MobileIron, Inc. (MOBL) CEO Simon Biddiscombe on Q3 2019 Results - Earnings Call Transcript

Oct. 31, 2019 10:37 PM ETMobileIron, Inc. (MOBL)6 Comments
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MobileIron, Inc. (NASDAQ:MOBL) Q3 2019 Earnings Conference Call October 31, 2019 4:30 PM ET

Company Participants

Erik Bylin - Head of Investor Relations

Simon Biddiscombe - President and Chief Executive Officer

Scott Hill - Chief Financial Officer

Conference Call Participants

Meta Marshall - Morgan Stanley

Chad Bennett - Craig-Hallum Capital Group

Raimo Lenschow - Barclays Plc

Robert Majek - Raymond James


Welcome to MobileIron Third Quarter Fiscal Year 2019 Financial Results Conference Call. As a reminder, all participants are in a 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 Erik Bylin. Please go ahead.

Erik Bylin

Thank you, Christine. Good afternoon and welcome to MobileIron’s third quarter 2019 financial results conference call. Joining us from the company are Simon Biddiscombe, CEO; and Scott Hill, CFO.

The format of the call will be remarks by Simon, then Scott will provide details on the financials. We will then have time for questions.

If you’ve not received the copy of today’s press release, please go to MobileIron’s Investor Relations website, at

Today’s conference call contains forward-looking statements that involve risks and uncertainties, including statements regarding MobileIron’s revenue, operating expenses, GAAP and non-GAAP financial metrics, product releases, projections and trends. All of these forward-looking statements are subject to a number of significant risks, uncertainties and assumptions.

Actual results could differ materially from the statements made on this call. Please see the Risk Factors section of our SEC filings. All statements made on the call are made as of today. We assume no obligation and do not currently intend to update any such forward-looking statements. If the call is reviewed after today, the information presented during this call may not be current or accurate.

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

Reconciliation of the non-GAAP financial metrics to the GAAP metrics can be found in our press release and on the Investor Relations page of our website. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project certain charges and expenses. Unless otherwise noted, results shared today will be non-GAAP.

At this time, I would now like to turn the call over to Simon. Please go ahead.

Simon Biddiscombe

Thank you, Erik, and good afternoon. In my remarks today, I will provide a brief overview of our third quarter financial performance, describe how our Zero Trust security architecture is differentiated in the market and then share some recent customer successes.

Starting with an overview of our third quarter results. Revenue in the third quarter was $52.2 million, up 6% year-over-year and slightly below the midpoint of guidance. ARR growth came in at 14%, which was short of our expectations.

While our U.S. business continues to make steady improvements in execution and delivered its highest rate of revenue growth in 7 quarters, our business in Europe, particularly the UK and Germany, slowed. This has resulted in revised ARR guidance for the year, which Scott will cover.

Despite this setback, which we largely attribute to macroeconomic factors, we still feel our teams are executing well including those in the UK and Germany. And I remain confident that our competitive differentiation is as strong as ever.

And now, I would like to share more detail on the evolving IT security challenges and MobileIron’s approach to addressing them. As I’ve previously discussed, modern IT environments are being driven by a change in how people work and the security architecture must respond.

IT organizations spent the last 30 years building a perimeter around corporate owned, lockdown laptops connected over IT-controlled networks to their onsite data centers.

Now, they have to guard against employees using their own phones and tablets over unsecured public networks to access company data in third-party cloud services. The IT environment has evolved into a Zero Trust state.

We believe MobileIron delivers the most comprehensive security suite to address this new security paradigm. While IT leaders have been searching for a new framework to address today’s security challenges, over the last two years MobileIron has created an unique mobile-centric approach to Zero Trust security. MobileIron’s approach to mobile-centric Zero Trust security significantly reduces risk by giving IT complete control over business data as it flows across devices, apps, networks and cloud services.

The MobileIron solution has our unified endpoint management platform at its core. Our UEM platform delivers the ability to provision any device for a user with the appropriate profile and apps, while enforcing the policies to protect corporate data. We enable IT to put a micro-perimeter around corporate data in a way that is not possible without UEM.

