated with being a public company.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 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 February 27, 2015.

 

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.

 

Key Metrics and Non-GAAP Financial Information

 

To supplement our financial results presented on a GAAP basis, we provide investors with certain non-GAAP financial measures, including gross billings, recurring billings, non-GAAP revenue, 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. These non-GAAP financial measures exclude stock-based compensation, the amortization of intangible assets and perpetual license revenue recognized from licenses delivered prior to 2013.

 

Perpetual license revenue recognized from licenses delivered prior to 2013

 

In our non-GAAP financial measures, we have excluded the effect of perpetual license revenue recognized from licenses delivered prior to 2013 from revenue, gross profit, gross margin, operating loss, operating margin, net loss, and net loss per share. Because we had not established vendor specific objective evidence, or VSOE, of fair value of software support and services prior to January 1, 2013, we recognized perpetual license revenue ratably over the term of the related software support agreement. Upon establishing VSOE on January 1, 2013, we began to recognize perpetual license revenue upon delivery assuming all other revenue recognition criteria are met. As a result, our perpetual license GAAP revenue includes amounts related to licenses delivered prior to 2013. Revenue amortizing from these perpetual licenses delivered prior to 2013 has declined each quarter since the quarter ended March 31, 2013 and will continue to decline sequentially until it is fully amortized. As of March 31, 2015, the amount of unrecognized deferred revenue associated with perpetual licenses delivered prior to January 1, 2013 was approximately $1.4 million, of which $1.1 million is expected to be recognized in the remainder of 2015 and $0.3 million is expected to be recognized after 2015.

 

Stock-based compensation expenses

 

In our non-GAAP financial measures, we have excluded the effect of stock-based compensation expenses. 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 is significantly affected by the timing and size of our acquisitions. Amortization of intangible assets will recur in future periods.

 

30


 

Non-GAAP revenue, 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 perpetual license revenue recognized from licenses delivered prior to 2013, stock-based compensation expense and amortization of intangible assets, from revenue, gross profit, gross margin, operating loss, operating margin, net loss, and net loss per share provides useful measures for management and investors because revenue recognized from licenses delivered prior to 2013 has and will continue to significantly decline over time until it is fully amortized and stock-based compensation as well as the amortization of intangible assets have been and can continue to be inconsistent in amount from period to period. 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. Similarly, amortization of intangible assets has been and will continue to be a recurring expense.

 

Gross and recurring billings and free cash flow

 

Our non-GAAP financial measures also include: gross billings, which we define as total revenue plus the change in deferred revenue in a period; recurring billings, which we define as total revenue less perpetual license, hardware, and professional services revenue plus the change in deferred revenue for subscription and software support arrangements in a period, adjusted for nonrecurring perpetual license billings; and free cash flow, which we define as cash used in operating activities less the amount of property and equipment purchased. We consider gross billings to be a useful metric for management and investors because subscription billings, excluding MRC, and software support and services billings drive deferred revenue, which is an important indicator of future revenue. Similarly, we consider recurring billings to be a useful metric because it is an important indicator of the portion of our business that we would expect to recur each year. There are a number of limitations related to the use of gross and recurring billings versus revenue calculated in accordance with GAAP. First, gross and recurring billings include amounts that have not yet been recognized as revenue. Second, our calculation of gross and recurring billings may be different from other companies that report similar financial measures. Third, in the MRC model, revenue and billings are based on active devices or users of the service provider’s customer and are billed to us by the service provider on a monthly basis over time and one month in arrears. Thus, 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 term subscriptions, MRC is not reflected in deferred revenue. This important difference between MRC billings and perpetual and term subscription billings can lead to significant variability of billings in a given quarter depending on the type of billing model that the customer chooses and the overall mix of billing types for all customers within a quarter. We compensate for these limitations by providing specific information regarding GAAP revenue and evaluating gross and recurring billings together with revenue calculated in accordance with GAAP. 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 based on certain of these non-GAAP measures.

 

31


 

We monitor the following non-GAAP financial measures:

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

(in thousands, except percentages and per share data)

    

2015

    

2014

 

Non-GAAP total revenue

 

$

32,723 

 

$

26,655 

 

Year-over-year percentage increase

 

 

23 

%  

 

 

 

Gross billings

 

$

36,414 

 

$

30,298 

 

Year-over-year percentage increase

 

 

20 

%  

 

 

 

Recurring billings

 

$

23,611 

 

$

15,758 

 

Percentage of gross billings

 

 

65 

%  

 

52 

%  

Non-GAAP gross profit

 

$

26,881 

 

$

21,588 

 

Non-GAAP gross margin

 

 

82.1 

%  

 

81.0 

%  

Non-GAAP operating loss

 

$

(16,117)

 

$

(12,783)

 

Non-GAAP operating margin

 

 

(49.3)

%  

 

(48.0)

%  

Non-GAAP net loss

 

$

(16,372)

 

$

(12,998)

 

Non-GAAP loss per share

 

$

(0.21)

 

$

(1.15)

 

Free cash flow

 

$

(11,581)

 

$

(10,833)

 

 

32


 

Reconciliation of Non-GAAP Financial Measures

 

The following tables reconcile the most directly comparable GAAP financial measure to each of the non-GAAP financial measures discussed above.

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2015

 

2014

 

(in thousands, except percentages and per share data)

 

 

 

 

 

 

 

Non-GAAP total revenue reconciliation:

 

 

 

 

 

 

 

GAAP total revenue

 

$

33,494 

 

$

28,213 

 

Subtract: Perpetual license revenue recognized from licenses delivered prior to 2013

 

 

(771)

 

 

(1,558)

 

Non-GAAP total revenue:

 

$

32,723 

 

$

26,655 

 

Gross billings reconciliation:

 

 

 

 

 

 

 

Total revenue

 

$

33,494 

 

$

28,213 

 

Total deferred revenue, end of period (1)

 

 

57,094 

 

 

42,836 

 

Less: Total deferred revenue, beginning of period

 

 

(54,174)

 

 

(40,751)

 

Total change in deferred revenue

 

 

2,920 

 

 

2,085 

 

Gross billings

 

$

36,414 

 

$

30,298 

 

Recurring billings reconciliation:

 

 

 

 

 

 

 

Total revenue

 

$

33,494 

 

$

28,213 

 

Less: Perpetual license revenue

 

 

(12,059)

 

 

(14,675)

 

Less: Professional services revenue

 

 

(1,270)

 

 

(579)

 

Subscription and software support deferred revenue, end of period (1)

 

 

53,115 

 

 

33,947 

 

Less: Subscription and software support deferred revenue, beginning of period

 

 

(49,194)

 

 

(30,468)

 

Total change in subscription and software support deferred revenue

 

 

3,921 

 

 

3,479 

 

Less: Adjustments (2)

 

 

(475)

 

 

(680)

 

Recurring billings

 

$

23,611 

 

$

15,758 

 

Non-GAAP gross profit reconciliation:

 

 

 

 

 

 

 

Gross profit

 

$

26,999 

 

$

22,976 

 

Add: Stock-based compensation expense

 

 

430 

 

 

101 

 

Add: Amortization of intangible assets

 

 

223 

 

 

69 

 

Subtract: Perpetual license revenue recognized from licenses delivered prior to 2013

