MobileIron, Inc. (NASDAQ:MOBL)
Q2 2016 Earnings Conference Call
July 28, 2016 4:30 p.m. ET
Sam Wilson - IR
Barry Mainz - CEO
Simon Biddiscombe - CFO
Michael Turits - Raymond James
Jack Kilgallen - Goldman Sachs
Raimo Lenschow - Barclays
Ryan MacDonald - Wunderlich Securities
Michael Kim - Imperial Capital
Thank you for standing by. This is the conference operator. Welcome to the MobileIron Second Quarter 2016 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Mr. Sam Wilson. Please go ahead.
Thank you, operator. Good afternoon, and welcome to MobileIron's second quarter 2016 financial results conference call. Joining us from the company are Barry Mainz, CEO; and Simon Biddiscombe, CFO.
The format of the call will be an introduction by Barry, then, Simon will provide details on the financials. We will then have time for questions. If you have not received a copy of today's release, please call MobileIron Investor Relations or go to MobileIron's Investor Relations Web site at investors.mobileiron.com.
Before we begin the formal remarks, the company advises that today's conference call contains forward-looking statements that involve risks and uncertainties including, but not limited to, statements regarding MobileIron's revenue, operating expenses, cost structure, GAAP and non-GAAP financial measures, projected financial results and trends in MobileIron's business.
There are a significant number of factors that could cause actual results to differ materially from statements made on this call including, but not limited to, our limited operating history, quarterly fluctuations in our operating results, our need to develop new solutions, product defects, customer adoption, competitive pressures, mix shifts, our ability to scale, our ability to recruit and retain employees and the quality of our support services.
Forward-looking statements are subject to a number of significant risks, uncertainties and assumptions as to future events that may not prove to be accurate. MobileIron's actual results may differ materially. For discussion of potential factors that could affect our future results and business, please refer to our reports on Forms 10-K, 10-Q, and 8-K and our other filings we make with the SEC from time to time.
All statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented in the call may not contain current or accurate information. MobileIron does not assume any obligation to update any forward-looking statements to reflect events that occur or circumstances that exist after such statements are made today.
In addition, several non-GAAP financial measures will be mentioned on this call. Information relating to the corresponding GAAP measures as well as a reconciliation of the non-GAAP and GAAP measures can be found in our press release on the Investor Relations Web site in our 8-K filing with the SEC. We believe these non-GAAP financial measures are helpful in understanding MobileIron's past financial performance and it's future results, but are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with MobileIron's consolidated financial statements prepared in accordance with GAAP.
As a reminder, in the past we've reported non-GAAP revenues to account for Vendor-Specific Objective Evidence or VSOE and to provide more meaningful period-over-period comparisons. Starting in the first quarter of this year, we are only reporting GAAP revenues for 2015 and 2016, because VSOE adjustments are immaterial.
And at this time, I'd like to turn the call over to Barry. Please go ahead, sir.
Thank you, Sam, and good afternoon. In my remarks today, I will provide a brief commentary on the second quarter's financial performance, discuss a few key highlights, and provide an update on our key innovation initiative. Simon will then provide the detailed financial results and our guidance for the third quarter.
We are pleased with our financial performance in the second quarter. GAAP revenues were $38.9 million, at the high end of our expected range of $37 million to $39 million. This was driven primarily by the higher than expected billings. Billings came in at $31.2 million, above our expected range of $38 million to $40 million. We saw strength in our business from new and existing customers and from recovery from the renewals business where we misexecuted in Q1 as discussed on our last earnings call.
Operating expenses were $44 million, the midpoint of our expectations. We remain committed to maintaining financial discipline, including the goal of achieving cash flow breakeven in the fourth quarter. And Simon will touch on this subject later in his remarks.
Although we do not provide details on a quarter-to-quarter basis, I am thrilled to report that during the quarter we passed a major milestone. We've sold more than 10 million enterprise seats since 2009. And the vast majority of these seats have been sold to enterprises with more than 5,000 employees.