This enables unmatched protection of the data on the device, which is fundamental to Zero Trust protection. We unite the UEM platform with two critical solutions to round out our Zero Trust solution, those being threat defense and access.

Our threat defense integration with UEM delivers critical differentiation in the market. First, our integrated solution ensures 100% user adoption. Business apps and data are protected from threats and vulnerability such as device, network, application and phishing attacks without relying on users to keep their security software up to date. This all happen seamlessly and invisibly to provide complete protection.

And second, the threat defense integration allows IT to remediate a threat by locking down access to corporate data when a threat is detected; for example, a malicious app or a compromised WiFi network. That is substantially more potent security than other threat defense installations where the user is only alerted to the danger. And IT must rely on the user to take corrective action.

MobileIron access leverages device and app posture, user identity and location, and more to ensure that only trusted devices, applications and users can have access to enterprise cloud services. With our Zero Trust solution, MobileIron gives employees instant uncompromised access to corporate data, even when it’s outside the corporate firewall, while providing IT peace of mind.

Our zero sign-on solution takes our Zero Trust architecture to another level by providing user authentication. While identity providers rely on username and password for user authentication, our zero sign-on solution authenticates users with biometrics, which are infinitely more secure and convenient.

Our ZSO solution is in trials with some of our well-known customers in the financial, manufacturing, and pharmaceutical verticals. ZSO has eliminated the need for passwords on their managed devices and allows access to hundreds of cloud services like Office 365, Salesforce, [Concurrent, G Suite] [ph]. These customers have now embarked on their password less authentication journey using their MobileIron managed device as an identity to access any service on the device.

I’m thrilled to announce that this week, we were rated a strong performer in the Forrester Wave’s Zero Trust eXtended Ecosystem Platform Providers study. MobileIron received the highest possible scores for device security, people workforce security, Zero Trust roadmap and Zero Trust differentiation. We believe this recognition is further evidence that MobileIron’s Zero Trust security platform successfully addresses a wide range of network, device, data, workload and people security requirements as well as identity challenges, while meeting the requirements of the Zero Trust eXtended Ecosystem.

And with that, I’d like to touch on some customer wins from the quarter. I’m extremely pleased to announce that during the quarter, we again improved our strength in the highly regulated financial vertical with the deal with NASDAQ, a world renowned stock exchange and global provider of financial services, NASDAQ is constantly pursuing the latest and most innovative technologies, and is dedicated to keeping the security of their 39 worldwide offices up to-date against latest mobile threat.

With the full MobileIron suite of UEM access and MTD as a mobile security backbone, NASDAQ employees will be able to enjoy seamless and user-friendly experience across all the company’s devices, and amounted that we get to assist with further in NASDAQ’s journey in the transition to cloud. MobileIron made further progress in the quarter by partnering with Uber Eats, a testament to our best-in-class technology. As the largest online food delivery platform outside China with more than 330,000 restaurant partners, Uber Eats teamed up with us to provide a security solution for partners iOS and Android devices that’s capable of seamless deployment and management.

We also secured a win with BBVA, Mexico, the largest financial institution in the country. Established in 1932, BBVA grew steadily to secure a dominant market position, thanks to their mission of offering their clients the very best banking solutions. They are firmly committed to making the most of the opportunities presented in the age of technology, and MobileIron is pleased to grow our relationship with BBVA with the best-in-class mobile security solution in the Zero Trust age. More and more companies like BBVA are turning to MobileIron for security peace of mind.

In closing, I’m also thrilled to share that we’ve filled out our Board of Directors with the addition of Anjali Joshi. Anjali was most recently a Vice President of Product Management at Google and will bring important technology expertise as we continue to optimize our offerings. Anjali replaces Frank Marshall, who retired from the Board in June. I want to thank Frank for more than a decade of service to MobileIron as well as guidance and perspective he shared with me personally over the years.

And with that, I’ll turn it over to Scott.