 

 

(771)

 

 

(1,558)

 

Non-GAAP gross profit

 

$

26,881 

 

$

21,588 

 

Non-GAAP gross margin reconciliation:

 

 

 

 

 

 

 

GAAP gross margin: GAAP gross profit over GAAP total revenue

 

 

80.6 

%  

 

81.4 

%  

GAAP to non-GAAP gross margin adjustments

 

 

1.5 

%  

 

(0.4)

%

Non-GAAP gross margin

 

 

82.1 

%  

 

81.0 

%  

Non-GAAP operating loss reconciliation:

 

 

 

 

 

 

 

GAAP operating loss

 

$

(20,705)

 

$

(13,747)

 

Add: Stock-based compensation expense

 

 

5,136 

 

 

2,401 

 

Add: Amortization of intangible assets

 

 

223 

 

 

121 

 

Subtract: Perpetual license revenue recognized from licenses delivered prior to 2013

 

 

(771)

 

 

(1,558)

 

Non-GAAP operating loss

 

$

(16,117)

 

$

(12,783)

 

Non-GAAP operating margin reconciliation:

 

 

 

 

 

 

 

GAAP operating margin: GAAP operating profit over GAAP total revenue

 

 

(61.8)

%

 

(48.7)

%

GAAP to non-GAAP operating margin adjustments

 

 

12.5 

%  

 

0.7 

%

Non-GAAP operating margin

 

 

(49.3)

%

 

(48.0)

%

Non-GAAP net loss reconciliation:

 

 

 

 

 

 

 

GAAP net loss

 

$

(20,960)

 

$

(13,962)

 

Add: Stock-based compensation expense

 

 

5,136 

 

 

2,401 

 

Add: Amortization of intangible assets

 

 

223 

 

 

121 

 

Subtract: Perpetual license revenue recognized from licenses delivered prior to 2013

 

 

(771)

 

 

(1,558)

 

Non-GAAP net loss

 

$

(16,372)

 

$

(12,998)

 

Non-GAAP net loss per share reconciliation:

 

 

 

 

 

 

 

GAAP net loss per share

 

$

(0.27)

 

$

(1.23)

 

Add: Stock-based compensation expense per share

 

 

0.07 

 

 

0.21 

 

Add: Amortization of intangible assets per share

 

 

 —

 

 

0.01 

 

Subtract: Perpetual license revenue recognized from licenses delivered prior to 2013 per share

 

 

(0.01)

 

 

(0.14)

 

Non-GAAP net loss per share

 

$

(0.21)

 

$

(1.15)

 

Free cash flow:

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(10,626)

 

$

(10,337)

 

Purchase of property and equipment

 

 

(955)

 

 

(496)

 

Free cash flow

 

$

(11,581)

 

$

(10,833)

 

 

(1)

Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue as of the period end, including subscription, software support and service revenue paid for in advance by the customer that is recognized ratably over the contractual service period. As of March 31, 2015 and December 31, 2014, $1.4 million and $2.1 million, respectively, of our total deferred revenue consisted of license revenue deferred from perpetual licenses sold prior to January 1, 2013 because we had not established VSOE until that date.

33


 

 

(2)

Includes nonrecurring perpetual license billings that consists of the Deferred Portion arising from undelivered elements of perpetual license arrangements and billings classified under Bundled Arrangements. See “Note 1—Summary of Significant Accounting Policies—Revenue Recognition” for a description of Deferred Portion and Bundled Arrangements.

 

Results of Operations

 

Revenue

 

Perpetual license revenue

 

Perpetual license revenue primarily relates to revenue from on-premise perpetual licenses. Upon establishing VSOE of fair value for software support and services on January 1, 2013, we began to recognize perpetual license revenue upon delivery assuming all other revenue recognition criteria have been met. Prior to that date, we recognized perpetual license revenue ratably over the contractual term of the related software support agreement. Prior to January 1, 2013, we did not have VSOE of fair value for our software-related undelivered elements due to limited history of stand-alone sales transactions and inconsistency in pricing. We established VSOE of fair value when we had a substantial majority of stand-alone sales transactions of software support and services arrangements pricing within a narrow pricing band. In our VSOE analysis, we generally include stand-alone sales transactions entered into during a rolling 12 month period unless a shorter period is appropriate due to changes in our pricing structure. 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 perpetual license revenue and constitute less than 10% of total revenue for the three months ended March 31, 2015 and 2014.

 

Subscription revenue

 

Subscription revenue is generated from subscriptions to our on-site term licenses, arrangements where perpetual and term license subscriptions are bundled together, and subscriptions to our cloud service. These revenues are recognized ratably over the subscription period or term. In addition, MRC revenue, which is revenue from month-to-month subscription arrangements that are typically sold through service providers and billed in arrears on a monthly basis based on active devices or users, is also a component of subscription revenue. Except for MRC, we typically bill subscriptions annually in advance.

 

Software support and services revenue

 

Software support and services revenue consist of recurring revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses. Revenue related to software support is recognized ratably over the support term. Software support and services revenue also includes revenue from professional services, consisting of implementation consulting services and training of customer personnel.

 

Cost of Revenue

 

Perpetual license

 

Our cost of perpetual license revenue consists of cost of third-party software royalties, appliances and amortization of intangible assets.

 

Subscription

 

Our cost of subscription revenue primarily consists of costs associated with our data center operations for our cloud service, our global Customer Success organization and third-party software royalties. Cloud service data center costs primarily consist of third-party hosting facilities, telecommunications and information technology costs. Global

34


 

Customer Success organization and data center operations costs primarily consist of salaries, benefits, bonuses, stock-based compensation, depreciation, recruiting, facilities and cloud services data center costs.

 

Software support and service

 

Our software support and services cost of revenue primarily consists of costs associated with our global Customer Success organization, including our customer support, professional services, customer advocacy and training teams. These costs consist of salaries, benefits, bonuses, stock-based compensation, depreciation, recruiting, 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 and 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, with regard to sales and marketing expense, sales commissions. We expect operating expenses to increase in absolute dollars, as we continue to invest to grow our business. 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 was $5.1 million and $2.4 million in the three months ended March 31, 2015 and 2014, respectively.

 

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. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services. While our research and development expense, exclusive of stock-based compensation expense, as a percentage of total revenue may fluctuate, we expect it to decrease over the long term as a percentage of total revenue. 

 

Sales and Marketing Expenses

 

Sales and marketing expense consists primarily of personnel costs, including sales commissions. We expense commissions up-front at the time of the sale. Sales and marketing expense also includes third-party events, lead generation campaigns, promotional and other marketing activities, as well as travel, equipment and software, depreciation, consulting, information technology and facilities. In the last 12 months, we significantly increased the size of our sales force, substantially increased our local sales presence internationally and increased marketing spending to generate sales opportunities. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to develop and assist our channel partners and to expand our international presence. However, we also expect our sales and marketing expense to decrease over the long term as a percentage of total revenue.

 

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

35


 

legal organizations. Professional services fees consist primarily of litigation, other legal, accounting and consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company. While our general and administrative expense, exclusive of stock-based compensation expense, as a percentage of total revenue may fluctuate, we expect it to decrease over the long term as a percentage of total revenue. 