Turning now to a few highlights from the quarter. In June, Gartner released the 2016 Magic Quadrant for the EMM sector. Not only was MobileIron positioned in the Leaders Quadrant for the sixth year in a row, but we were the only standalone EMM vendor in the Leaders Quadrant. It's instructed to look at how the Magic Quadrant has evolved over time. When the first MQ came out in 2011, it included 23 vendors. Now we're down to 14. The bar on our marker is high and expectations of enterprise customers continue to rise. We continue to believe that to win in this market we must be exclusively focused on mobile and security.
During my second quarter as CEO, I filled out the management team with two key hires and an internal promotion. Greig Patton joined us from Veritas to head sales, and he brings more than 20 years of experience selling security solutions, working with channel partners, and building great teams. Our new Head of Customer Success, Dilip Patel, came from Wind River/Intel to lead our technical support, education, customer advocacy, and professional services teams. He brings a proven track record of successful team building, complex budget execution, product design lifecycle, and global customer operations. Both Greig and Dilip raise our game by brining critical experience leading large global teams, selling and supporting complex security technologies, and making the largest companies in the world successful. They will play in a central role in our next stage of growth.
Finally, Ojas Rege, our Chief Strategy Officer takes the reins from Vittorio Viarengo to lead marketing as CMO in addition to his strategy role. We thank Vittorio for his years of service. Ojas has 16 years of global experience, and knows our products, our customers, our partners, and our competitors better than anyone. Clearly, having the management team in place is critical for our success and I'm very pleased with the way the team is performing, and the progress we are making. In fact, I'm convinced that part of our strong performance in the second quarter was attributable to the leadership we now have in place.
In April, we introduced MobileIron Access, the first technology to solve the data loss problem created by unmanaged applications accessing corporate data in the cloud. MobileIron Access established a new security requirement. Only trusted apps on trusted devices with trusted users should be able to access corporate data in the cloud. Access builds on our security architecture and rounds out our portfolio of security solutions. EMM gives you device and application trust. Identity providers give you user trust. MobileIron Access integrates these three levels of trust and applies them for the first time to brokering access to cloud apps via mobile devices.
We launched Access with integrations to many of the most widely used enterprise cloud apps, including Docs, Google Apps for Work, Salesforce, and Office 365. In fact, early interest in access has been driven by our ability to secure Office 365. As more enterprise applications move into the cloud, we are ready to provide a unified architecture to secure those applications across all mobile endpoints. While we continue to add customers at a rapid pace and expanding existing customers, Access is an example of how we are further monetizing our large installed base of millions of devices.
MobileIron Cloud had a great quarter, powered by large deals and its great potential for future development. Features launched in the quarter include expanded capabilities on Android for Work, iOS 9.3 features, analytics, and notification options. We had a record number of new customers and billings for MI Cloud in the second quarter.
Also in the second quarter, we were able to speak publicly about some of the work we've spent years doing for the U.S. Federal Government. The National Information Assurance Partnership, or NIAP, is a United States Government initiative operated by the National Security Agency that oversees the program to elevate technology products for components to Common Criteria. Common Criteria evaluations involve extensive and rigorous testing of the security aspects of a product or a system. Common Criteria has been in effect since 1999, and the product certifications are recognized by 26 nations globally.
MobileIron is the first EMM company in the world to receive Common Criteria certification against the version 2.0 of the Mobile Device Management Protection Profile. This opens new doors for us around the world in high-security environments. Additionally, the U.S. Government has started embracing cloud for certain use cases. FedRAMP is a government-wide program that provides a standardized approach to security assessment, authorization, and continuous monitoring for cloud products and services. We have been sponsored by long-time customer, the U.S. Postal Service, and are deep into the authorization for MobileIron Cloud. Given the stage we are at doors are already opening for large deals. So stay tuned.
