Table of Contents
UNITED
STATES
SECURI
TIES
AND
EXCHANGE
COMMISSION
Washington,
D.C.
20549
FORM
10-K
(Mark
One)
☒
☐
ANNUAL
REPORT
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
For
the
fiscal
year
ended
December
31,
2016
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
(State
or
other
jurisdiction
of
incorporation
or
organization)
26-0866846
(I.R.S.
Employer
Identification
Number)
415
East
Middlefield
Road
Mountain
View,
CA
94043
(650)
919-8100
Securities
registered
pursuant
to
Section
12(b)
of
the
Act:
Title
of
each
class
Common Stock, par value $0.0001 per share
Name
of
each
exchange
on
which
registered
The NASDAQ Global Select Market
Securities
registered
pursuant
to
Section
12(g)
of
the
Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”).
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 (§232.405 of this chapter) 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 a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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
Non-accelerated filer
☐
☐
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
☒
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2016, the aggregate market value of shares of common stock held by non-affiliates of the registrant was $144 million based on the number of shares held by non-affiliates as of June 30, 2016
and based on the closing sale price of the registrant's common stock as reported on the NASDAQ Stock Market on June 30, 2016 of $3.05 per share. Shares of common stock held by officers, directors and holders of
more than 5% of the outstanding common stock have been excluded from this calculation because such person may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of outstanding shares of the registrant’s common stock was 89,226,493 as of February 10, 2017.
DOCUMENTS
INCORPORATED
BY
REFERENCE
Portions of the information called for by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, are hereby incorporated by reference from registrant’s definitive proxy statement for
the 2016 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2016.
Table of Contents
Item 1. Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine and Safety Disclosures
Table
of
Contents
PART
I
PART
II
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART
III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART
IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
“MobileIron,” the MobileIron logos and other trademark or service marks of MobileIron, Inc. appearing
in this Annual Report on Form 10-K are the property of MobileIron, Inc. Trade names, trademarks and
service marks of other companies appearing in this report are the property of their respective holders.
2
Page
No.
4
11
35
35
35
35
36
38
41
63
65
94
94
95
97
97
97
97
97
98
99
101
Table of Contents
SPECIAL
NOTE
REGARDING
FORWARD
LOOKING
STATEMENTS
This Annual Report on Form 10-K 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 and growth;
our business plan and our ability to effectively manage our expenses;
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 attract new customers and further penetrate our existing customer base;
our expectations concerning renewal rates for subscriptions and services by existing customers;
our expectations concerning the mix of our sales of subscriptions and perpetual licenses;
cost of revenue, including changes in costs associated with hardware, royalties, customer support, and data center
operations;
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;
economic and industry trends or trend analysis;
our expectation concerning the outcome of litigation; 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-K 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-K. 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 I, Item 1A, entitled “Risk Factors,” and in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this Form 10-K. 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.
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Table of Contents
Item
1.
Business
Overview
The current perimeter-based enterprise security model, which is based on locked-down desktop endpoints, enterprise-
controlled networks, and company data that only sits behind a firewall, is being disrupted by the move to mobile and cloud
services. Employees and lines-of-business, not IT, now choose the software and cloud services they need to do their jobs. Our
solution provides enterprise security for this open, but complex, modern IT architecture.
We
invented a purpose-built security platform for enterprises to secure business data in a modern IT architecture, while
enabling employee personal data privacy and mobile device choice. The MobileIron Enterprise Mobility Management (EMM)
solution is a mobile security platform that:
1)
2)
3)
4)
configures and delivers applications to smartphones, tablets, laptops and desktops running operating systems such as
Android, iOS, macOS and Windows 10;
secures data-at-rest on these modern endpoints;
secures data-in-motion across the corporate network; and
secures access to back-end corporate networks and cloud services.
We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, or IoT device, with access to
enterprise data will require a solution like MobileIron’s to secure that data.
Our platform has fostered a growing ecosystem of partners to enable our customers and their employees to leverage best-
of-breed solutions rather than being locked into a particular vendor’s solution. MobileIron enables employees to have ubiquitous
access to the information they need in order to work productively anywhere.
Our business model is based on winning new customers, expanding sales and upselling new products within existing
customers, and renewing subscriptions and software support agreements. Our sales team wins customers by working closely with
our channel partners, which include resellers, service providers and system integrators. We have experienced rapid growth in our
customer base, having sold our platform to over 13,500 cumulative customers since 2009, and our revenue has increased to
$163.9 million in 2016. Our strategy is to enhance the value of our platform by introducing additional products and upselling
these additional products to our customers. Our global customer support team focuses on enabling customer success, which is
designed to lead to additional sales and renewals of subscription and software support agreements. In 2016, we generated over
two-thirds of our gross billings from recurring sources (subscriptions and software support agreements). Our blended renewal
rates, which are determined on a seat basis for software support and subscription agreements, exceeded 90% in 2016.
We offer our customers the flexibility to deploy our solution as a cloud service or as on-premises software. They can also
choose from various pricing options, including subscription and perpetual licensing. We primarily target midsize and large
enterprises across a broad range of industries including financial services, government, healthcare, legal, manufacturing,
professional services, retail, technology and telecommunications. No single end user accounted for more than 5% of our total
revenue in 2016. One reseller accounted for 15% of our revenue in 2016.
Platform
Extensibility
and
Ecosystem
We continue to expand the breadth and depth of our ecosystem. Our platform is extensible on both the client side and server
side. Customers, application vendors and technology vendors can leverage our technology to mobilize and secure their products,
applications and content. As of December 31, 2016, our ecosystem had over 550 active technology partners who have released
over 280 technology integrations.
Client-side: MobileIron AppConnect allows customers and application vendors to build applications that can be secured by
MobileIron. These applications use the MobileIron AppConnect SDK or wrapper to become part of the secure MobileIron
container on the device. The customer’s IT administrator can then enforce application security policies to, for example, prevent
data sharing with unauthorized applications or allow authentication with a single pin or password.
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Server-side: MobileIron ServiceConnect APIs allow customers and security and infrastructure vendors to integrate their
back-end services with the MobileIron solution. When combined, the common solutions provide increased security, better user
experience, and business visibility through analytics. For example, network security vendors can use our security status
information in order to make real-time decisions about whether a mobile device should be granted access to a secure corporate
service. Mobile threat detection vendors can use our system to detect the presence of new applications and identify potentially
harmful applications, so that IT departments can remediate as necessary.
Our
Competitive
Strengths
We pioneered many of the innovations in enterprise mobility. Our competitive differentiators are:
· Modern security platform. Our platform was purpose-built to address the rapidly-evolving modern security
requirements of the enterprise. We continue to invest in providing enterprise class security for our customers. We have
been positioned in the Leaders Quadrant of the Gartner Magic Quadrant for Enterprise Mobility Management Suites six
years in a row . We were the first company to receive Common Criteria certification against Version 2.0 of the Mobile
Device Management Protection Profile from the National Information Assurance Partnership Protection Profile V2.
Common Criteria is an internationally recognized set of guidelines (ISO/IEC 15408) used by governments, banks and
other organizations to assess the security capabilities of technology products.
1
· Customer adoption through global channel. We have over 13,500 cumulative customers that have purchased our
solution since 2009, with the majority of our sales to companies with over 1,000 employees. We believe that we are a
leading player in EMM in government, financial services and healthcare, and have deployed to some of the most security
conscious companies in those verticals. We have a strong global network of channel partners that drive customer and
sales growth across all customer segments.
·
Ecosystem breadth. Our ecosystem creates positive network effects for our business. We provide extensive product
support for the operating system ecosystem – Apple, Google and Microsoft. Our AppConnect technology allows
independent software vendors (ISVs) to build applications that can be secured and managed by our solution. Our
ServiceConnect ecosystem allows our customers to deploy integrated workflows across mobile and traditional enterprise
architecture. We believe that our best-of-breed ecosystem is a strong competitive advantage over the single stack lock-in
of some of our competitors, and we believe that many customers choose our platform because of our strong ecosystem of
technology partners.
1
*Gartner "Magic Quadrant for Enterprise Mobility Management Suites" by Rob Smith, Bryan Taylor, Chris Silva, Manjunath
Bhat, Terrence Cosgrove, John Girard, June 8, 2016.
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology
users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the
opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties,
expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part
of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks
as of its original publication date (and not as of the date of this 10K and the opinions expressed in the Gartner Report(s) are
subject to change without notice.