 

Amortization of Intangible Assets

 

Our amortization of intangible assets consists of amortization of noncompete covenants.

 

Other ExpenseNet

 

Other expense, 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. Interest income was insignificant for all periods presented.

 

Income Tax Expense

 

Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. 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, 

 

 

    

2015

 

2014

 

Revenue

 

 

 

 

 

 

 

Perpetual license

 

$

12,059 

 

$

14,675 

 

Subscription

 

 

10,197 

 

 

5,966 

 

Software support and services

 

 

11,238 

 

 

7,572 

 

Total revenue (1)

 

 

33,494 

 

 

28,213 

 

Cost of revenue (1)

 

 

 

 

 

 

 

Perpetual license

 

 

599 

 

 

1,111 

 

Subscription

 

 

1,739 

 

 

1,240 

 

Software support and services

 

 

4,157 

 

 

2,886 

 

Total cost of revenue

 

 

6,495 

 

 

5,237 

 

Gross profit

 

 

26,999 

 

 

22,976 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development (1)

 

 

13,501 

 

 

10,299 

 

Sales and marketing (1)

 

 

25,805 

 

 

21,764 

 

General and administrative (1)

 

 

8,398 

 

 

4,608 

 

Total operating expenses

 

 

47,704 

 

 

36,723 

 

Operating loss

 

 

(20,705)

 

 

(13,747)

 

Other expense - net

 

 

122 

 

 

97 

 

Loss before income taxes

 

 

(20,827)

 

 

(13,844)

 

Income tax expense

 

 

133 

 

 

118 

 

Net loss

 

$

(20,960)

 

$

(13,962)

 

 

(1)

Includes Stock-based compensation expense as follows

 

36


 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

 

2014

 

Contra-revenue

 

$

 —

 

$

25 

 

Cost of revenue

 

 

430 

 

 

101 

 

Research and development

 

 

1,728 

 

 

1,248 

 

Sales and marketing

 

 

1,835 

 

 

616 

 

General and administrative

 

 

1,143 

 

 

436 

 

Total

 

$

5,136 

 

$

2,426 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2015

    

2014

 

Revenue

 

 

 

 

 

Perpetual license

 

36 

%  

52 

%  

Subscription

 

30 

 

21 

 

Software support and services

 

34 

 

27 

 

Total revenue

 

100 

 

100 

 

Cost of revenue

 

 

 

 

 

Perpetual license

 

 

 

Subscription

 

 

 

Software support and services

 

12 

 

10 

 

Total cost of revenue

 

19 

 

19 

 

Gross profit

 

81 

 

81 

 

Operating expenses:

 

 

 

 

 

Research and development

 

40 

 

37 

 

Sales and marketing

 

77 

 

77 

 

General and administrative

 

25 

 

16 

 

Total operating expenses

 

142 

 

130 

 

Operating loss

 

(61)

  

(49)

 

Other expense - net

 

 

 —

 

Loss before income taxes

 

(62)

 

(49)

 

Income tax expense

 

 

 —

 

Net loss

 

(63)

%

(49)

%

 

Comparison of the Three Months Ended March 31, 2015 and 2014

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended,

 

 

 

 

 

 

 

 

March 31, 

 

Change

 

(in thousands, except percentages)

    

2015

    

2014

    

Amount

    

%

 

Perpetual

 

$

12,059 

 

$

14,675 

 

$

(2,616)

 

(18)

%  

Subscription

 

 

10,197 

 

 

5,966 

 

 

4,231 

 

71 

%  

Software support and services

 

 

11,238 

 

 

7,572 

 

 

3,666 

 

48 

%  

Total revenue

 

$

33,494 

 

$

28,213 

 

$

5,281 

 

19 

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenue

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual

 

 

36 

%

 

52 

%

 

 

 

 

 

Subscription

 

 

30 

 

 

21 

 

 

 

 

 

 

Software support and services

 

 

34 

 

 

27 

 

 

 

 

 

 

 

 

 

100 

%

 

100 

%

 

 

 

 

 

 

 

37


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

 

 

 

 

 

 

 

2015

 

2014

 

Change

 

 

    

 

 

    

% of

    

 

 

    

% of 

    

 

 

    

 

 

 

 

 

 

 

Total 

 

 

 

 

Total 

 

 

 

 

 

 

(in thousands, except percentages)

 

Amount

 

Revenue

 

Amount

 

 Revenue

 

Amount

 

%

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

17,826 

 

53 

%  

$

16,363 

 

58 

%  

$

1,463 

 

%  

International

 

 

15,668 

 

47 

%  

 

11,850 

 

42 

%  

 

3,818 

 

32 

%  

Total revenue

 

$

33,494 

 

100 

%  

$

28,213 

 

100 

%  

$

5,281 

 

19 

%  

 

 

 

Perpetual license revenue decreased $2.6 million in the three months ended March 31, 2015 compared to the corresponding period of 2014, primarily due to a mix shift in favor of software licenses priced as subscriptions, including MRC, rather than perpetual licenses and the effect of some large deals from U.S. customers that did not close as expected.  In addition, there was a $787,000 decrease in revenue recognized from licenses that were delivered prior to 2013, but for which the revenue is being recognized ratably over the contractual terms of the related software support agreements due to lack of VSOE for software support and services prior to January 1, 2013.

 

Subscription revenue increased $4.2 million, or 71%, in the three months ended March 31, 2015 compared to the corresponding period of the prior year, primarily due to increased sales of solutions sold under either a cloud-based delivery model or a subscription term license for our on-premise software products. The increase in subscription revenue also reflected an increase in MRC revenue to $4.3 million in the three months ended March 31, 2015, from $2.5 million in the three months ended March 31, 2014.

 

Software support and services revenue increased $3.7 million, or 48%, in the three months ended March 31, 2015 compared to the corresponding period of the prior year, primarily as a result of an increased installed base of customers that pay recurring software support.

 

Revenue from international sales increased 32% in the three months ended March 31, 2015 compared to the corresponding period of the prior year due to an increase in the adoption of our products and an increased cumulative installed base of customers partially offset by a decrease in revenue recognized from perpetual licenses delivered prior to 2013, as noted above. Revenue from U.S. sales increased 9% in the three months ended March 31, 2015 compared to the corresponding period of the prior year due to an increase in the adoption of our subscription-based products and an increased cumulative installed base of customers partially offset by less revenue recognized from licenses delivered prior to 2013, the shift in product mix from perpetual to subscription, and some large deals from U.S. customers that did not close as expected.

 

Revenue from AT&T, as a reseller, decreased to 19% of total revenue in the three months ended March 31, 2015, as compared to 24% 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, 2015 and 2014.

