Mobile Iron Transcript - Big Upside If Model Plays Out

Jun.27.14 | About: MobileIron, Inc. (MOBL)

Summary

Mobile Iron (MOBL) is a "sleeper IPO" brought by Goldman Sachs and Morgan Stanley.

As a provider of software to help enterprises run on mobile devices, their market is red hot.

Growth and market share has been excellent, but the company is making big losses.

If MOBL can come close to their long-term model, the stock will be much higher.

Mobile Iron (NASDAQ:MOBL) priced their IPO in the middle of the filing range at $9/share on June 13th, with the coveted lead banking duo of Morgan Stanley and Goldman Sachs leading the charge. So far, the shares haven't done much and change hands at $9.75/share.

Profits are probably the prime concern given that the company is losing a great deal of money and plans to ramp up spending on both development and sales and marketing in the short to medium term. They have the evidence showing that past "cohorts" of customers turn very profitable after three years, so there is a big incentive to acquire customers now.

The company tells a great story about the shift to mobile in the enterprise and the beauty of their solution. Competition is fairly intense, but MOBL also will be an attractive acquisition target for traditional systems and network management companies and more focused players, like BlackBerry (NASDAQ:BBRY), that want to provide a total software solution for enterprise mobility.

Mobile Iron is in the major investment (and loss-making) stage right now, but if they can come close to their long-term margin model, then the shares will eventually see some solid upward momentum.

A few transcript excerpts are included here, along with a link to the full MOBL transcript. The roadshow slides are also available -MOBL IPO roadshow slides.

Our mobile IT platform provides mobile device management that secures and manages all the major mobile operating systems; mobile application management that delivers business apps through a private enterprise app storefront while securing work apps separately from personal apps; and mobile content management that allows secure access to work documents and websites. Customers have a choice. They can buy our platform as a cloud service or as on-premise software. With MobileIron, IT is confident, employees are productive and the business wins.

Since 2009, we have won over 6,000 customers including over 350 of the Forbes Global 2000. Over the same four and a half years, we grew revenue from zero to over $100 million in 2013.

We have been leaders in the leaders' quadrant for all three of the last three years. We eat, sleep and breathe mobile. Our platform was built from the ground up for the fast-changing, highly complex mobile IT world. We never did anything else. We didn't retrofit a product.

Our customers started with Apple iOS. Now they're rolling out Android at scale, particularly outside North America. And now Windows Phone is right behind that. (IPOC Editor - Also the Microsoft Surface is finally a class A mobile platform for enterprise users.)

Our 2010 cohort of customers have expanded over 5x the number of seats from their initial purchase. This is important, because expand can increase our footprint and drive revenue at a relatively low incremental cost. In 2010, the contribution margin from this cohort was -28%. One year later, the contribution margin turned positive and by 2013, the contribution margin grew to over 62%.

Our business model has produced strong gross margins greater than 80%, an increase in average seat prices in 2013 over 2012, and renewal rates greater than 90%.

Historically, our large customers have purchased perpetual licenses which are paid up front and call for a 20-23% annual software support agreement. Recently, an increasing portion of our business has shifted from perpetual licenses to term subscription licenses. Customers who select our subscription model are billed up front and revenue is ratably recognized each month over the term of the agreement, which is typically 12 months and occasionally 24 or 36 months.

With the shift to subscription licenses, a larger portion of our billings have become recurring in nature. Our recurring billings have increased from 25% in 2011 to over 50% in the first quarter of 2014. (IPOC Editor - This "mixed model" isn't bad fundamentally but adds a few moving parts to the business that can be confusing for some.)

This is a company that has good fundamental value and fits into the big Mobile theme, so we decided to do the transcript. We'll probably continue to follow this one closely and consider it for the IPO Candy Folio if our IV model also confirms a potentially big return here.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.