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· Domain expertise. We have a history of thought leadership and product innovation. We had been granted 40 EMM
patents as of December 31, 2016, which we believe is more than any other EMM vendor. Many of these patents relate to
technology pillars of our industry, such as application distribution and mobile data security. We believe successful
mobile deployments require deep domain expertise, and we have such expertise.
· World-class global customer success organization. We believe that the success of our customers’ mobile initiatives will
drive expansion of their mobile deployments and, in turn, grow our business. Our global Customer Success organization
provides technology support, implementation and best practices toolkits, education and online training, as well as
strategic account management to build trusted customer relationships. We seek to build mobile industry expertise
throughout the IT community by offering MobileIron certification programs to our customers and partners to help
educate, train and certify individuals who work with our products and services.
·
Flexible deployment and pricing model. We offer our customers the choice of using our platform either as a cloud
service or as an on-premises solution. We offer pricing flexibility with subscription or perpetual licensing options, which
allows a customer to pay for our platform through either its capital or operating budget.
Customers
Our customers include leading enterprises in a broad range of industries, including financial services, government,
healthcare, legal, manufacturing, professional services, retail, technology and telecommunications. No single industry verticals
accounted for more than 20% of our gross billings in the three year period ended 2016. Medium to large enterprises accounted for
a majority of our gross billings. We have sold our products to over 13,500 customers globally, including more than 500
companies on the Forbes Global 2000 Leading Companies list, as of December 31, 2016. Our channel partners include resellers,
service providers and system integrators. AT&T, Inc., as a reseller, accounted for approximately 15%, 16% and 20% of our total
revenue in 2016, 2015 and 2014, respectively. No end user of our products accounted for more than 5% of our total revenue in
2016, 2015 or 2014.
Backlog
As is typical in the software industry, we expect a significant portion of our software license orders to be received in the last
month of each quarter. We do not believe that our backlog at any particular time is meaningful because it has historically been
immaterial relative to our total revenue and is not necessarily indicative of future revenue in any given period.
Sales
and
Marketing
We sell the vast majority of our products through indirect sales channels and maintain a sales force that works closely with
our channel partners to develop sales opportunities. We have an outside sales force focused on large organizations and an inside
sales teams focused on mid-sized organizations. Our channel team works with our service providers to address small to mid-sized
organizations.
Our sales organization is supported by sales engineers with deep technical expertise and responsibility for pre-sales
technical support and technical training of our channel partners. The sales organization has strong alignment with our Customer
Success teams and acts as a liaison between our customers and our marketing and product development organizations, especially
during the pre-sales phase. We believe this approach allows us to leverage the benefits of our sales channel and maintain
communication with our customers. Our sales cycle ranges from a few weeks for small businesses to many months for large
enterprises.
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Channel
Program
We work with mobile-focused channel partners who sell our platform to customers. We focus on building in-depth
relationships with a number of solutions-oriented partners that have strong industry expertise. These channel partners include both
traditional IT resellers as well as service providers. We operate a formal accreditation program for the sales and technical
professionals of our channel partners.
Marketing
Our marketing efforts are focused on building our brand reputation, expanding market awareness of our solutions, driving
customer demand and enabling our internal and extended (channel) sales teams.
Research
and
Development
We have invested significant time and financial resources in the development of our platform and believe that continued
research and development is critical to our ongoing success. Research and development investments drive innovation, enterprise
class mobile IT platform features and keep pace with the rapidly evolving mobile operating system and device ecosystem. We
believe that innovation and timely development of new features and products are essential to meeting the needs of our customers
and channel partners and improving our competitive position. In 2016, we, along with other EMM providers, formed the
AppConfig Community in order to establish a common approach for enterprise app configuration and security based on OS native
standards, including the extensive frameworks available in iOS, in order to enable developers and organizations to simplify app
development and deployment and accelerate the adoption of business apps.
Research and development expense totaled $67.4 million, $61.9 million and $46.3 million in 2016, 2015 and 2014,
respectively. We plan to continue to significantly invest in resources to conduct our research and development efforts.
Competition
We operate in a highly competitive industry that is characterized by constant change and innovation. Changes in the
devices, operating systems, applications and technology landscape result in evolving customer requirements.
Our competitors fall into two primary categories:
·
diversified technology companies such as Citrix, IBM, Microsoft, and VMware; and
· mobile specialists such as BlackBerry.
The principal competitive factors in our market include:
·
·
·
·
·
product features, reliability, performance and effectiveness;
price and total cost of ownership;
depth of customer relationships;
product extensibility and ability to integrate with other technology infrastructures;
flexibility between cloud and on-premise deployment;
· mobile IT expertise and focus;
·
·
channel depth and breadth;
strength of sales and marketing efforts;
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·
·
brand awareness and reputation; and
focus on customer service and success.
We believe we generally compete favorably with our competitors on the basis of these factors as a result of the our OS
neutrality, focus on EMM and the native experience, our mobile IT expertise, the architecture, features and performance of our
solution, our ecosystem, and our commitment to customer success. Many of our competitors have substantially greater financial
and technical resources, stronger name recognition, larger sales and marketing budgets, broader distribution and more entrenched
relationships with enterprise customers and prospects. For more information about the competitive risks we face, refer to Item 1A.
“Risk Factors” included elsewhere in this Annual Report.
Intellectual
Property
We protect our core technology and intellectual property by relying on federal, state, common law and international
intellectual property rights, including patents, trade secrets, copyrights and trademarks. We also rely on confidentiality and
contractual restrictions, including confidentiality and invention assignment agreements with our employees and contractors and
confidentiality agreements with third parties.
We pursue registration of our patents, trademarks and domain names in the United States and certain locations outside the
United States. We actively seek patent protection covering inventions originating from the Company and acquire patents we
believe may be useful or relevant to our business. As of December 31, 2016, we owned 40 patents worldwide covering various
innovations of our modern EMM technology.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual
property protection may not be available outside the United States. Also, the efforts we have taken to protect our proprietary
rights may not be sufficient or effective.
Companies in the mobile and other technology industries or non-practicing entities may own large numbers of patents,
copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on
allegations of infringement or other violations of intellectual property rights. We have faced, and expect to face in the future, suits
or allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties,
including those of our competitors and non-practicing entities. As we face increasing competition and as our business grows, we
will likely face more claims of infringement.
Employees
As of December 31, 2016, we had 854 full-time employees, 332 of whom were primarily engaged in research and
development, 288 of whom were primarily engaged in sales and marketing, 144 of whom were primarily engaged in customer
success and 90 of whom were primarily engaged in administration and finance. 357 of these employees were located outside of
the United States. In addition, as of December 31, 2016, we had 53 contractors. None of our United States employees are
represented by a labor organization or are party to any collective bargaining arrangement. Employees in certain European
countries have the benefits of collective bargaining arrangements at the national level. We have never had a work stoppage, and
we consider our relationship with our employees to be good.
Segment
and
Geographic
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 or plans for levels, components or types of products or services below the
consolidated company level. Accordingly, we are considered to be a single reportable segment and operating unit structure.
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Revenue by geographic region based on the billing address was as follows:
(in thousands)
Revenue
United States
International
Total
Year
Ended
December
31,
2015
2016
2014
$
$
77,039 $
86,887
163,926 $
74,235 $
75,063
149,298 $
72,124
60,171
132,295
$1.3 million and $1.4 million, or 24% and 22%, as of December 31, 2016 and December 31, 2015, respectively, of our net
Property and Equipment was attributable to our operations located in India. Substantially all other long-lived assets were
attributable to operations in the United States
Facilities
Our principal executive offices are located in Mountain View, California and include three buildings totaling approximately
94,000 square feet under leases expiring from June 2017 to April 2023. We have additional office locations throughout the United
States and in various international locations, including offices in the United Kingdom, Netherlands, Germany, Japan, Singapore
and India.
We may add new facilities or expand existing facilities as we add employees, and we believe that suitable additional or
substitute space will be available on commercially reasonable terms to meet our future needs.
Legal
Proceedings
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 was 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 asserted claims for violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934.The complaint sought, among other things, compensatory damages and attorney’s fees and costs
on behalf of the putative class. An amended complaint was filed on September 28, 2015. On February 22, 2016, the District
Court issued an order granting MobileIron’s motion to dismiss the amended complaint and on March 15, 2016 the Court
dismissed the case. MobileIron paid no money to the plaintiffs or their attorneys in connection with the dismissal of the action.