 

38


 

Cost of Revenue and Gross Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

 

 

 

 

 

 

 

2015

 

2014

 

Change

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

$

599 

 

%  

$

1,111 

 

%  

$

(512)

 

(46)

%  

Subscription

 

 

1,739 

 

%  

 

1,240 

 

%  

 

499 

 

40 

%  

Software support and services

 

 

4,157 

 

12 

%  

 

2,886 

 

10 

%  

 

1,271 

 

44 

%  

Total cost of revenue

 

$

6,495 

 

19 

%  

$

5,237 

 

19 

%  

$

1,258 

 

24 

%  

Gross profit

 

$

26,999 

 

 

 

$

22,976 

 

 

 

$

4,023 

 

18 

%  

Gross margin

 

 

 

 

81 

%  

 

 

 

81 

%  

 

 

 

 

 

 

 

 

Total cost of revenue increased $1.3 million, or 24%, in the three months ended March 31, 2015 compared to the same period of the prior year. Perpetual license cost of revenue decreased $512,000, or 46%, primarily due to a decrease in sales of our hardware appliances and royalties. Subscription cost of revenue increased $499,000, or 40% due to an increase in data center operations expense, Global Customer Success organization expense and other third-party costs. Software support and services cost of revenue increased $1.3 million, or 44%, due to an increase in our global Customer Success organization expense, which included increases in salaries and stock-based compensation expense of $649,000 and $330,000, respectively.

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

 

 

 

 

 

 

 

2015

 

2014

 

Change

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,501 

 

40 

%  

$

10,299 

 

37 

%  

$

3,202 

 

31 

%  

Sales and marketing

 

 

25,805 

 

77 

 

 

21,764 

 

77 

 

 

4,041 

 

19 

%  

General and administrative

 

 

8,398 

 

25 

 

 

4,608 

 

16 

 

 

3,790 

 

82 

%  

Total operating expenses

 

$

47,704 

 

142 

%  

$

36,723 

 

130 

%  

$

10,981 

 

30 

%  

 

 

 

Research and development expense increased $3.2 million, or 31%, in the three months ended March 31, 2015 compared to the corresponding period of 2014, primarily due to an increase in personnel costs of $2.1 million as we increased our development headcount to support continued investment in our product and service offerings, and includes an increase in stock-based compensation expense of $480,000. The stock-based compensation expense increase was driven primarily by restricted stock unit and stock option grants, and our ESPP, but partially offset by a reduction in expense associated with restricted stock held by employees who terminated during the second quarter of 2014. Facilities and other infrastructure expense increased by $842,000 to support the increased headcount in research and development. Support of headcount growth was also the primary reason for increases in facilities and infrastructure expenses in the other functional areas.

 

Sales and marketing expense increased $4.0 million, or 19%, in the three months ended March 31, 2015 compared to the corresponding period of 2014, primarily due to an increase in personnel costs of $3.3 million related to increased sales headcount to drive growth, and includes an increase in $1.2 million of increased stock-based compensation expense. The stock-based compensation expense increase was driven primarily by stock option grants, restricted stock unit grants, and ESPP. Facilities and infrastructure expense increased by $485,000.

 

39


 

General and administrative expense increased $3.8 million, or 82%, in the three months ended March 31, 2015 compared to the corresponding period of 2014, primarily due to increases in personnel costs of $1.5 million that includes an increase in stock-based compensation expense of $707,000 and a $1.6 million increase in litigation legal fees. The stock-based compensation expense increase was driven primarily by stock option grants, restricted stock unit grants, and ESPP. Facilities and infrastructure expense increased by $690,000. 

 

We did not record any amortization of intangible assets in operating expense during the three months ended March 31, 2015, and recorded $52,000 for the corresponding period of 2014.

 

Other Expense—Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended,

 

 

 

 

 

 

 

 

March 31, 

 

Change

 

(in thousands, except percentages)

    

2015

    

2014

    

Amount

    

%

 

Other expense—net

 

$

122 

 

$

97 

 

$

25 

 

26 

%  

 

 

 

Other expense—net was primarily comprised of foreign currency transaction losses and losses from the translation of foreign-denominated balances to the U.S. dollar partially offset by interest income. We recorded $174,000 and $76,000 of foreign currency losses for the three months ended March 31, 2015 and the corresponding period of 2014, respectively.

 

Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended,

 

 

 

 

 

 

 

 

March 31, 

 

Change

 

(in thousands, except percentages)

    

2015

    

2014

    

Amount

    

%

 

Income tax expense

 

$

133 

 

$

118 

 

$

15 

 

13 

%  

 

 

 

Income tax expense was $133,000 in the three months ended March 31, 2015 and $118,000 in the corresponding period of 2014, respectively, and was primarily associated with foreign taxes. 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. We have a full valuation allowance for our deferred tax assets.

 

Liquidity and Capital Resources

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

March 31, 

 

December 31,

 

(in thousands)

    

2015

    

2014

 

Cash and cash equivalents

 

$

96,702 

 

$

104,287 

 

Short term-investments

 

$

20,369 

 

$

13,869 

 

Long-term investments

 

$

15,370 

 

$

22,220 

 

Total cash, cash equivalents and investments

 

$

132,441 

 

$

140,376 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

March 31, 

 

Change

 

(in thousands, except percentages)

    

2015

    

2014

    

Amount

    

%

 

Net cash used in operating activities

 

$

(10,626)

 

$

(10,337)

 

$

(289)

 

%  

Net cash used in investing activities

 

$

(662)

 

$

(496)

 

$

(166)

 

33 

%  

Net cash provided by financing activities

 

$

3,703 

 

$

1,704 

 

$

1,999 

 

117 

%  

 

40


 

At March 31, 2015, we had cash and cash equivalents of $96.7 million. Substantially all of our cash and cash equivalents are held in the United States. At March 31, 2015, we had short-term investments of $20.4 million and long-term investments of $15.4 million.

 

In addition, we have a revolving line of credit with a financial institution with potential borrowing capacity of $20.0 million that expires in August 2015. 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 1.15. At March 31, 2015, we had no borrowings outstanding under this revolving loan facility and we were in compliance with our loan covenants.

 

Prior to our IPO, we have financed our operations primarily through private sales of equity securities. In June 2014, we raised, net of offering costs, $102.9 million in our initial public offering. 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 acquisition 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 Used in 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. We expect cash outflows from operating activities to be affected by increases in personnel costs as we grow our business.

 

In the three months ended March 31, 2015, we used $10.6 million of cash for operating activities primarily as a result of the expansion of our sales organization, investment in marketing programs, and the addition of headcount in research and development, customer success, data center operations and our general and administrative departments. We incurred a net loss of $21.0 million in the three months ended March 31, 2015 as we increased our operating expenses 30% to $47.7 million and increased our cost of revenue 24% to $6.5 million, relative to the corresponding period of 2014. The net loss included non-cash charges of $5.9 million, primarily due to stock-based compensation, depreciation and intangible asset amortization expense. Changes in operating assets and liabilities, net of acquisitions, as sources of cash, consisted of a $2.9 million favorable increase in deferred revenue and a $4.7 million favorable change in accounts receivable that were partially offset by a decrease in cash paid for other primary working capital items of $3.2 million.

 

In the corresponding period of 2014, we used $10.3 million of cash for operating activities primarily as a result of the expansion of our sales organization and investment in marketing programs, and the addition of headcount in research and development, customer success and data center operations, partially offset by cash received from customers. We incurred a net loss of $14.0 million in the three months ended March 31, 2014, as we increased our operating expenses to $36.7 million and cost of revenue to $5.2 million. The net loss included non-cash charges of $3.1 million, primarily due to stock-based compensation and depreciation expense. Unfavorable changes in prepaid and liability accounts due to the payment of commission expense accrued at December 31, 2013 as well as the payment of commissions earned within the first quarter of 2014 that were offset by favorable changes in accounts receivable and deferred revenue as cash collections from our customers exceeded amounts invoiced during the quarter by $2.1 million and deferred revenue increased by $2.1 million.