Overall strength in U.S. Federal Government was highlighted by our recent announcement that Defense Information Systems Agency, or DISA, has awarded a three-year contract to our partner Patriot Technologies. We are very proud of our efforts that went into winning this deal, and pleased to be partnered with such a strong performer. This marks the second time that we've won DISA, both times in a highly competitive environment. Governments are a strong vertical for us, and we have continued to invest in our leading position. We started in government as a BlackBerry replacement solution. Today, government customers are rolling out smartphones and tablets to many more employees than they've ever had in terms of BlackBerry. Very few companies have achieved the security solution and certifications needed to sell into this market.
Further, once we win the U.S. Federal Government it is much easer to win state and local government, along with governments around the world. If you need a name, you'd be impressed by the world leaders that are secured by MobileIron. We announced today that we are now at more than 12,000 customers that have paid for our products since 2009. I'd like to share some deal highlights, and two case studies that show how companies are using mobile to transform their businesses.
Bentley Motors, fine craftsmanship, engineering expertise, and cutting edge technology have made Bentley the most sought after luxury car brand, and we are proud that they have selected MobileIron to be chosen to secure the mobile device fleet. We also added Konica Minolta Business Solutions as a customer in Europe, a leading global service provider in the field of IT and document processes, as well as digital correction printing solutions. Konica Minolta continuously invest in research and development, and regularly sets new standards to support its customers. And we're pleased that they chose MobileIron as one of their technology investments. We're also very pleased to welcome Jägermeister, the iconic German spirit company to the MobileIron family.
And our existing customers continue to invest in MobileIron. Harris Corporation is a 22,000-person enterprise that provides mission critical solutions to connect, inform, and protect the world. And Q2, Harris expanded its MobileIron deployment. We're honored when other software companies evaluate and choose our product. During the second quarter, the world's largest privately held software company, SAS Institute chose MobileIron to be the mobile security backbone for its entire 15,000-person workforce. Ryanair is a great study an in-house product is used to secure and transform businesses. Ryanair is a leading low-fare airline in Europe, and they wanted to move to electronic flight bags.
This would result in removing 33 pounds of weight in each cockpit, and eliminating more than 10 million pages of paper. Not only would this result in a massive fuel savings, but pilots would be more productive. We work with our Irish partner, CWSI, to provide Ryanair with a complete EMM platform on Apple iPad. Ryanair pilots now have four electronic use of Boeing's onboard performance tool to take off performance calculation, the latest weather reports, as well as the most current electronic flight manuals.
As the pilots are flying around Europe, all devices connected in the network are secured. When a pilot uses a passcode, Ryanair's IT can simply reset it with MobileIron rather than whipping the entire device enforcing the employees to spend the one to two hours reinstalling apps.
Apart from the customer's sets its all, the bigger the cockpit, is an efficient cockpit. Due to success of this project, the iPad system will now also be rolled out to ground crew, to drive cost savings and increase business efficiencies.
Eurostar is known for revolutionizing travel, but they should be known for revolutionizing their operations with mobile-acquired technology. Eurostar's vision was to mobilize its day-to-day operations to transform everything from training maintenance to business intelligence with conductors and managers consistently traveling between countries, Eurostar understood that mobility could unlock significant time savings for its employees. It launches the mobility initiative in terms to MobileIron to secure a corporate and BIOD devices, and to deploy mobile application. The results Eurostar's last employee mobile billed by 50%, improved customer experience with reduced maintenance time and created operational efficiencies both on trains and in the depo.
Now, I'd like to refer it, because what we do extend way beyond mobile. I believe that EMM will become the platform for securing IoT in the enterprise. I came from Wind River/Intel and their software was on over $2 billion. The three problems connecting the unconnected were security, scale, and simplicity. The four was usually to the VT of R&D, but as soon as the common station is about connecting the unconnected IEIOT, the IT folks responsible for mobility were brought in. Another has been lot of hike in IoT and some is exactly right high, but we'd have some specific use cases that we have been working on with customers, and we see some near-term potential.