On August 5, 2015, August 21, 2015 and August 24, 2015, purported stockholder class action lawsuits were filed in the
Superior Court of California, Santa Clara County against the Company, certain of its officers, directors, underwriters and
investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v. MobileIron, Inc., et al,
which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The actions are
purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued pursuant or
traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert claims for
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things, compensatory
damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected consolidated
complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company filed a demurrer
to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016. The Company intends to defend
this litigation vigorously.
We continually evaluate uncertainties associated with litigation and record a charge equal to at least the minimum
estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to
issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial
statements and (ii) the loss or range of loss can be reasonably estimated. If we determine that a loss is possible and a range of the
loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.
We evaluate, on a quarterly basis, developments in our legal matters that could affect the amount of liability that has been
previously accrued, if any, and the matters and related ranges of possible
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losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to
determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of
such matters, there may be an exposure to loss, and such amounts could be material. An estimate of a reasonably possible loss (or
a range of loss) cannot be made in our lawsuits at this time.
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, directors, and certain key employees while
they are serving in such capacities in good faith. Through December 31, 2016, we have not received any material written claim
for indemnification.
Corporate
Information
Our principal executive offices are located at 415 East Middlefield Road, Mountain View, CA 94043, and our telephone
number is (650) 919-8100. Our website is www.mobileiron.com. The information posted on our website is not incorporated into
this Annual Report on Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, are available free of charge on our investor relations website as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC.
You may also access all of our public filings through the SEC's website at www.sec.gov. Further, a copy of this Annual
Report on Form 10-K is located at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information
on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
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Item
1
A.
Risk
Factors
Our operations and financial results are subject to various risks and uncertainties including those described below. If any of the
following risks or others not specified below materialize, our business, financial condition and results of operations could be
materially adversely affected. In that case, the trading price of our common stock could decline.
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.
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;
— 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 new apps such as MobileIron Access and MobileIron
Bridge;
— continue to invest in research and development and bring new products to market;
— scale our engineering and 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 and modern operating systems and device platforms;
— hire, integrate and retain professional and technical talent.
— make our service provider partners successful in their deployments of our solutions and technology;
— successfully expand our business domestically and internationally; and
— successfully protect our intellectual property and defend against intellectual property infringement claims.
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 $67.2 million, $84.5 million and
$61.9 million in 2016, 2015 and 2014, respectively. As of December 31, 2016, our accumulated deficit was $342.4 million. Our
revenue growth has slowed over recent periods, and we may not be able to sustain or increase our growth or achieve or sustain
profitability in the future. Revenue growth has slowed, and may additionally slow or revenue may decline, for a number of
reasons, including, but not limited to our customers’ and/or prospective customers’ failure to
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widely deploy mobile apps within their businesses, increasing and entrenched competition, changes in pricing model, customers’
failure to renew or expand their deployments of our software, product and billing model mix shift, a decrease in size or growth of
the mobile IT market, or any failure to capitalize on market opportunities. In addition, we plan to continue to invest for future
growth, in part by making additional investments in 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
operational complexity, the expenses outlined above, and 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.
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 revenue 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, our
customers’ and prospective 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 and reprioritizations 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;
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— 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.
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. However, we have experienced a slowdown in new perpetual license orders. 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, consolidation in the mobile IT
market and competing priorities within customers’ IT budgets, 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 relative prioritization of the IT budget allocated to
mobile projects versus other IT projects, perceived need for additional solutions, features or functionality, the 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. In addition, we have
entered into enterprise license arrangements with certain large customers under which they pay an amount up front and in turn can
deploy an unlimited number of devices in a certain period, thereby lowering potential future addional orders.
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
and breadth 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. Competition from larger companies has in the past and may in the future lengthen the
renewal process and require us to recompete for renewal business.
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
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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 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. We are in the process of phasing out our older cloud-based product
in favor of MobileIron Cloud, our newer and more scalable cloud-only platform. The failure to successfully market MobileIron
Cloud as a replacement and improvement to our older cloud-based product or the failure of our customers and prospective
customers to adopt MobileIron Cloud for any reason could result in a decline in our revenue.
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, 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 traditional 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.
An
increasing
portion
of
our
sales
has
been
generated
from
subscription,
including
MRC,
licenses,
which
involves
certain
risks.
An increasing portion of our sales has been generated from subscription, including MRC, licenses. This mix shift
towards 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
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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
contract provisions 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. To the
extent that service providers bundle our solution with their offerings and price aggressively, it could result in an increase in MRC
billings. We may attempt to mitigate these risks by converting service providers or customers from MRC to perpetual or other
licensing arrangements, which may reduce the long term value of the customer relationship.
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 Blackberry, Citrix, IBM, Microsoft and VMware. A
number of our historical competitors have been purchased by large corporations. For example, AirWatch was acquired by
VMware and Good Technology was acquired by Blackberry. 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 technologies and changes in customer requirements,
devote greater resources to the promotion and sale of their solutions, initiate or withstand substantial price competition, and/or
develop and expand their products 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 including us in competitive bidding processes, evaluating
and/or purchasing our solutions. They have done this in the past, and may in the future do this, by 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
evaluate our solutions or 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, increased sales and marketing expenses, or harm to our market share, any of which could harm our
business. Competitors’ offerings may in the future have better performance or features, lower prices and/or broader acceptance
than our solutions. Competitors’ products could also include 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
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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 and other modern 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 similar to that offered by our mobile
IT solutions in mobile or other modern 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
could
harm
our
business.
Our product and business strategy is highly dependent on our existing and potential customers’ continued adoption of our
solutions, features and functionality for not only mobile application and mobile content management, but also our newer products
in cloud security (MobileIron Access), and desktop security (MobileIron Bridge). Slow adoption of customer-built mobile
business applications for iOS, Android and Windows would slow the need for and adoption of our platform for mobile application
management and security because if customers are not deploying business apps other than email they may be content to continue
using more basic MDM offerings and not see the value in our more advanced mobile application management and data security
capabilities. 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 released Office 365 and is bundling certain mobile device management capabilities with Office 365 in an
attempt to dissuade customers from using EMM solutions other than Microsoft. If this strategy succeeds, 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 any of these features or new products 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
substantial
turnover,
and
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, sales and operations personnel. Over the last two years, we have experienced substantial turnover in our
sales, engineering and executive teams, and this could continue in the future. The replacement of any members of our senior
management team or other key personnel likely would involve significant time and costs and may harm our business, operating
results and financial condition. Our future success also depends, in
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part, on our ability to continue to attract, integrate and retain highly skilled personnel, in particular engineers and sales 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.
If
we
are
not
able
to
scale
our
business
and
manage
our
expenses,
our
operating
results
may
suffer.
We have expanded, decreased and/or relocated specific functions over time in order to scale efficiently, including a July
2016 restructuring to improve our cost structure and help scale our business. Our need to scale our business has placed, and will
continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other
resources. Our ability to manage our operations will require significant expenditures and allocation of valuable management
resources to improve internal business processes and systems, including investments in automation. Further international
expansion may also be required for our continued business growth, and managing any international expansion will require
additional resources and controls. If our operations infrastructure and business processes fail to keep pace with our business and
customer requirements, customers may experience disruptions in service or support or we may not scale the business efficiently,
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 business processes at the pace necessary to scale the business, and our
failure to do so may have an adverse effect on our business. If we fail to efficiently expand our engineering, 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 planned 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.
A
security
breach
of
our
cloud
service
infrastructure
or
a
disruption
of
our
cloud
service
availability
for
any
reason
could
result
in
liabilities,
lost
business
and
reputational
harm.
In connection with providing our cloud service to customers, we obtain access to certain sensitive data, such as
employees’ names, registration credentials, mobile device ID, geolocation of last device check-in, business email addresses,
mobile phone numbers, business contact information and the list of applications installed on the mobile devices. Any security
breach of the systems used to provide the cloud service, whether through third-party action or employee error or malfeasance,
could result in damage, loss, misuse or theft of such data. A breach could also give rise to litigation or require us to incur financial
and operational expenses in connection with fulfillment of certain indemnity obligations to our cloud service customers and
settling or defending claims made against us. Techniques used to sabotage or obtain unauthorized access to information
processing systems change frequently. In addition, they generally are not recognized until launched against a target. As a result,
we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures in a timely
manner. Because our software is designed to enable IT administrators to secure and manage sensitive data transmitted to or stored
on employees’ mobile devices, the publicity associated with an actual or perceived breach of our cloud service infrastructure
would likely result in particular reputational damage, as well as loss of potential sales and existing customers. In addition,
unexpected increases in demand at one customer may affect the overall service in unanticipated ways and may cause a disruption
in service for other customers of this platform. 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, but not
limited to, infrastructure changes, human or software errors, viruses, malicious code, denial of service or other security attacks,
fraud, spikes in customer usage and interruption or loss of critical third party hosting, power or Internet connectivity services. If
we sustain disruptions of our cloud services for any reason, our reputation, business and results of operations would be seriously
harmed.