 

Cash Used in 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. We expect to continue to make purchases to support the growth of our business.

 

41


 

Cash used in investing activities was $662,000 for the three months ended March 31, 2015 and $496,000 in the corresponding period of 2014. Purchases of property and equipment were $955,000 and $496,000 for the three months ended March 31, 2015 and 2014, respectively. In both periods, we purchased equipment to expand our data centers and infrastructure to support growth and the three months ended March 31, 2015 also included purchases to fit-out new office facilities.

 

Cash Provided by Financing Activities

 

Our financing activities have consisted of proceeds from our initial public offering, from the issuance of convertible preferred stock, from the exercise of stock options, from our ESPP and from borrowings and repayments under our revolving line of credit.

 

In the three months ended March 31, 2015, our financing activities provided $3.7 million of cash consisting of $2.1 million from the exercise of stock options as well as $1.6 million of cash received from employees from our ESPP.

 

In the three months ended March 31, 2014, our financing activities provided $1.7 million of cash. This included $2.0 million of proceeds from the issuance of convertible preferred stock, $1.3 million from the exercise of stock options, partially off-set by a net $1.0 million repayment of borrowings from our revolving line of credit and $579,000 in payments related to offering costs associated with our IPO.

 

Off-Balance-Sheet Arrangements

 

At March 31, 2015, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

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 quantitative and qualitative disclosures about market risks during the three months ended March 31, 2015, 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, 2014 filed with the SEC on February 27, 2015.

 

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 Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2015. 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

42


 

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 Chief Financial Officer concluded that, as of March 31, 2015, 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control 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, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

43


 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On November 14, 2012, Good Technology filed a lawsuit against us in federal court in the Northern District of California alleging false and misleading representations concerning their products and infringement of four patents held by them. On March 1, 2013, we counterclaimed against Good Technology for patent infringement of one of our patents. On October 13, 2014, the court issued a claims construction order. Good Technology responded by filing additional patent infringement suits against us in Delaware (which was recently transferred from Delaware to the Northern District of California) and internationally, as well as inter partes review proceedings. We have counterclaimed against them in the Delaware case on two of our next generation patents. We are contesting Good Technology’s claims vigorously. Both Good Technology and we have moved for summary judgment on various issues, and a trial date has been set for July 2015. The final outcome, including our liability, if any, with respect to Good Technology’s claims, is uncertain.

 

On May 1, 2015, a purported stockholder class action lawsuit was filed in the United States District Court for the Northern District of California against the Company and certain of its officers, captioned Panjwani v. MobileIron, Inc., et al. The action is purportedly brought on behalf of a putative class of all persons who purchased or otherwise acquired the Company’s securities between February 13, 2015, and April 22, 2015.  It asserts claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  The complaint seeks, among other things, compensatory damages and attorneys’ fees and costs on behalf of the putative class. The Company intends to defend the litigation vigorously

 

In addition, from time to time, we are a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

Item 1A. Risk Factors

 

You should carefully consider the following risk factors, in addition to the other information contained in this 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 risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This 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.

 

Risks Related to Our Business and Industry

 

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.

 

Although we were incorporated in 2007, we did not commercially release the MobileIron platform until 2009, and we did not release our mobile application containerization and mobile content management solutions until 2012. 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:

 

 

retain and expand our customer base on a cost-effective basis;

44


 

 

increase revenues from existing customers as they add users or devices;

 

 

 

 

increase revenues from existing customers as they purchase additional solutions;

 

 

 

 

successfully compete in our markets;

 

 

 

 

continue to add features and functionality to our solutions to meet customer demand;

 

 

 

 

gain market traction with our MobileIron cloud platform and our mobile apps and content management solutions;

 

 

 

 

continue to invest in research and development;

 

 

 

 

scale our internal business operations in an efficient and cost-effective manner;

 

 

 

 

scale our global Customer Success organization to make our customers successful in their mobile IT deployments;

 

 

 

 

continue to expand our solutions across mobile operating systems and device platforms;

 

 

 

 

make our service provider partners successful in their deployments of our solutions and technology;

 

 

 

 

successfully expand our business domestically and internationally;

 

 

 

 

successfully protect our intellectual property and defend against intellectual property infringement claims; and

 

 

 

 

hire, integrate and retain professional and technical talent.

 

 

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 $61.9 million, $32.5 million and $46.5 million in 2014, 2013 and 2012, respectively, and had a net loss of $21.0 million and $14.0 million for three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, our accumulated deficit was $211.7 million. While we have experienced significant revenue growth over recent periods, we may not be able to sustain or increase our growth or achieve or sustain profitability in the future. Revenue growth may slow or revenue may decline for a number of reasons, including, but not limited to, increasing and entrenched competition, changes in pricing model, a decrease in size or growth of the mobile IT market, or any failure to capitalize on growth opportunities. In addition over the past year, we have significantly increased our expenditures to support the development and expansion of our business, which has resulted in increased losses. We plan to continue to invest for future growth, in part by making additional investment in sales and marketing and 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 growth, operational complexity, the expenses outlined above, and additional 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 Annual Report on Form 10-K. 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

 

45


 

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 revenues 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, other 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:

 

 

 

 

 

 

the inherent complexity, length and associated unpredictability of our sales cycles for our solutions;

 

 

 

 

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;

 

 

 

 

our ability to develop and release in a timely manner new solutions, features and functionality that meet customer requirements;

 

 

 

 

changes in pricing due to competitive pricing pressure or other factors;

 

 

 

 

reductions in customers’ IT budgets and delays in the purchasing cycles of our customers and prospective customers;

 

 

 

 

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;

 

 

 

 

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;

 

 

 

 

changes in our mix of revenue as a result of our different deployment options and licensing models and the ensuing revenue recognition effects;

 

 

 

 

the effect of litigation;

 

 

 

 

changes in foreign currency exchange rates; and

 

 

 

 

general economic conditions in our domestic and international markets.

 

 

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.

 

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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 and consolidation in the mobile IT market, 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 develop 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 perceived need for additional solutions, features or functionality, the perceived 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.

 

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 and the pricing of our solutions compared with the solutions offered by our competitors, any of which may cause our revenue to grow more slowly than expected, if at all.

 

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 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

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improved products, services and technologies, may reduce our future growth and profitability and may adversely affect our business, results and financial condition.

 

We have a primary back-end technology platform that can be used as a cloud service or deployed on premise and a second back-end platform that is purpose-built as a cloud-only large scale, multi-tenant platform. We must continually invest in both platforms, and the existence of two back-end technology platforms makes engineering more complex and expensive and may introduce compatibility challenges. We have made significant investments in the cloud-only platform and have not yet gained substantial market traction with the cloud-only platform. Should our MobileIron cloud-only platform 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. These risks are greater in the mobile IT market because our software is deployed on phones and tablets that run on different operating systems such as iOS, Android and Windows Phone, 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 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 would fail and our business would be harmed.