Scott Hill

Thank you, Simon, and good afternoon. Today, we will be discussing non-GAAP financial measures unless otherwise noted. Our press release, Form 8-K and website, provide a reconciliation of GAAP to non-GAAP financial results. Revenue in the third quarter was $52.2 million, up 6% year-over-year and within guidance. ARR growth came in at 14% year-over-year, as you saw on today’s press release. We have lowered our ARR growth expectations for the year. The largest driver of this adjustment is softness that we are seeing specifically in Germany and the UK.

As you know, our international revenues are typically more than half of our business and have been a strong contributor to growth in the last year-and-a-half. German and the UK are our second and third largest markets. Our recent trends in these markets have been weaker than we expected driven by economic uncertainties each are facing, which has resulted in deferred buying decisions and lengthened sales cycles.

We believe our execution continues to be solid and this current softness is driven by hesitation on our customer’s behalf. That said, we recognized we need to drive strong results. So we are taking actions across our global sales force to bolster performance in all facets of dealed execution.

From pipeline generation through close to help accelerate deals across the finish line. Given the progress, we have made with execution in North America, we feel confident we can improve performance across the board. And as Simon pointed out we remain secure in our value proposition and competitive differentiation as the foundation of our ability to succeed.

We ended the third quarter with ARR of $174 million. Our subscription ARR was $108.6 million, up 23% year-over-year, and our maintenance ARR was $65.7 million, up 1% from last year, each of which reflect our focus on subscription revenue. Our renewal rate came in about 90%.

On the new product front, we continue to increase our cross-sell penetration and have sold access and threat defense into a high-single-digit percentage of our large UEM installed base. That said the ARR contributed by our new products is behind where we expected it to be at this point in the year. We remain optimistic that our ability to sell access and threat defense into our existing customer base and are convinced zero sign-on will be a significant driver of ARR in the future.

Gross margin in the third quarter was 82% at the high-end of our guidance and operating expenses were $42.6 million slightly above the high-end of our guidance. We reported positive operating income of $200,000. Net loss was $200,000 or breakeven on a per share basis.

Moving to the balance sheet, we ended the quarter with $96.5 million in cash and short-term investments and have no debt. In the third quarter cash used by operations was $5.7 million and we spent $2 million repurchasing shares. Unearned revenue was $106.8 million at the end of September up 15% from $93 million a year ago.

Now, I will share our guidance. For the fourth quarter of 2019 our guidance is as follows. We are projecting a revenue range of $53 million to $56 million or slight growth at the midpoint. We expect non-GAAP gross margin to be approximately 82%. We expect non-GAAP operating expenses to be between $41 million and $42 million.

We expect ARR to end the year between $179 million and $182 million for growth of 10% to 12% from the end of the prior year. And with that, we can open up the line for questions.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Meta Marshall from Morgan Stanley. Your line is open.

Meta Marshall

Great. Just to kind of dig into Europe, just when did you start kind of seeing some weakness there? And is it smaller deals? Is it deals being pushed out and kind of what makes you think that some of that could recover as we head into 2020? And then, just kind of a tax rate of new products would be helpful as well. Thanks.

Simon Biddiscombe

Sure, sure, thanks, Meta. So it was toward the middle end – middle to end of the quarter that we started seeing the slowing most pronounced. And as I said in my prepared remarks, it really was the UK and Germany. And even though we got extraordinarily strong teams and partners in those countries, that have been executed extraordinarily well over an extended period time, against the backdrop of the challenges they’re seeing in their markets at the macro-level, especially over the latter part of the quarter, Meta, that we started to see those challenges.

If you look at the specific questions associated with deals and deal slippage and so on, it’s fair to say that as I looked at the biggest deals in both of those geographies coming into the quarter, those deals didn’t close in the quarter and is one we don’t actually expect to see close in Q4 either. It’s been deferred to Q1 at this point in time.

So we’re seeing customers deferring buying decisions at this point in time. We certainly see an extension of buying cycles in each of those geographies at this point in time. I think they are attributable to similar business trends that our customers are happen to deal with, but with slightly different backdrops.