Defects
in
our
solutions
could
harm
our
business,
including
as
a
result
of
customer
dissatisfaction,
data
breaches
or
other
disruption,
and
subject
us
to
substantial
liability.
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
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introduced or released. We have often found defects in new releases of 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.
In certain instances, our customers have stopped using or failed to expand use of, our solutions as a result of defects, and this may
happen in the future. In addition, customers may 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 additional products to other
customers or 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.
Security
breaches
and
other
disruptions
of
our
information
systems
could
significantly
impair
our
operations,
compromise
our
ability
to
conduct
our
business
and
deliver
our
products
and
services,
and
result
in
significant
data
losses,
theft
of
our
intellectual
property,
significant
liability,
damage
to
our
reputation
and
loss
of
current
and
future
business.
We rely on our IT systems for almost all of our business operations, including internal operations, product development,
sales and marketing, and communications with customers and other business partners. The secure processing, maintenance and
transmission of both our own sensitive information and our customers’ data is critical to our operations and business strategy.
Despite our security measures, our information technology systems and infrastructure may be vulnerable to attacks by hackers or
breached due to employee error, malfeasance or other disruptions. Any cyber security attack could result in the damage, loss, theft
or misappropriation of our proprietary information or our customers’ data and/or cause interruptions of our internal business
operations or the delivery of our solutions to customers. Because the techniques used by unauthorized persons to access or
sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate
these techniques or readily detect or take remedial action against an attack. Further, if unauthorized access or sabotage remains
undetected for an extended period of time, the effects of such breach could be exacerbated. We also depend on our employees to
handle confidential data appropriately and deploy our information resources in a secure fashion that does not expose our network
systems to security breaches and the loss of data. Any breach as a result of cyber criminals or employee malfeasance or error
could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Our
insurance may not be sufficient to cover all of our losses from any future breaches of our systems. We have also outsourced a
number of our business functions to third parties, and thus our business operations also depend, in part, on their cybersecurity
measures. Any unauthorized access, disclosure or other loss of information could result in legal claims or proceedings,
investigations by law enforcement or regulatory bodies, liability under laws that protect the privacy of personal information,
regulatory penalties, and could disrupt our operations and the solutions we provide to customers, and damage our reputation,
which could adversely affect our business.
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 and Amazon Web Services. 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 site reliability engineering 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
18
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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, enterprise-wide licensing arrangements, 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 implemented, 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, enterprise licensing arrangements, discounted pricing and/or conversion of service providers or
customers from one billing model to another. Depending on the nature of the change, 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.
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
deliver
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. Our failure to provide effective support has in the past, and could in the future,
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.
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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.
A substantial portion 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 the vast
majority 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 15% of our total revenue for the year ended
December 31, 2016.
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.
We have made a variety of changes to our North American channel strategy which can cause confusion among our
existing resellers. In addition, we have sold and may in the future sell directly to end-user customers, which may adversely affect
our relationship with our channel partners.
Our
sales
cycles
for
large
enterprises
are
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 and the business value of our solutions. Many of our large customers have very complex IT systems,
mobile environments and data privacy and security requirements. Accordingly, many of these customers undertake a significant
evaluation process, which frequently involves not only our solutions, but also those of our competitors, and has resulted in
lengthy sales cycles. 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.
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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;
— an RFP process that may favor incumbent or larger technology companies;
— 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
and
data
protection
laws
could
have
a
material
adverse
effect
on
our
business.
Personal privacy and data protection have become significant issues in the United States, Europe and elsewhere where
we offer our solutions. We collect contact and other personal or identifying information from our customers, and our customers
increasingly use our cloud services to store and process personal information and other regulated data. We also maintain personal
data of our employees in connection with our HR and benefits administration and share that information with third party payroll
and benefits providers.
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, with which we must comply. The
variety, complexity and changing nature of the privacy law landscape worldwide is challenging. 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.
If any of our customers or prospective customers decide not to purchase our software as a result of this regulatory
uncertainty, our revenues could decline and our business could suffer. Any inability to adequately address privacy concerns,
whether valid or not, 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. Furthermore, the
attention garnered by the National Security Agency’s bulk intelligence collection programs may result in further concerns
surrounding privacy and technology products, which could harm our business.
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Table of Contents
The
failure
of
third
parties
to
comply
with
privacy
and
data
security
laws
could
harm
our
business.
The regulatory framework for privacy issues worldwide is currently evolving and is likely to remain uncertain for the
foreseeable future, in particular as it relates to cloud computing vendors. Our existing contractual provisions may not protect us
from claims for data loss or regulatory noncompliance made against cloud computing providers with whom we contract. Any
failure by us or our channel partners or cloud computing vendors to comply with posted privacy policies, other privacy-related or
data protection laws and regulations, or the privacy commitments contained in contracts could result in legal or regulatory
proceedings and/or fines, which could harm our business and reputation.
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.
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. We have in the past and could in the future record
impairment losses in connection with acquisitions. 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.
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.
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Table of Contents
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. If we are unable to gain any required federal clearance or certificate in a timely manner,
or at all, we would likely be prohibited from selling to particular federal customers. In addition, 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 need 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 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 the vast majority 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.
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Table of Contents
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 and other modern IT
infrastructure as an increasingly important computing platform for businesses. Our business plan assumes that the demand for
mobile and other modern IT solutions and the deployment of business apps on mobile devices will increase. However, the mobile
IT market has slowed and may not develop as quickly as we expect, or at all, and businesses may not continue to elect to utilize
mobile IT solutions as an advanced business platform. 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 or that companies may not deploy business apps at scale and thus may be satisfied with less
advanced technologies. 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 or slowing growth 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 in 2012 through 2014 may have made
seasonal fluctuations more difficult to detect. As our rate of growth has slowed, seasonal or cyclical variations in our operations
may become more pronounced, and our business, results of operations and financial position may be adversely affected.
Economic
or
political
uncertainties
or
downturns
could
materially
adversely
affect
our
business.
Economic downturns or uncertainty could adversely affect our business operations or financial results. Negative
conditions in the general economy and political sphere both in the United States and abroad, including conditions resulting from
financial and credit market fluctuations and terrorist attacks on the United States, Europe, Asia Pacific or elsewhere, could cause a
decrease in corporate spending on enterprise software in general and negatively affect the rate of growth of our business.
Economic downturns or economic and/or political uncertainty make it difficult for our customers and us to forecast and plan
future business activities accurately, and they could cause our customers to reevaluate their decision to purchase our products,
which could delay and lengthen our sales cycles, or to deprioritize the portion of their IT budget focused on mobility. We cannot
predict the timing, strength or duration of any economic slowdown, economic or political instability or recovery, generally or
within any particular industry or geography. If the economic conditions of the general economy or industries in which we operate
worsen from present levels, our business operations and financial results could be adversely affected.
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Table of Contents
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.
Management’s assessment needs 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 date we are no longer an “emerging growth company,” as defined in the JOBS Act. We currently continue to
qualify as an “emerging growth company,” as defined in the JOBS Act, and our independent registered public accounting firm is
not required to attest to the effectiveness of our internal controls over financial reporting for the year ended December 31, 2016.
Implementation of internal controls over financial reporting can be time-consuming, costly and complicated. 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. 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 definite
useful lives be amortized over their respective estimated useful lives to their estimated residual values, and
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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. Any impairment charges or changes to the estimated amortization periods could
have a material adverse effect on our financial results.
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.
For example, in December 2015, we and Good Technology announced the settlement of our three year mutual global
patent litigation between us. The settlement included a narrow, non-material license agreement between us and Good Technology
and a mutual dismissal of claims.
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
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equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to compete could be
significantly impaired.
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
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, 2016, 2015 and 2014 53%, 50%, and 45% of our revenue, respectively, was attributable to our international customers,
primarily those located in Europe. As of December 31, 2016, approximately 42% 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
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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;
— burdens of complying with a wide variety of foreign laws, including heightened concerns and legal requirements
relating to data and privacy;
— economic or political instability and security concerns in countries outside the United States in which we operate or
have customers ;
— 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;
— difficulties and costs of attracting and retaining employees and managing foreign operations
— import restrictions and the need to comply with export laws;
— difficulties in protecting intellectual property;
— difficulties in enforcing contracts and longer accounts receivable payment cycles;
— the effect of foreign exchange fluctuations 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.