 

In recent periods, an increasing portion of our sales has been generated from subscription, including MRC, licenses, which involves certain risks. 

In recent periods, an increasing portion of our sales has been generated from subscription, including MRC, licenses. This mix shift towards MRC and other subscription licensing, presents a number of risks to us. For example, arrangements entered into on a subscription basis generally delay the timing of revenue recognition and often require the incurrence of up-front costs, which can be significant. Subscription revenues are recognized over the subscription period, which is typically 12 months. MRC revenue is recognized monthly on the basis of active users or devices and thus will fluctuate from month to month. We receive no revenue or billings on MRC at the time the deal is booked. As a result, even if customer demand increases, our revenues will not increase at the same rate as in prior periods, or may decline. 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 contractual terms on terms that are less favorable to us. We recognize a substantial portion of our subscription revenues over the term of the subscription agreement; however, we incur upfront costs, such as sales commissions, related to acquiring such customers. Therefore, as we add customers in a particular year, our immediate costs to acquire customers may increase significantly relative to revenues recognized in that same year, which could result in increased losses or decreased profits in that period. 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, which negatively affects our cash flow. In addition, under an MRC billing model, the service provider typically has the contractual and business relationship with the customer, and thus we typically depend more heavily on the service provider partner for both customer acquisition and support under this billing model.

 

 

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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 Citrix, Good Technology, IBM, Microsoft and VMware. A number of our historical competitors have been purchased by large corporations. For example, Zenprise acquired Sparus and was then acquired by Citrix, AirWatch was acquired by VMware and Fiberlink was acquired by IBM. 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. Consolidation is expected to continue in our industry. As a result of consolidation, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the promotion and sale of their solutions and services, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily, and develop and expand their solution and service offerings 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 purchasing our solutions, including through 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 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 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 pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure to increase, or the loss of, market share, any of which could harm our business, operating results or financial condition. Competitors’ offerings may in the future have better performance, better features, lower prices and broader acceptance than our solutions, or embody 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.

 

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 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

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similar to that offered by our mobile IT solutions in mobile 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. 

 

A failure of our product strategy with regard to mobile application and content management could harm our business.

 

Our product strategy depends on our existing and potential customers’ continued adoption of our solutions, features and functionality for both mobile application and mobile content management. Potential slow ramp of customer-built mobile business applications for iOS, Android and Windows Phone would slow the need and adoption of our platform for mobile application management and security. Additionally, the value of our AppConnect ecosystem could decrease if competitors’ SDK or app wrapping technologies are perceived to have advantages over our own, resulting in the loss of ecosystem partners. Customers’ preference for mobile applications could also shift to browser-based applications that can run on any mobile device through a web browser, which would reduce the value of our mobile application containerization solution. In addition, operating system providers could act in ways that could harm our mobile content and apps product strategy. For example, Microsoft recently released an Office suite for iOS and Android and if this application is widely adopted by enterprises for content creation, storage and management, the value of our own mobile content management solution and the value of our ecosystem of collaboration and storage partners may diminish. If our product strategy around mobile apps and content management fails or is not as successful as we hope for these or other reasons, the value of our investment would be lost and our results of operations would be harmed.

 

We have experienced rapid growth in recent periods. If we are not able to manage this growth and expansion, our operating results may suffer.

 

We have experienced rapid growth in our customer base and have significantly expanded our operations during the past few years. In particular, we are aggressively investing in additional engineering resources to support and expand both our MobileIron cloud services and on-premise software infrastructure, our associated customer success infrastructure, our global sales and marketing infrastructure and our general and administrative and other operations infrastructure, including both personnel and facilities. Our employee headcount has increased during this period and we plan to continue to add new employees as needed in 2015. In addition, our Chief Financial Officer resigned in April 2015. Our rapid growth has placed, and will continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other resources. For example, due to the growth of our operations, we need to relocate and consolidate operations in the Bay Area, where our headquarters is located. Our ability to manage our operations and growth will require significant expenditures and allocation of valuable management resources to improve internal business processes and systems. Further international expansion may also be required for our continued business growth, and managing any international expansion will require additional resources and controls. If we experience increased sales and our operations infrastructure fails to keep pace with increased sales or support requirements, customers may experience disruptions in service or support, 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 facilities at the pace necessary to accommodate our growth, and our failure to do so may have an adverse effect on our business. For example, we are in the process of working with certain of our service provider partners to enable them to develop and sell their own branded mobile IT cloud service solutions based on our MobileIron cloud-only platform, which could strain our existing technology operations infrastructure. If we fail to efficiently expand our engineering, sales and marketing, operations, 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 plan 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.

 

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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 and production personnel, including our senior management, and specifically Robert Tinker, who is our President and Chief Executive Officer. Our employees, including our senior management team, are at-will employees, and therefore may terminate employment with us at any time with no advance notice. Our Chief Financial Officer resigned in April 2015. The replacement of any members of our senior management team or other key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives. 

Our future success also depends, in part, on our ability to continue to attract, integrate and retain highly skilled 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 disruption or security breach of our cloud service could result in liabilities, lost business and reputational harm.

 

If a customer has deployed our cloud service, we have access to certain data in order to facilitate the operation of the software, such as the employees’ names, registration credentials, business emails, mobile phone numbers, business contact information and the list of applications installed on the mobile devices. Any security breaches and computer hacking attacks, whether through third-party action or employee error or malfeasance, could cause loss of this information, litigation, indemnity obligations and reputational harm. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Because our software is designed to enable IT administrators to secure and manage employees’ mobile devices, if an actual or perceived breach of our security occurs and data is compromised, we would likely suffer particular reputational damage, as well as loss of potential sales and existing customers. In addition, unexpected increases in demand at one customer using our cloud services may affect the overall service in unanticipated ways and may cause a disruption in service for other cloud services customers. 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 infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. If we sustain frequent or prolonged disruptions of our cloud services for any reason, our reputation, business and results of operations would be seriously harmed.

 

Defects in our solutions could result in data breaches or other disruption, subject us to substantial liability and harm our business.

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 from time to time found defects in 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. If that occurs, our customers may stop using or fail to expand use of our solutions, 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 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. 

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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, Amazon Web Services and Peer 1. 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 technological operations 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 or subscription 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, 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 programs and subscription renewal programs, including specific license models and terms and conditions. We have in the past and could in the future implement new licensing programs and subscription renewal programs or bundling arrangements, including promotional programs or specified enhancements to our current and future solutions. For example, in 2014 we introduced per user pricing as an additional pricing option for our customers, which is at a higher list price than our per device pricing. Such changes could result in deferring revenue recognition regardless of the date of the initial shipment or licensing of our solutions. Changes to our licensing programs and subscription renewal programs, including the timing of the release of enhancements, upgrades, maintenance releases, the term of the contract, discounts, promotions and other factors, could impact the timing of the recognition of revenue for our solutions, related enhancements and services and could adversely affect our operating results and financial condition. 

 

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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 offer 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. If we do not provide effective ongoing support, it would 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 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.

 

Virtually all 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 virtually all of our revenue. Our international resellers often enter into agreements directly with our mutual customers to host the 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 the 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 20% (1% as an end customer) of our total revenue for the three months ended March 31, 2015. 

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. 