I'd like to share couple of them. When we travel on hospitality industry, one of our customers are using new technology to transform the new customer experience while interest in their efficiency through automation, not headcount. In other hotel room, there is an iPad that controls all the systems in the room; temperature, entertainment, writing, drawing etcetera. The system knows when the room has been vacated, so housekeeping can be notified to make up the room. All the information feedback for essential dashboard and if there is problem with anything, the right department is automatically alerted to fix the problem.
This was way beyond EMM. This was real IoT that is happening now. For our customers results are clear. We don't have to invest in an expensive physical control that has a vehicle for communicating the customers, so that many requests that can be handled without personnel interaction over the staff member, which is why they can have six people to run a 350 room hotel, and their guest, loved the experience and write in travel reviews.
Another example of IoT becoming a natural extension of EMM security is securing medical censors like blood pressure and glucose monitoring systems, and this is the center connects to a smartphone and the smartphone provides are identity to the medical sensor with the same architecture as the Apple watch connecting iPhone.
Automotive is the third area where we think we have a significant opportunity. Google and Apple have an issue to put the mobile operating systems into more devices such as Android Auto and Apple CarPlay. When these operating systems are coupled with a SIM card into a Wi-Fi is basically the same architecture as mobile, smartphones, and tablets. As a result, we're on deep discussions with company seeking to use the EMM platform in non-traditional areas. IoT is a one standard deviation away from what we do today. Our product leadership and our experience with complex security and scalability requirements give us competitive edge at a market lead and our effort in this area are well-timed. We are doing our R&D at the same time, but our customers are doing the R&D, and we're building with our customer which is what we've done from the beginning of this company.
On the last call, I laid out two biggest challenges: speeding up innovation and getting into more opportunities. The second quarter was a step forward on both fronts. We launched new products, and we set-up innovation, and we have started to receive the better certifications that will get us into more deals. As we enter the usually stronger back half of the year, we have new product tailwinds, and I look forward to speaking to you again after our next earnings report.
With that said, I would like to turn the call over to Simon.
Thanks, Barry, and good afternoon. The second quarter of fiscal 2016 saw a marked improvement in our financial performance. Billings were in excess of our expectations, and revenue was at the high-end of our expected range. The upside was driven by a combination of strength in new business and some catch-up builds in revenues following our renewals misexecution that we discussed last quarter. Operating expenses were at the midpoint of our expected range, and I will discuss operating expenses in more details shortly.
As a reminder, our discussion today refers to non-GAAP financial measures unless otherwise noted. Our press release, 8-K, and Web site provides a reconciliation of GAAP to non-GAAP financial results. For the second quarter ended June 30, 2016, gross billings were $41.2 million, up 6% year-over-year. Our recurring billings in the second quarter surpassed $30 million for the first time at $30.4 million up 21% year-over-year.
Revenues were $38.9 million, up 12% from the prior year. Breaking down revenues into the segments, revenues from perpetual license sales were $9.8 million, down 21% year-over-year. The customers continue to show a strong preference for subscription solutions.
Revenue from subscriptions consisting of both term subscriptions and monthly subscriptions or MRC was $14.8 million, up 32% year-over-year. MRC revenue was $6.1 million up 24% from a year ago. Sequential decline in MRC was primarily attributable to a one-time reserve to MRC revenue for products sold in previous quarters of approximately $400,000. Term subscription revenue was $8.7 million, up 38% from a year-ago. Revenue from software support and services was $14.3 million, up 28% from a year ago.
Revenue from recurring sources for the second quarter was $27.6 million, up 28% year-over-year. We believe the recurring revenues reflect combined performance data seats, contract plans, billings mix and renewal ASPs. Since ASPs have been generally flat, the rate of growth of our recurring revenues has been very highly correlated to relative growth of cumulative seeds.