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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. In addition, international channel partners often rely on business models that favor our on premises product over our
cloud product because in the former, the channel partner may host and manage the software for, and provide additional
administrative, support, training and other services to, the mutual customer for additional fees. This situation could impede sales
of our cloud product in certain international markets.
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.
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.
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
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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.
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
weak,
and
you
could
lose
all
or
part
of
your
investment.
The trading price of our common stock has declined since our Initial Public Offering, and the shares are thinly traded.
The trading price of our common stock 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.
Since shares of our common stock were sold at our initial public offering, our stock price has ranged from as low as
$2.56 to as high as $12.96 through December 31, 2016. 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, billings, cash flow breakeven or other key metrics;
— 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;
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— 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, 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 has been instituted against us, and could result in substantial costs and a diversion of our management’s
attention and resources.
For example, 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 was 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 asserted claims for violation of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934.The complaint sought, among other things, compensatory damages and attorney’s fees
and costs on behalf of the putative class. An amended complaint was filed on September 28, 2015. On February 22, 2016, the
District Court issued an order granting MobileIron’s motion to dismiss the amended complaint and on March 15, 2016 the Court
dismissed the case. MobileIron paid no money to the plaintiffs or their attorneys in connection with the dismissal of the action.
On August 5, 2015, August 21, 2015 and August 24, 2015, purported stockholder class action lawsuits were filed in the
Superior Court of California, Santa Clara County against the Company, certain of its officers, directors,
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underwriters and investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v.
MobileIron, Inc., et al, which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The
actions are purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued
pursuant or traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert
claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things,
compensatory damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected
consolidated complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company
filed a demurrer to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016. The Company
intends to defend this litigation vigorously.
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. If
any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely
decline. Financial analysts have in the past ceased coverage of our stock or published adverse reports, and this may recur in the
future. Any cessation of coverage or adverse reports would likely 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 42% of the outstanding shares of our common stock as of
December 31, 2016. 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 deter certain public investors from purchasing our common stock and might ultimately affect the
market price of our common stock.
We
have
in
the
past
failed,
and
may
in
the
future
fail,
to
meet
our
publicly
announced
guidance
or
other
expectations
about
our
business
and
future
operating
results,
which
has
in
the
past
caused,
and
would
in
the
future
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 are or 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 may further 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.
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Being a public company has made 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 and other factors, including
the decline in our stock price and the other risks described in this “Risk Factors” section, 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.
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. For the year ending
December 31, 2016, we continue to qualify as an “emerging growth company” as defined in the JOBS Act.
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 litigation or other legal disputes;
— 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.
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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.
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 December 31, 2016, we have 89,066,031 shares of common stock outstanding, excluding any potential exercises of
our outstanding stock options and vesting of RSUs.
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.
In February 2016, our Compensation Committee approved the issuance of 1,653,371 shares of common stock under our
2015 Non-Executive Bonus Plan. No shares were issued under our 2015 Executive Bonus Plan. For 2016, we implemented two
stock-settled bonus plans, one for executives and one for non-executives, which will result in the issuance of additional shares of
common stock in the first quarter of 2017. On January 31, 2017, our Compensation Committee approved a recommendation for
an increase of 1,200,000 shares reserved for issuance under our 2014 Employee Stock Purchase Plan, or ESPP, for subsequent
consideration and approval by our Board of Directors and submission to a vote of our stockholders for approval at our next annual
meeting. The issuance of shares of common stock under RSUs, future bonus programs, or our ESPP 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;
34
Table of Contents
— 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 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.
Our executive officers are 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.
Our
financial
results
may
be
adversely
affected
by
changes
in
accounting
principles
applicable
to
us.
Generally accepted accounting principles in the United States (“U.S. GAAP”) are subject to interpretation by the
Financial Accounting Standards Board (“FASB”), the SEC, and other various bodies formed to promulgate and interpret
appropriate accounting principles. For example, in May 2014, the FASB issued accounting standards update No. 2014-09 (Topic
606), Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S.
GAAP. We will be required to implement this guidance in the first quarter of our fiscal year 2018. We have not yet determined
the effect of the standard on our ongoing financial reporting. Implementation of this new standard could have a significant effect
on our financial results, and any difficulties in implementing these pronouncements could cause us to fail to meet our financial
reporting obligations, which could result in regulatory discipline and h arm investors’ confidence in us.
Item
1
B.
Unresolved
Staff
Comments
None.
Item
2.
Properties
Our principal executive offices are located in Mountain View, California and include three buildings totaling approximately
94,000 square feet under leases expiring from June 2017 to April 2023. We have additional office locations throughout the United
States and in various international locations, including offices in the United Kingdom, Germany, Netherlands, Japan, Singapore
and India.
We may add new facilities or expand existing facilities as we add employees, and we believe that suitable additional or
substitute space will be available on commercially reasonable terms to meet our future needs.
Item
3.
Legal
Proceedings
The information set forth under “Litigation” in Note 13 contained in the “Notes to Consolidated Financial Statements” in
Item 8, “Financial Statements and Supplementary Data,” of Part II of this Annual Report on Form 10-K is incorporated herein by
reference.
Item
4.
Mine
Safety
Disclosures
Not applicable.
35
Table of Contents
Part
I
I
Item
5.
Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities
Reverse
Stock
Split
On May 27, 2014, we amended and restated our amended and restated certificate of incorporation to effect a seven-for-five
reverse stock split of our common stock and convertible preferred stock. On the effective date of the reverse stock split, (i) each
seven shares of outstanding convertible preferred stock and common stock was reduced to five shares of convertible preferred
stock and common stock, respectively; (ii) the number of shares of common stock issuable under each outstanding option to
purchase common stock was proportionately reduced on a seven-for-five basis; (iii) the exercise price of each outstanding option
to purchase common stock was proportionately increased on a seven-for-five basis; and (iv) corresponding adjustments in the per
share conversion prices, dividend rates and liquidation preferences of the convertible preferred stock were made. All of the share
and per share information referenced throughout this Annual Report on Form 10-K have been retroactively adjusted to reflect this
reverse stock split.
Issuance
of
Common
Stock
and
Use
of
Proceeds
In June 2014, we closed our initial public offering, or IPO, in which we sold 12,777,777 shares of common stock at a price
to the public of $9.00 per share including 1,666,666 shares of common stock sold pursuant to the full exercise of the underwriters’
over-allotment option. The aggregate offering price for shares sold in the offering was approximately $115 million. The offer and
sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statements on Form S-1 (File
Nos. 333-195089), which were declared or became effective on June 12, 2014. The offering commenced as of June 12, 2014 and
did not terminate before all of the securities registered in the registration statement were sold. Morgan Stanley & Co. LLC,
Goldman, Sachs & Co., Deutsche Bank Securities, Barclays, Raymond James, Stifel, Nomura and Blackstone Capital Markets
acted as the underwriters. We raised approximately $102.9 million in net proceeds after deducting underwriting discounts and
commissions of approximately $8.0 million and other 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.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed
with the SEC on June 12, 2014 pursuant to Rule 424(b). We invested a portion of the funds received in registered money market
funds and fixed income investments.
Market
Information
Our common stock, $0.0001 par value per share, is listed on the NASDAQ Global Select Market under the symbol
“MOBL” and began public trading on June 12, 2014.
Price
Range
for
our
Common
Stock
The following table sets forth the reported high and low sales prices of our common stock for the periods indicated, as
regularly quoted on The NASDAQ Global Select Market:
Fiscal
2016
Quarters:
Fourth Fiscal Quarter
Third Fiscal Quarter
Second Fiscal Quarter
First Fiscal Quarter
Fiscal
2015
Quarters:
Fourth Fiscal Quarter
Third Fiscal Quarter
Second Fiscal Quarter
First Fiscal Quarter
High
Low
$
$
$
$
$
$
$
$
4.50 $
3.69 $
4.78 $
4.55 $
4.66 $
6.03 $
9.68 $
10.15 $
2.60
2.56
2.78
3.01
2.97
2.81
5.69
8.17
36
Table of Contents
Holders
of
Record
and
Dividends
As of February 10, 2017, there were 59 holders of record of our common stock. Because many of our shares are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by
these record holders. We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash
dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the
discretion of our board of directors, subject to applicable laws, and will depend on then existing conditions, including our
financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our
board of directors may deem relevant .