Additionally, we are in the process of working with certain of our service provider partners to enable them to develop and sell their own branded mobile IT cloud service solutions based on our MobileIron cloud platform. We will need to devote sufficient internal resources to enable these service providers to be successful in deploying and selling these new service provider-branded cloud service offerings, and this may strain our resources. 

 

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Our sales cycles for large enterprises is 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. Many of our large customers have very complex IT systems, mobile environments and data privacy and security requirements. Accordingly, these customers typically undertake a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors, and has resulted in lengthy sales cycle. 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 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. 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:

 

 

 

 

 

 

more complicated network requirements, which result in more difficult and time-consuming implementation processes;

 

 

 

 

more intense and time-consuming customer support practices;

 

 

 

 

increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us;

 

 

 

 

more customer-favorable contractual terms, including penalties;

 

 

 

 

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;

 

 

 

 

closer relationships with, and dependence upon, large technology companies that offer competitive solutions;

 

 

 

 

increased reputational risk as a result of data breaches or other problems involving high profile customers; and

 

 

 

 

more pressure for discounts.

 

 

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 laws and standards could have a material adverse effect on our business.

Personal privacy has become a significant issue in the United States and in many other countries where we offer our solutions. The regulatory framework for privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. 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.

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In the United States, these include, for example, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Gramm-Leach-Bliley Act and state breach notification laws. Internationally, different jurisdictions have a variety of data security and privacy laws, with which we or our customers must comply, including the Data Protection Directive established in the European Union and the Federal Data Protection Act in Germany. 

In addition to laws and regulations, privacy advocacy and industry groups or other private parties may propose new and different privacy standards. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our solutions. Any inability to adequately address privacy concerns, even if unfounded, 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. 

 

Our failure to adequately protect personal information and to maintain the security of enterprise data could have a material adverse effect on our business.

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. 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. Privacy concerns, whether valid or not, may inhibit market adoption of our solutions, particularly in certain industries and foreign countries. Furthermore, the recent attention garnered by the National Security Agency’s bulk intelligence collection programs may result in further concerns surrounding privacy and technology products. 

 

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. For example, during 2013, we recorded a $3.9 million impairment loss in connection with a delayed technology project from an acquisition. 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. 

 

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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. 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 infrastructure, sales of our solutions could be negatively affected.

 

Our solutions are designed 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

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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 virtually all 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 IT infrastructure as an increasingly important computing platform for businesses. Our business plan assumes that the demand for mobile IT solutions will increase. However, the mobile IT market may not develop as quickly as we expect, or at all, and businesses may not continue to elect to utilize mobile IT solutions. 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. 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 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. In addition, our rapid growth rate over the last two years may have made seasonal fluctuations more difficult to detect. If our rate of growth slows over time, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may be adversely affected.

 

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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 for the year ending December 31, 2015. Management’s assessment will need 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 later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an “emerging growth company,” as defined in the JOBS Act. 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. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time-consuming, costly and complicated. 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.

 

Impairment of goodwill and other intangible assets would result in a decrease in earnings.

 

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

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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. In 2013, we recorded a $3.9 million impairment loss in connection with a delayed technology project from an acquisition, and we may be required to record similar impairment charges in the future. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial 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 year ended December 31, 2014, 2013, 2012 and the three months ended March 31, 2015, 45%, 44%, 40% and 47% of our revenue, respectively, was attributable to our international customers, primarily those located in EMEA. As of December 31, 2014, approximately 28% 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:

 

 

 

 

 

 

— 

difficulties in executing an international channel partners strategy;

 

 

 

 

— 

heightened concerns and legal requirements relating to data and privacy;

 

 

 

 

— 

burdens of complying with a wide variety of foreign laws;

 

 

 

 

— 

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;

 

 

 

 

difficulties in providing support and training to channel partners and customers in foreign countries and languages;

 

 

 

 

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;

 

 

 

 

import restrictions and the need to comply with export laws;

 

 

 

 

difficulties in protecting intellectual property;

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difficulties in enforcing contracts and longer accounts receivable payment cycles;

 

 

 

 

difficulties and costs of staffing and managing foreign operations;

 

 

 

 

the effect of foreign exchange changes on the competitiveness of our prices;

 

 

 

 

potentially adverse tax consequences;

 

 

 

 

the increased cost of terminating employees in some countries; and

 

 

 

 

variability of foreign economic, political and labor conditions.

 

 

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. 

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. 

 

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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. As a result of our focus on managing our rapid growth, 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.

 

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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. On November 14, 2012, Good Technology filed a lawsuit against us in federal court in the Northern District of California, alleging false and misleading representations concerning their products and infringement of four patents held by them. On March 1, 2013, we counterclaimed against Good Technology for patent infringement of one of our patents. On October 13, 2014, the court issued a claims construction order. Good Technology responded by filing new patent infringement suits against us in Delaware (which was recently transferred from Delaware to the Northern District of California) and internationally, as well as inter partes review proceedings. We have counterclaimed against them in the Delaware case on two of our next generation patents. We are contesting Good Technology’s claims vigorously. Both Good Technology and we have moved for summary judgment on various issues, and a trial date has been set for July 2015. The final outcome, including our liability, if any, with respect to Good Technology’s claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. 

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. 

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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 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 volatile, and you could lose all or part of your investment.

 

The trading price of our common stock has been volatile since our Initial Public Offering and is likely to continue to be volatile. The trading price of our common stock following the Initial Public Offering 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. 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:

 

 

 

 

 

 

failure to meet quarterly guidance with regard to revenue or other key metrics;

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price and volume fluctuations in the overall stock market from time to time;

 

 

 

 

volatility in the market prices and trading volumes of high technology stocks;

 

 

 

 

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

 

 

 

sales of shares of our common stock by us or our stockholders;

 

 

 

 

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;

 

 

 

 

announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;

 

 

 

 

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

 

 

 

rumors and market speculation involving us or other companies in our industry;

 

 

 

 

actual or anticipated changes in our results of operations or fluctuations in our operating results;

 

 

 

 

actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

 

 

 

 

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

 

 

 

developments or disputes concerning our intellectual property or other proprietary rights;

 

 

 

 

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

 

 

 

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

 

 

 

changes in accounting standards, policies, guidelines, interpretations or principles;

 

 

 

 

any major change in our management;

 

 

 

 

general economic conditions and slow or negative growth of our markets; and

 

 

 

 

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

 

 

 

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. 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, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

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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. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, or if any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could 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 57% of the outstanding shares of our common stock as of March 31, 2015. 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 deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which would 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 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 will 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. 

We also expect that being a public company will make 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 factors 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. 

 

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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.

 

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:

 

 

 

 

 

 

fund our operations;

 

 

 

 

continue our research and development;

 

 

 

 

develop and commercialize new solutions; or

 

 

 

 

acquire companies, in-licensed solutions or intellectual property.

 

Our future funding requirements will depend on many factors, including:

 

 

 

 

 

 

market acceptance of our solutions;

 

 

 

 

the cost of our research and development activities;

 

 

 

 

the cost of defending and resolving, in litigation or otherwise, claims that we infringe third-party patents or violate other intellectual property rights;

 

 

 

 

the cost and timing of establishing additional sales, marketing and distribution capabilities;

 

 

 

 

the cost and timing of establishing additional technical support capabilities;

 

 

 

 

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.