On both of billings and revenue basis, the recurring portion of our business is over $110 million a year run rate. Non-GAAP gross margin in the first quarter was 82.2%. Total non-GAAP operating expenses were $44 million, in the middle of our $43 million to $45 million guidance range and down year-over-year, even as we grew billings and revenues. Non-GAAP operating margins were negative 31%, significantly better than negative 67% a year ago.
Turning to the bottom-line for the second quarter, we reported a GAAP net loss of $22.9 million and a non-GAAP net loss of $12.2 million. GAAP EPS was a loss of $0.27 and non-GAAP EPS was a loss of $0.14. These are based on a weighted average basic share count of 85.3 million shares.
Moving to the balance sheet, we ended the second quarter of 2016 with $85.9 million in cash, short-term and long-term investments; a decrease of $9.2 million from the prior quarter.
Deferred revenue was $72.5 million at the end of June versus $61.2 million in the prior year, up 18% year-over-year. DSOs for the second quarter of 2016, was 77 days, up three days from last quarter. In general, our DSOs are in the 70 to 80 day range and typically moved up or down based on inter-quarter linearity and some seasonal factors.
Looking at our future pipeline of business and guidance, we remain in a similar situation as last quarter. We have a significant number of large deals in pipeline, but specific deal timing is difficult to predict.
Turning to guidance, to start let me provide some color around our state of the business as we enter the third quarter. Building off what Barry said, we have a sizable and growing U.S. Federal Government business, and that has a well known third quarter seasonality. At the same time, Europe is generally a seasonally slower quarter. So we've factored both of these into our guidance. We expect billing for the third quarter to be in range of $33 million to $35 million, up 5% to 10% year-over-year. We're projecting a revenue range of $39 million to $41 million, up 3% to 8% year-over-year. We expect non-GAAP gross margins to be approximately 81% to 83%. And we expect that non-GAAP operating expenses will be in the range of $41 million to $43 million.
On the expense side, as I've said, since becoming CFO, remain focused on the efficiency of our spending, with particular emphasis on measuring and improving the ROI on every dollar spent. As the new leadership team of the company has come together it has become apparent that we could reduce the cost structure of the business without impacting business initiatives. And as such, today, we initiated a small reduction in force. And this has been factored into the OpEx guidance provided above.
Finally, we remain committed to our financial goals for the fourth quarter, cash flow breakeven. And we expect that at that time operating margins will be in the range of a negative 8% to negative 12%.
Operator, we are ready for questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Turits from Raymond James. Please go ahead.
Hi, guys. Good to see some of the things starting to solidify here. Can you comment, and again I may have missed some of it during the remarks, but on some of things that were weaker last quarter and how they turned around specifically around, (a) the renewal process, and (b) around ASPs.
Michael, this is Simon. I'll take that one. Yes, so the renewal process was something that we did specifically highlight on the first quarter earnings call as an area where we hadn't executed as strongly as we historically have. We certainly recovered some of the activity that we had lost in the first quarter, but by no means all of it. I don't think it's lost as such. I still think we'll see those renewals come. It just takes a little time, as we said, to build out the team that would necessary to do that, and then to execute the renewals themselves. So we've seen some recovery but not all of the dollars have been brought in at this point in time. As it relates to ASPs, ASPs were absolutely fine. They were up sequentially on a blended basis.
And anything that accounts for -- talk about why they flattened out or what you did differently or why you started to see that increase this quarter?
Nothing specific to call out, Michael. We continue to be focused on driving incremental value into the bundles. And as such, we are able to greater protect and grow the ASPs as we move forward.
Great. Thanks, Simon.
Thanks. Next question?
Next question comes from Heather Bellini from Goldman Sachs. Please go ahead.
Hi, this is Jack Kilgallen filling in for Heather. Just two questions; I guess, first of all, it seems like most of the key global software players generally beat expectations this quarter, and I know you talked about a soft IT environment and softer end demand last quarter. I guess, first, how much the better performance this quarter would you attribute to an improving IT spend environment versus MobileIron's specific execution? Then I had a quick follow-up?