I think in the UK, there is part of this that’s attributable to Brexit and it’s manifested itself very specifically for us in a couple of specific customers, where for example, one of our large financial services customers is moving its headquarters from the UK to Germany, which resulted in a buying decision being deferred out of Q3.

Ultimately, it will be into Q1. But it’s still deferral for us, if you will. So you got a whole series of issues, so sort of Brexit that are manifesting themselves in the UK at this point. And then in Germany, more broad economic weakness that resulted in two of our most significant customers there, having layoffs across their organizations and so on.

So the trend manifests itself similarly in terms of deferred buying cycles, in terms of big deals taken longer to close than we might otherwise have expected. But in each of the geographies there are slightly different reasons for those occurring.

Meta Marshall

Got it. And then just the tax rate of new products or kind of…

Simon Biddiscombe

Sure. So it – you want to take it, Scott?

Scott Hill

Yeah, sure. Our tax rate of the new products did increase in the quarter, but we’re still in that high-single-digit range in terms of penetration.

Meta Marshall

Got it.

Simon Biddiscombe

If you dig in to that, Meta, the principle reason is back to the same thing, right? It’s back to the fact that a significant part of our business is done in those two European countries. And those are big countries as it relates to buying the new products as well, right? So the new products slowed as those countries slowed for us.

Meta Marshall

Got it. Thanks so much.

Simon Biddiscombe

I was going to add. I think the competitive differentiation associated with those products remains very strong. And when I look at our ability to be successful based on the solutions we have in the market at this point in time, no part of what we’ve characterized here today is because we think we’ve lost competitive differentiation.

In fact, if you look at what we’ve said about Zero Trust and then Zero Sign-On, and very specifically, around Zero Trust, Forrester Wave and so on, that’s where we participate and some of our biggest competitors are like completely absent at this point in time.

So – but the competitive differentiation remains strong and we believe this is very specifically associated with a couple of countries and challenges there.

Meta Marshall


Simon Biddiscombe



Your next question comes from the line of Chad Bennett from Craig-Hallum. Your line is open.

Chad Bennett

Great. Thanks for taking my question. So just kind of digging more into the ARR reduction, so if we look at where you came up short this quarter, which you located a couple of reasons or specified a couple of regions. And in the guide down for the next quarter in ARR, I guess, you’re expecting regionally that weakness to continue in the next quarter or are there other parts of the business that are kind of weakening?

And then, secondly, is the guide down in ARR or in the quarter – the underperformance in the quarter and the guide down, is it truly related to net new business just being specific cross-sell/up-sell and net new or is it related to renewal rates? Which I think Scot alluded to around 90%, I just want to make sure.

Simon Biddiscombe

Yeah, very – yeah, very consistent on the – the renewal rate is very consistent on a sequential basis kind of thing, so yeah, why don’t you touch on the ARR component. Scott?

Scott Hill

Yeah. So from an ARR perspective, right, obviously, that’s a comprehensive metric. And so there’s a number of factors that drive it. But if we think about looking at the backdrop here, in the first half, we were on track for our objective of 20% growth. And actually Europe was performing better than North America. The second half, we were anticipating a significant ramp in ARR, because we’re a seasonally stronger second half business. And so the weakness that we saw in those 2 countries of Germany and the UK contributed to that shortfall in Q3, and we expect that, that weakness will persist into Q4, and that gives the ARR guide for the year. The retention rate remained about 90%, so really this is all about – not all about but mostly about new business.

Chad Bennett

Okay. And then if we can kind of think about next year, I guess, have you recalibrated your expectations on that target ARR as we head into next year and digging into that on just cloud growth overall? Thanks.

Scott Hill

Yeah. It’s a good question, but we feel it’s really just too early to tell how long this is going to persist and what it’s going to mean for the overall ARR target for the year, next year.

Chad Bennett

Okay. Thanks.

Simon Biddiscombe

Thanks, Chad.


Your next question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow

Hi. Given that we had a couple of companies reporting already. And I think SAP called out manufacturing in Germany as well.