Stock
Performance
Graph
and
Cumulative
Total
Return
The following graph compares the cumulative total return attained by stockholders on our common stock relative to the
cumulative total returns of the NASDAQ Composite Index (^IXIC) and NASDAQ Computer Index (^IXCO). The graph tracks
the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of all dividends)
from June 12, 2014 to December 31, 2016. The stock price performance on the following graph is not necessarily indicative of
future stock price performance.
MobileIron,
Inc.
Comparison
of
Total
Return
Performance
Base
Period
6/12/14
Company/Index
MobileIron, Inc. $
Nasdaq
Computer Index
Nasdaq
Composite Index
6/30/14 9/30/14 12/31/14 3/30/15 6/30/15 9/30/15 12/31/15 3/30/16 6/30/16 9/30/16 12/31/16
100.00 $ 95.20 $ 111.40 $ 99.60 $ 92.60 $ 59.10 $ 31.00 $ 36.10 $ 45.20 $ 30.50 $ 27.50 $ 37.50
100.00
102.93
108.07
111.55
112.96
113.19
107.50
118.49 119.51 114.78 131.51 133.03
100.00
102.58
104.56
109.55
113.37
115.36
106.87
115.83 112.65 112.02 122.88 124.52
Unregistered
Sales
of
Equity
Securities
During the year ended December 31, 2016, we did not repurchase any of the shares subject to repurchase.
37
Table of Contents
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 11 to the Condensed Consolidated Financial Statements).
Securities
Authorized
for
Issuance
under
Equity
Compensation
Plans
See Item 12 of Part III of this Annual Report on Form 10-K regarding information about securities authorized for
issuance under our equity compensation plan.
Item
6.
Selected
Financial
Data
The following selected historical financial data should be read in conjunction with Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” our financial statements, and the related notes appearing in Item 8,
“Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K to fully understand factors that may affect
the comparability of the information presented below.
The statement of operations data for 2016, 2015, 2014, 2013 and 2012 and the balance sheet data as of December 31, 2016,
2015, 2014, 2013 and 2012 are derived from our audited financial statements appearing in Item 8, “Financial Statements and
Supplementary Data,” of this Annual Report on Form 10-K. The statement of operations data for 2013 and 2012 and the balance
sheet data as of December 31, 2014, 2013 and 2012 is derived from audited financial
38
Table of Contents
statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to
be expected in the future.
(in thousands, except per share data)
Consolidated
Statement
of
Operations
Data:
Revenue
Perpetual license
Subscription
Software support and services
Total revenue
Cost of revenue
Perpetual license
Subscription
Software support and services
Restructuring charge
Total cost of revenue
(1)
Gross profit
Operating expenses
(1)
(1)
Research and development
Sales and marketing
General and administrative
Restructuring charge
Amortization of intangible assets
Impairment of in-process research and development
(1)
Total operating expenses
Operating loss
Other (income) expense - net
Loss before income taxes
Income tax expense
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to compute net loss per
share, basic and diluted
$
$
2016
2015
2014
2013
2012
Year
ended
December
31,
$
45,775 $
61,357
56,794
163,926
53,512
48,080
47,706
149,298
$
66,816 $
30,227
35,252
132,295
69,810 $
15,085
20,679
105,574
26,251
5,617
9,022
40,890
2,658
8,297
19,412
181
30,548
133,378
67,398
101,757
29,695
871
—
—
2,881
7,181
18,115
—
28,177
121,121
61,871
105,520
36,037
1,049
—
—
199,721
(66,343)
(145)
(66,198)
982
(67,180)
(0.78)
204,477
(83,356)
274
(83,630)
852
(84,482)
(1.07)
$
$
$
$
4,448
5,719
13,868
—
24,035
108,260
3,327
3,684
9,489
—
16,500
89,074
1,930
2,998
6,742
—
11,670
29,220
46,278
99,870
22,400
—
782
—
169,330
(61,070)
302
(61,372)
517
36,400
68,309
12,081
—
208
3,925
120,923
(31,849)
396
(32,245)
252
23,773
45,979
7,223
—
52
—
77,027
(47,807)
137
(47,944)
(1,433)
(61,889) $ (32,497) $ (46,511)
(6.04)
(3.27) $
(1.30) $
85,845
78,755
47,517
9,953
7,696
(1) Amounts include stock-based compensation expense as follows:
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(in thousands)
Stock-Based
Compensation
Expense:
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation expense
Year
ended
December
31,
2016
2015
2014
2013
2012
$
$
3,043 $
11,728
10,474
9,144
34,389 $
2,774 $
10,607
9,508
5,902
28,791 $
1,353 $
5,980
5,930
3,363
16,626 $
327 $
5,238
1,893
931
8,389 $
173
2,565
1,063
483
4,284
39
Table of Contents
(in thousands)
Consolidated
Balance
Sheet
Data:
Cash and cash equivalents
Short-term and long-term investments
Working capital
Total assets
Total deferred revenue
Short-term borrowings
Convertible preferred stock
Accumulated deficit
Total stockholders' equity (deficit)
2016
2015
As
of
December
31,
2014
2013
2012
54,043 $
36,184 $
49,585 $
47,234 $
51,670 $
66,568 $
153,106 $ 161,114 $
69,875 $
— $
— $
38,692
73,573 $
104,287 $
$
—
— $
36,089 $
$
13,132
90,448 $
49,054 $
$
71,454
191,842 $ 111,259 $
$
45,500
40,751 $
54,174 $
$
— $
—
4,300 $
$
$
— $ 160,259 $ 102,552
$ (342,385) $ (275,205) $ (190,723) $ (128,834) $ (96,337)
115,094 $ (109,825) $ (87,421)
$
88,076 $
— $
— $
68,139 $
40,817 $
40
Table of Contents
Item
7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
The
following
discussion
and
analysis
of
our
financial
condition
and
results
of
operations
should
be
read
in
conjunction
with
our
financial
statements
and
related
notes
appearing
elsewhere
in
this
Annual
Report
on
Form
10-K.
In
addition
to
historical
financial
information,
the
following
discussion
contains
forward-looking
statements
that
reflect
our
plans,
estimates
and
beliefs.
Our
actual
results
could
differ
materially
from
those
contained
in
or
implied
by
any
forward-
looking
statements.
Factors
that
could
cause
or
contribute
to
these
differences
include
those
under
“Risk
Factors”
included
in
Part
I,
Item
1A
or
in
other
parts
of
this
report.
The current perimeter-based enterprise security model, which is based on locked-down desktop endpoints, enterprise-
controlled networks, and company data that only sits behind a firewall, is being disrupted by the move to mobile and cloud
services. Employees and lines-of-business, not IT, now choose the software and cloud services they need to do their jobs. Our
solution provides enterprise security for this open, but complex, modern IT architecture.
We
invented a purpose-built security platform for enterprises to secure business data in a modern IT architecture, while
enabling employee personal data privacy and mobile device choice. The MobileIron Enterprise Mobility Management (EMM)
solution is a mobile security platform that:
1)
2)
3)
4)
configures and delivers applications to smartphones, tablets, laptops and desktops running modern operating systems
such as Android, iOS, macOS and Windows 10;
secures data-at-rest on these modern endpoints;
secures data-in-motion across the corporate network; and
secures access to back-end corporate networks and cloud services.
We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, or IoT device, with access to
enterprise data will require a solution like MobileIron’s to secure that data.
Our platform has fostered a growing ecosystem of partners to enable our customers and their employees to leverage best-
of-breed solutions rather than being locked into a particular vendor’s solution. MobileIron enables employees to have ubiquitous
access to the information they need in order to work productively anywhere.Our business model is based on winning new
customers, expanding sales and upselling new products within existing customers, and renewing subscriptions and software
support agreements. We have sold our platform to over 13,500 cumulative customers since 2009, and our revenue has increased
to $163.9 million in 2016. Our global customer support team focuses on enabling customer success, which is designed to lead to
additional sales and renewals of subscription and software support agreements. In 2016, we generated over two-thirds of our gross
billings from recurring sources (subscriptions and software support agreements). Our blended renewal rates, which are
determined on a seat basis for software support and subscription agreements, exceeded 90% in 2016.
We offer our customers the flexibility to deploy our solution as a cloud service or as on-premises software. They can also
choose from various pricing options, including subscription and perpetual licensing. We primarily target midsize and large
enterprises across a broad range of industries including financial services, government, healthcare, legal, manufacturing,
professional services, retail, technology and telecommunications. No single end user accounted for more than 5% of our total
revenue in 2016. One reseller accounted for 15% of our revenue in 2016.