I think that we did find some -- this is Barry, by the way, we did find some advantage or benefit from the uptick, but we had a lot of teams still in place right now, so we didn't benefit the execution throughout the organization, and getting [ph] that as well. So I think it's a combo platter [ph].
Yes, this is Simon, Jack. I think, as I commented clearly, we saw some recovery in the renewals activity. And actually if I look at the new business, as I said in my prepared remarks that was higher than we had expected it to be at the time we provided guidance. Barry is absolutely right. Part of it is undoubtedly attributable to good execution across the sales organization. We've had a strong quarter. And obviously, now with new leadership in place and stability of leadership, we expect that that will continue into Q3, and the remainder of the year.
Great. And then, Simon, you did reiterate the comment that recurring revenue growth tends to sort of match the cumulate seat growth trends that you see. I guess, how many more quarters should it take for overall revenue growth to converge with that seat growth which I guess recurring revenue growth is a proxy growth. It seems like overall revenue growth just under-impacts [ph] quarter in quarter out. And I guess the other factor there would be churn. So any other comment you have would be great.
Yes, I'll give you both. So you only get to the point where the actual headline rates of growth reported are consistent with the recurring revenue rate of growth when you get to a point where you've essentially had high [indiscernible] stable mix right. And clearly, based on the change in mix in the most recent period with the potential revenues being down 21% on a year-over-year, we're not at a point where we've got that stable mix. So you have to have a stable mix before you can see the business line up its total revenue number with its recurring revenue number from a growth vector perspective. So that's the critical piece. And we're not suggesting that we're going to give you mixed number out over the course of the next five quarters. And therefore we're not going to suggest that we can tell exactly when that will occur. That's part number one.
Part number two, as it related to the renewal rates within that context. Renewal rate is fine. I think, as I look at Q2, we're on track to be back above that 90% number that we've historically been at.
Next question comes from Raimo Lenschow from Barclays. Please go ahead.
Hi, thanks for taking my question, and good to see the progress; well done. Quick question, can you comment a little bit on the competitive landscape that you see out there? I mean, we saw VMware numbers were okay, but not amazing. Citrix was okay, not amazing. And we see a lot more chatter around what Microsoft is going to do in the field. Can you just see what you see out here, and how you see your position there? Thank you.
Yes, good question. So we still compete with VMware and Microsoft in many deals. And I think what I find really important then is company [indiscernible] is important, and I can actually back this up after visiting over a hundred customers, that Mobile First initiatives with our customers are still really important. And what we do is really hard. And when you go look at the most complex mobile deployments for EMM, that's where we do the best. We're also finding that customers are coming to us and really looking and saying, "Hey, best-in-breed is really important."
And coupled with the best-in-breed, if we go work with third parties in our ecosystem, like when we combine our solution with, let's say, Okta, HP Aruba, FireEye, ServiceNow, we bring a solution to a customer that's not only open, with open standards that allows for best-of-breed, and also doesn't give the vendor lock-in perspective, and we can provide a better solution with our partners than Microsoft and VMware every day.
And then just one -- I mean, maybe it's just me, but do I sense a little bit of a positioning more towards that security angle? I mean, if you think about like -- it is a competitive market, like how do you sort of continue to differentiate? What's the strategy here?
I think we've always been security.
Yes. Okay, perfect. Okay, thank you.
The next question comes from Ryan MacDonald from Wunderlich Securities. Please go ahead.
Hi, guys. Yes, thanks. Just quickly, Barry, you talked about -- or you mentioned that a big focus is trying to get more deal visibility within the pipeline and getting into more opportunities so you can continue to show strong win rates. Can you talk about, with the new Head of Sales coming in, what sort of additional initiatives they're focusing on there to continue to increase that deal visibility?