Simon Biddiscombe

Yeah. We did. Yeah.

Raimo Lenschow

Can you talk a little bit about like about – that our guide kind of seems to be okay-ish. Can you talk a little bit about your kind of maybe a vertical industry kind of exposure is that slightly different and maybe that’s a factor here as well?

Simon Biddiscombe

Yes. It is, Raimo. And you’re right, SAP did call out manufacturing specifically. If you think about some of the biggest customers we have in Germany at this point in time. There’s a tremendous amount that’s in that manufacturing space. And we’ve talked at length over the course of the last couple of years about the wins we’ve had in the automotive sector, specifically, right. So for us, that manufacturing sector is important, the other one is financial services, right. And we saw a weakness in some of the financial services organizations, so we’ve got as customers in Germany as well. So yeah, SAP did call it out, you’re correct. They called out manufacturing, we certainly saw it in manufacturing, but we also saw it in financial services as well.

Raimo Lenschow

Okay. And then a follow-up. Like, if you look this quarter, we obviously saw a little bit of a change in the industry with VMware kind of getting Carbon Black in and just talking about like endpoint plus their AirWatch solution. Can you talk a little bit about does it change anything, but it doesn’t seem like too much, because everyone was partnering with endpoint vendors anyway, but just talk to that a little bit? What does it do for you?

Simon Biddiscombe

I think it validates the market thesis, right. I mean, when we introduced our mobile threat solution 2 years ago, the point we were trying to make was that buyers will become an incrementally more concerned about the protection and security of data on the mobile device itself and when we introduce the mobile threat solution, yeah, 2 years ago exactly, we recognized that we and others would need to have solutions that solve for the security challenge associated with the data on the device. I think, if you look at what VMware has done with the acquisition of Carbon Black.

And if you look at what Blackberry did with the acquisition of Cylance. It’s potentially saying exactly that, that the endpoint is that much more critical. As you think about the protection of corporate data. And like, whether do you do it in a kind of a mobile EDR way, or whether you do it the way we do it with the mobile threat solution, there are different ways to solve for the challenge, but at the end of the day, the mobile devices becoming that much more critical. As to how employees are performing their work on a day to day basis. IT organizations of that much more sensitive to the protection of the corporate data that sits on those devices and having threat and EDR type solutions becomes that much more critical. So now it’s a validation of the market thesis and the activities we started 2 years ago.

Raimo Lenschow

Okay. Perfect, Simon. Thank you. Good luck.

Simon Biddiscombe

Thanks. Thank you.


[Operator Instructions] Your next question comes from the line of Robert Majek from Raymond James. Your line is open.

Robert Majek

Good afternoon, gentlemen. Perhaps, Europe aside, from where you sit, can you just give us a general update on what you’re seeing in IT spending trends more globally?

Simon Biddiscombe

So we have the same information that you have at this point in time, Robert, as it relates to what we’re seeing from an IT spend perspective. I think the interesting part for us is just how is that IT budget being spent? And to what extent are the challenges associated with solving for mobile, mobile security, the Zero Trust framework, the transition to cloud services and so on areas that are a priority within the context of mobile – within the context of overall IT budgets, and if you look at how people are spending money at this point in time. There’s no doubt that the areas that MobileIron is focused on continue to be some of the areas that IOs are having or choosing to spend the greatest amounts of their budgets at this point in time.

And ZSO is a critical thing that everybody is trying to solve for, right. If you think about the Zero Trust movement and the enthusiasm our customers have for the solution that have in the market at this point. The technologies that we’re bringing to bear, solve the challenges that our CIOs are having to solve for within the context of their budgets. So yeah, no, I’m convinced that even those – even within the context of an overall IT spend and budget, what we are focused on continues to be a major priority for our customers.

Robert Majek

Thanks a lot.


There are no further questions at this time. I’ll turn the call back over to Simon.

Simon Biddiscombe

Thank you very much. That concludes our call for today. Thank you for your participation and we look forward to updating you on our progress next quarter. Thank you.


Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

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