Subscription revenue is an increasing portion of our revenue. When we sell our solutions on a subscription basis, we offer
12 months or longer terms 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 reported to us by the service provider on a monthly basis over time and billed by us 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. Over time, we may see variability in the MRC revenue and billings trends, as
customers choose to switch between MRC and prepaid billing models, or as a result of the timing of operators usage reporting and
other factors.
41
Table of Contents
Our total revenue was $163.9 million, $149.3 million and $132.3 million in 2016, 2015 and 2014 , respectively,
representing a growth rate of 10% from 2015 to 2016 and 13% from 2014 to 2015. Growth in recognized revenue slowed relative
to the prior year primarily due to a continuing shift in favor of subscription revenue and a slowdown in perpetual license orders.
Revenue from subscription and perpetual licenses represented 37% and 28%, respectively, of total revenue in 2016. The
balance, constituting 35% of total revenue in 2016, was software support and services revenue which consists primarily of
revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual
software licenses. This represents a continuing mix shift in favor of subscription, and software support and services revenue, as
we recognized 32% of our total revenue from subscriptions, 36% from perpetual licenses and 32% from software support and
services in 2015, and 23% of our total revenue from subscriptions, 50% from perpetual licenses and 27% from software support
and services in 2014. Our MRC revenue, included in our reported subscription revenue, comprised approximately 15%, 14% and
9% of total revenue in 2016, 2015 and 2014, respectively .
Our perpetual license revenue was $45.8 million, $53.5 million and $66.8 million in 2016, 2015 and 2014, respectively,
representing a decrease of 14% from 2015 to 2016 and 20% from 2014 to 2015 . The decline in perpetual license revenue was
primarily due to a decrease in demand for our perpetual licenses and to a mix shift in favor of software licenses priced as
subscriptions rather than perpetual licenses. The decline in perpetual license revenue from 2014 to 2015 was also attributable to a
decrease of $3.4 million from 2014 to 2015 in revenue recognized from licenses that were delivered prior to 2013, 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 subscription revenue was $61.4 million, $48.1 million and $30.2 million in 2016, 2015 and 2014, respectively,
representing growth of 28% from 2015 to 2016 and 59% from 2014 to 2015 . While we expect subscription revenue to increase as
new and existing customers continue to purchase software subscription licenses, we also expect potential quarterly volatility in
both billings and revenue as a result of mix changes between perpetual, term subscription and MRC transactions.
Our software support and services revenue was $56.8 million, $47.7 million and $35.3 million in 2016, 2015 and 2014,
respectively, representing growth of 19% from 2015 to 2016 and 35% from 2014 to 2015. The growth rate of support and services
revenue is primarily dependent on growth in our installed base of customers that purchase recurring software support.
Our gross billings were $182.1 million, $165.0 million and $145.7 million in 2016, 2015 and 2014, respectively,
representing growth rates of 10% from 2015 to 2016 and 13% from 2014 to 2015. The slowing of gross billings growth in 2016
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.
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Table of Contents
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 large organizations, 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 large
organizations because we believe that they represent the largest potential opportunity.
We believe that our market opportunity is large, and sales to customers outside of the United States will remain a
significant opportunity for future growth. In 2016, 2015 and 2014, 53%, 50% and 45% of our total revenue, respectively, 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 partner strategy, the importance of recruiting and retaining
sufficient international personnel, the effect of exchange rates, and political and financial market instability.
In 2016, while we increased our spending to support the development of our product, we reduced sales and marketing and
general and administrative spending. However, we continued to incur a net loss. We have incurred net losses of $67.2 million,
$84.5 million and $61.9 million in 2016, 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 possible continued mix shift towards subscription licensing, increasing and
entrenched competition, changes in our pricing model, our ability to continue to develop and evolve our products or any failure to
capitalize on market opportunities. In addition, we will need to increase operating efficiency, which may be challenging given our
operational complexity.
In 2015, we incurred $10.5 million in litigation expense, almost all of which related to our patent litigation with Good
Technology, which we settled in November 2015. The settlement included a mutual dismissal of all claims and an immaterial
license agreement.
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.
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, recurring 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 restructuring charges. Beginning
2016, we no longer exclude perpetual license revenue recognized from licenses delivered prior to 2013 from our non-GAAP
financial measures and we have adjusted our non-GAAP financial measures tables accordingly. Perpetual license revenue
recognized from licenses delivered prior to 2013 was $1.8 million and $5.2 million in 2015 and 2014, respectively.
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 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.
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Table of Contents
Restructuring
charges
In our non-GAAP financial measures, we have excluded the effect of the severance and other expenses related to our
reduction in workforce. Restructuring charges may recur in the future; however, the timing and amounts are difficult to predict.
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 stock-based compensation expense, the amortization of intangible assets, and restructuring
charges and from gross profit, gross margin, operating loss, operating margin, net loss, and net loss per share provides useful
measures for management and investors because stock-based compensation, the amortization of intangible assets and
restructuring charges 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,
recurring
revenue
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; recurring
revenue
, which we define as total revenue less perpetual license,
hardware, professional services and perpetual amounts recorded as subscription or software support revenue in multiple elements
arrangements; 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
and recurring
revenue
to be useful metrics because they are important
indicators 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,
recurring
billings
and recurring
revenue
. 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, recurring
revenue
excludes perpetual license amounts recognized from multiple
elements arrangements that we record as subscription or software support revenue in our GAAP statements of operations and that
perpetual license amount is based on invoice value, not fair value, although we believe invoice value approximates the fair value
of the element. Fourth, 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
billi
ngs and recurring
revenue
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
44
Table of Contents
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.
We monitor the following non-GAAP financial measures:
(in thousands, except percentages and per share data)
Gross billings
Year-over-year percentage increase
Recurring billings
Percentage of gross billings
Year-over-year percentage increase
Recurring revenue
Percentage of total revenue
Year-over-year percentage increase
Non-GAAP gross profit
Non-GAAP gross margin
Non-GAAP operating loss
Non-GAAP operating margin
Non-GAAP net loss
Non-GAAP loss per share
Free cash flow
$
$
For
the
year
ended
December
31,
2015
164,999
2016
182,127
131,773
107,485
$
10 %
$
72 %
23 %
$
13 %
$
65 %
37 %
$ 113,414
$
90,563
$
69 %
25 %
61 %
49 %
137,218
(30,286)
$
83.7 %
$
(18.5)%
$
$
$
(31,123)
(0.36)
(14,659)
$
$
$
$
$
45
124,765
(52,646)
$
83.6 %
$
(35.3)%
$
$
$
(53,772)
(0.68)
(52,265)
2014
145,718
—
78,601
54 %
—
60,777
46 %
—
110,261
83.3 %
(43,014)
(32.5)%
(43,833)
(0.92)
(39,688)
Table of Contents
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.