Well, he has been here maybe four or five weeks, so pretty shortly. I mean, part of it is just trying to help him, have him help understand what's going on in the business. So for now, it's really getting his arms around the business, and making sure he's spending as much time with the sales team, and our customers and partners to make sure that we can get our arms around what we need to do moving forward. That's really job number one, and the quarter.
And then just a quick follow-up to that, it seemed like from some of the customer examples that you were giving that there's some interesting opportunities outside the U.S., and in particular in Europe. Can you talk about Europe more generally, and what kind of strength you saw there, and what you see as opportunity there going forward?
Yes, I think part of Europe's success is the channels that we have. They've done a phenomenal job building a set of not only bars and we call ninja partners, but also a set of ecosystem partners, that they can go and build a solution and sell to the customer. So, you kind of look at the channel, doing fantastic. We also talk about large customers. I mean, customers are going through their sort of maturation with EMM deployments. And we continue to execute with them, and get more and more of [indiscernible], et cetera. So I feel good about Europe and our distribution model, and the team that we have there.
All right, thanks. Congrats on the quarter.
[Operator Instructions] Our next question comes from Michael Kim from Imperial Capital. Please go ahead.
Hi, good afternoon guys. In regards to your opportunity to see more deals in the pipeline, are you seeing maybe better traction within the channel through partners like Aero or some of the operators? And secondary, one for Simon, MRC was relatively flat sequentially, can you -- is there anything to read through on that with regard to some of your operating partners?
Yes, so I'll take the first part of that, this is Barry. Yes, I think with mobile operators and focusing on sort of a G2K with a solution sell strategy, yes, we're getting traction there. The other piece that's interesting is as we achieve more certifications, and we talked about some of them on the script there at the opening comments, we will get more add back in the Federal Government just by doing that. And now that we've approved, we have ability, common criteria for example, to go and do larger transactions that will allow us to do in a much more sort of sales-oriented way or a smooth way. It's not just one, one, one. We can actually do a larger agency rollout. So I'm really excited about that, and look forward to that in ensuing quarters.
And then Michael, as it relates to MRC. Now as I said in the prepared remarks, if we took a reserve of like $400,000 typical set of transactions, you are correct to point out that if you add back the $400,000 you're potentially flat sequentially. There really is nothing else causing me any concern as it relates to the MRC number at this point in time. It's, as you know, usage-based, and I expect it to resume its growth trajectory as we move forward.
Okay, great. And then just one follow-up for you, Simon, with regards to the breakeven targets in Q4, sort of implied if we assume similar gross margin and OpEx numbers that Q4 revenue you should see a fairly healthy sequential expansion. What's the visibility around deal closing, close rates, and larger opportunities? Is that -- any clarity or any visibility that would be helpful?
Yes, I'll tweak your answer just slightly. So, yes, if you're seeing roughly constant gross margins you'll actually assume that, now I'll pick up a little bit of a benefit from the reduction in force that we executed today that's a continued impact into Q4. So don't assume that OpEx will be necessarily flat. And then as I look at the seasonality that's necessary in order to deliver the cash flow breakeven, I think it's very consistent with what I would've expected to see by way of normal seasonality. And on a year-over-year basis, I think it's a very achievable year-over-year number. So the pipeline will continue to build as we move, kind of wade through this quarter, but there's no element of getting the cash flow breakeven as you build your model, but I believe you will look at and say, that's an unrealistic expectation. I think everything is very nicely lined up at this point in time.
Okay, great. Thank you very much.
Next question please?
There are no more questions at this time. So this concludes the question-and-answer session. I would now like to turn the conference back over to Sam Wilson for any closing remarks.
Thanks to everyone for joining us today. A replay will be available through the Investor Relations Web site or by dialing 877-870-5176 or 858-384-5517, and referencing the conference ID number 117241 through August 28, 2016. Thank you.
Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you everybody for participating, and have a pleasant day.
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