 

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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. Based on the total number of outstanding shares of our common stock as of March 31, 2015, we have 77,921,699 shares of common stock outstanding, notwithstanding any potential exercises of our outstanding stock options. 

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. For example, in the fourth quarter of 2014 we began issuing restricted stock units (“RSUs”) to employees, the majority of which vest quarterly over four years, beginning May 20, 2015. In the first quarter of 2015 we established the 2015 Executive Bonus Plan and the 2015 Non-executive Bonus Plan, or “Bonus Plans”, to be settled in our common stock. If the business metrics for the issuance of the stock bonuses are met, we would expect a meaningful number of shares to be issued in early 2016 as a result.  These and any other issuances 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 under 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

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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.

 

Certain of our executive officers may be 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.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2015, we repurchased an aggregate of 8,825 shares of our common stock from our employees or departing employees in the aggregate amount of $15,000. These securities were repurchased as follows:

 

 

 

 

 

 

 

 

 

 

    

Total number of shares

    

 

 

Period

 

repurchased

 

Average price paid per share

 

January 1, 2015 through January 31, 2015

 

5,357 

 

$

1.75 

 

February 1, 2015 through February 28, 2015

 

3,200 

 

 

1.55 

 

March 1, 2015 through March 31, 2015

 

268 

 

 

0.55 

 

Total shares repurchased

 

8,825 

 

$

1.64 

 

 

In addition, we withheld common stock shares associated with net share settlements for stock option exercises by a consultant. During first quarter of fiscal year 2015, we withheld 9,019 shares at a total cost of $89,056 to exercise of 50,889 shares of Common Stock.

 

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 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).

 

The repurchases of the securities listed above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701.

 

As of March 31, 2015, we had not used any proceeds from our IPO. We maintain the cash received in cash and cash equivalents, short-term investments and long-term investments. As of March 31, 2015, 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.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

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Item 5. Other Information

 

Severance Benefit Plan

 

On April 28, 2015, upon the recommendation of the Compensation Committee, the Board adopted a Severance Benefit Plan (the “Severance Plan”), pursuant to which selected current and future employees, including our named executive officers (the “NEOs”), will be eligible for severance benefits under certain circumstances. The Severance Plan supersedes any severance benefits that a participant would have been entitled to under any pre-existing agreement between the individual and the Company. Unless terminated sooner, the Severance Plan will automatically terminate on the third annual anniversary of its adoption.

 

The actual amounts that would be paid or distributed to an eligible NEO as a result of a termination of employment occurring in the future may be different than those presented below as many factors will affect the amount of any payments and benefits upon a termination of employment. For example, some of the factors that could affect the amounts payable include the NEO’s base salary and the market price of our common stock. Although the Company has entered into a written agreement to provide severance payments and benefits in connection with a termination of employment under particular circumstances, the Company, or an acquirer, may mutually agree with the NEOs to provide payments and benefits on terms that vary from those currently contemplated. In addition to the amounts presented below, each NEO would also be able to exercise any previously-vested stock options that he or she held, in accordance with the terms of those grants and the respective plans pursuant to which they were granted. Finally, the NEOs are eligible to receive any benefits accrued under our broad-based benefit plans, such as accrued vacation pay, in accordance with those plans and policies.

 

To receive any of the severance benefits under these agreements, the NEO would be required to execute a release of claims against the Company within forty-five (45) days of the qualifying termination and comply with confidentiality and non-disparagement provisions.

Severance Absent a Change in Control

 

Under the Severance Plan, if a participating individual is involuntarily terminated without cause, absent a Change In Control (as defined in the Severance Plan), then he or she will be entitled to receive (a) cash severance in in accordance with the Company’s standard payroll practices and subject to standard payroll deductions and withholdings equal to his or her monthly base salary multiplied by the number of months in his or her participation notice under the Severance Plan, and (b) continuation of his or her current health insurance coverage, or payment of the premiums for such coverage, for up to the number of months specified in his or her participation notice. Each NEO is eligible to receive the following payments and benefits:

 

 

 

 

 

 

 

in the case of Mr. Tinker, annual base salary for 12 months from the date of termination;

 

 

 

 

in the case of Messrs. Donnelly and Viarengo, annual base salary for 6 months from the date of termination; and

 

 

 

 

health insurance premiums under our group health insurance plans as provided under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), to the extent such COBRA premiums exceed the costs previously paid by the NEO for group health insurance coverage while employed by us, until the earlier of (i) six months (12 months in the case of Mr. Tinker) after termination, or (ii) such time as the NEO is eligible for health insurance coverage with a subsequent employer.

Severance in Connection with a Change in Control

 

In the case of a Change In Control Termination (as defined in the Severance Plan), if a participating individual is terminated without cause or constructively terminated, either during the three months before or in the year after a change in control, then he or she will be entitled to receive (a) cash severance in accordance with the Company’s standard payroll practices and subject to standard payroll deductions and withholdings equal to his or her monthly base salary

69


 

multiplied by the number of months specified in his or her participation notice under the Severance Plan, b) continuation of his or her current health insurance coverage, or payment of the premiums for such coverage, for up to the number of months specified in his or her participation notice under the Severance Plan, and (c) accelerated vesting of then outstanding compensatory equity awards as to the percentage of unvested shares per equity award specified in his or her participation notice. Each NEO is eligible to receive the following payments and benefits:

 

 

 

 

 

 

 

annual base salary for 12 months from the change in control;

 

 

 

 

full acceleration of vesting of any outstanding shares of common stock, stock options to purchase common stock or restricted stock units granted to the NEO, which as of February 19, 2015 would have a value of $3,983,087 for Mr. Tinker, $2,037,159 for Mr. Donnelly and $1,718,226 for Mr. Viarengo; and

 

 

 

 

health insurance premiums under our group health insurance plans as provided under COBRA, to the extent such COBRA premiums exceed the costs previously paid by the NEO for group health insurance coverage while employed by us, until the earlier of (i) 12 months after a change in control, or (ii) such time as the NEO is eligible for health insurance coverage with a subsequent employer.

 

Payment of any severance benefits is conditioned on the timely execution of a general release of claims in favor of the Company.

 

 

70


 

Item 6. Exhibits 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

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 2.1 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)

 

MobileIron, Inc. 2015 Executive Bonus Plan

 

10.21

 

10-K

 

February 27, 2015

 

001-36471

 

 

10.2(1)

 

MobileIron, Inc. 2015 Senior Vice President, Sales Territory and Quota Assignment Plan

 

10.22

 

10-K

 

February 27, 2015

 

001-36471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3

 

MobileIron, Inc. 2015 Non- Executive Bonus Plan

 

 

 

 

 

 

 

 

 

x

10.4(1)

 

MobileIron, Inc. Severance Benefit Plan and Participation Notice

 

 

 

 

 

 

 

 

 

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

 

71


 

 

 

 

 

 

 

 

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.

 

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.

 

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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/ Robert Tinker

 

 

 

Robert Tinker

 

 

 

President and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

By:

/s/ Todd Ford

 

 

 

Todd Ford

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer and Accounting Officer)

 

 

Dated: May 4, 2015

 

73