(in thousands, except percentages and per share data)
Gross
billings
reconciliation:
Total revenue
Total deferred revenue, end of period (1)
Less: Total deferred revenue, beginning of period
Total change in deferred revenue
Gross
billings
Recurring
billings
reconciliation:
Total revenue
Less: Perpetual license revenue
Less: Professional services revenue
Subscription and software support deferred revenue, end of period (1)
Less: Subscription and software support deferred revenue, beginning of period
Total change in subscription and software support deferred revenue
Less: Adjustments (2)
Recurring
billings
Recurring
revenue
reconciliation:
Total revenue
Less: Perpetual license revenue
Less: Professional services revenue
Less: Perpetual license recorded over the term of subscription or software support (3)
Recurring
revenue:
Non-GAAP
gross
profit
reconciliation:
Gross profit
Add: Stock-based compensation expense
Add: Amortization of intangible assets
Add: Restructuring charge
Non-GAAP
gross
profit
Non-GAAP
gross
margin
reconciliation:
GAAP gross margin: GAAP gross profit over GAAP total revenue
GAAP to non-GAAP gross margin adjustments
Non-GAAP
gross
margin
Non-GAAP
operating
loss
reconciliation:
GAAP operating loss
Add: Stock-based compensation expense
Add: Amortization of intangible assets
Add: Restructuring charge
Non-GAAP
operating
loss
Non-GAAP
operating
margin
reconciliation:
GAAP operating margin: GAAP operating profit over GAAP total revenue
GAAP to non-GAAP operating margin adjustments
Non-GAAP
operating
margin
Non-GAAP
net
loss
reconciliation:
GAAP net loss
Add: Stock-based compensation expense
Add: Amortization of intangible assets
Add: Restructuring charge
Non-GAAP
net
loss
Non-GAAP
net
loss
per
share
reconciliation:
GAAP net loss per share
Add: Stock-based compensation expense per share
Add: Amortization of intangible assets per share
Add: Restructuring charge per share
Non-GAAP
net
loss
per
share
Free
cash
flow:
Net cash used in operating activities
Purchase of property and equipment
Free
cash
flow
For
the
year
ended
December
31,
2015
2014
2016
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
163,926
88,076
(69,875)
18,201
182,127
163,926
(45,775)
(2,811)
85,612
(67,267)
18,345
(1,912)
131,773
163,926
(45,775)
(2,811)
(1,926)
113,414
133,378
3,043
616
181
137,218
$
$
$
$
$
$
$
81.4 %
2.3 %
83.7 %
(66,343)
34,389
616
1,052
(30,286)
$
$
(40.5)%
22.0 %
(18.5)%
(67,180)
34,389
616
1,052
(31,123)
(0.78)
0.40
0.01
0.01
(0.36)
(11,729)
(2,930)
(14,659)
$
$
$
$
$
$
149,298
69,875
(54,174)
15,701
164,999
149,298
(53,512)
(3,165)
67,267
(49,194)
18,073
(3,209)
107,485
149,298
(53,512)
(3,165)
(2,058)
90,563
121,121
2,774
870
—
124,765
$
$
$
$
$
$
$
81.1 %
2.5 %
83.6 %
(83,356)
28,791
870
1,049
(52,646)
$
$
(55.8)%
20.5 %
(35.3)%
(84,482)
28,791
870
1,049
(53,772)
(1.07)
0.37
0.01
0.01
(0.68)
(48,535)
(3,730)
(52,265)
$
$
$
$
$
$
132,295
54,174
(40,751)
13,423
145,718
132,295
(66,816)
(2,404)
49,194
(30,468)
18,726
(3,200)
78,601
132,295
(66,816)
(2,404)
(2,298)
60,777
108,260
1,353
648
—
110,261
81.8 %
1.5 %
83.3 %
(61,070)
16,626
1,430
—
(43,014)
(46.2)%
13.7 %
(32.5)%
(61,889)
16,626
1,430
—
(43,833)
(1.30)
0.35
0.03
—
(0.92)
(36,569)
(3,119)
(39,688)
(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.
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Table of Contents
(2)
Includes nonrecurring perpetual license billings that consist of the Deferred Portion arising from undelivered elements of
perpetual license arrangements and billings classified under Bundled Arrangements. See Note 1 entitled “Summary of
Significant Accounting Policies—Revenue Recognition” in Item 8, “Financial Statements and Supplementary Data,” of Part
II of this Annual Report on Form 10-K for a description of Deferred Portion and Bundled Arrangements.
(3) Perpetual amounts recorded as subscription or software revenue in multiple elements arrangements, where undelivered
elements do not have VSOE.
Factors
Affecting
our
Performance
Market
Adoption
of
Enterprise
Mobility
We are affected by the pace at which enterprises adopt mobility into their business processes and purchase and expand a
mobile security platform. Because our prospective customers often do not have a separate budget for mobile security products, we
invest in marketing efforts to increase market awareness, educate prospective customers and drive adoption of our platform. The
degree to which prospective customers recognize the mission-critical need for mobile security solutions and deploy mobile apps
to enhance employee productivity will determine the customer demand for our solutions. We believe our rate of growth will also
be positively correlated to the importance prospective customers place on securing their mobile data.
Customer
Preference
for
Best-of-Breed
vs.
Suite
We believe we are the best-of-breed platform in our industry. Many of our competitors sell EMM or mobile security as a
component of a broader suite. We believe the degree to which prospective customers view our value proposition as differentiated
and mobile security as essential versus a “nice to have” will determine the customer demand for our solutions.
Investment
in
our
Ecosystem
We have invested, and intend to continue to invest, in expanding the breadth and depth of our ecosystem. We expect to
invest in research and development to enhance the application and technology integration capabilities of our platform. We are
also enhancing our solution to allow native apps written to operating systems specifications to be seamlessly integrated. The
degree to which we expand our base of ecosystem partners will increase the value of our platform for our customers, which could
lead to an increased number of new customers as well as renewals and follow-on sales opportunities.
Ability
to
Improve
and
Grow
Our
Worldwide
Sales
Channels
We have invested, and intend to continue to invest, in improving our sales operations to drive additional revenue and
support the growth of our customer base. We work with our channel partners to identify and acquire new customers as well as
pursue follow-on sales opportunities. We need to further leverage our channel by training existing and new partners to
independently sell and support our products. Newly-hired sales personnel typically require several months to become productive
and turnover of productive sales personnel can inhibit our billings and revenue growth. All of these factors will influence timing
and overall levels of sales productivity, impacting the rate at which we will be able to acquire customers to drive revenue growth.
Expansion
and
Upsell
within
Existing
Customer
Base
After the initial sale to a new customer, we focus on expanding our relationship with such customer to sell additional
licenses and subscriptions. To increase our revenue, it is important that our customers expand device license count and purchase
additional products. Additional sales lead to increased revenue over the lifecycle of a customer relationship and can significantly
increase the return on our sales and marketing investments. Accordingly, our revenue growth will depend in part on the degree to
which our expansion and upsell sales strategy is successful.
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Table of Contents
Mix
of
Subscription
and
Perpetual
Revenue
We offer our solutions on both a subscription and perpetual pricing model. We are seeing broader market acceptance of our
subscription licensing model from new customers. We expect the proportion of subscription revenue to our total revenue to
increase over time and there may be significant increases or decreases on a quarterly basis. In addition, in arrangements where
perpetual and on premise term licenses are sold together, revenue is recognized ratably over the contractual term. Depending on
our product development plans, situations in which perpetual licenses must be recognized as revenue ratably may increase in the
future. Because subscription revenue is recognized ratably over the duration of the related contracts, increases in total revenue
will lag any increase in subscription or combined arrangements.
Ability
to
Scale
Operations
We plan to continue to invest for future growth, in part by making selective investments in research and development and, to
a lesser degree, in sales and marketing. We will continue to incur significant accounting, legal and other expenses in order to
comply with rules and regulations associated with being a public company. At the same time, we will need to increase our
operating efficiency, which may be challenging given our rate of technology change, operational complexity, and expenses
associated with being a public company.
Components
of
Operating
Results
Revenue
Perpetual license revenue
Perpetual license revenue primarily relates to revenue from on premise perpetual licenses. 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 in 2016, 2015 and 2014.
Subscription revenue
Subscription revenue is generated primarily from subscriptions to our on-premise 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. While most of our subscriptions have at least a one-year commitment, we
also recognize in this category MRC, which is revenue from month-to-month subscription arrangements that are typically sold
through service providers and billed on a monthly basis, one month in arrears. Except for MRC, we typically bill subscriptions
annually in advance.
Software support and services revenue
Software support and services revenue includes 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.
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Table of Contents
Subscription
Our cost of subscription revenue primarily consists of costs associated with our data center operations for our cloud
service, our global Technical Support organization and third-party software royalties. Cloud service data center costs primarily
consist of third-party hosting facilities, telecommunication and information technology costs. Global Customer Success
organization and data center operations costs primarily consist of salaries, benefits, stock-based compensation, depreciation, and
facilities.
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, stock-based compensation, depreciation, 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. 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 may fluctuate depending
on the size and timing of restricted stock unit grants and stock-settled bonus plans, if any.
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. While our research
and development expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue over
the short term, we expect it to decrease as a percentage of total revenue over the long term.
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 costs associated with third-party events,
lead generation campaigns, promotional and other marketing activities, as well as travel, equipment and software depreciation,
consulting, information technology and facilities. While our sales and marketing expense, exclusive of stock-based compensation
expense, may fluctuate as a percentage of total revenue over the short term, we expect it to decrease as a percentage of total
revenue over the long term.
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 legal
organizations. Professional services fees consist primarily of litigation, other legal, accounting and consulting
49
Table of Contents
costs. While our general and administrative expense, exclusive of stock-based compensation expense, may fluctuate as a
percentage of total revenue over the short term, we expect it to decrease as a percentage of total revenue over the long term.
Restructuring
Charges
Restructuring charges consist of severance and other costs associated with reducing our workforce to align our cost
structure with our expected growth rate.
Amortization
of
Intangible
Assets
Our amortization of intangible assets consists of amortization of noncompete covenants.
Other
(Income)
Expense
— Net
Other (income) 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. Due to our
history of losses, 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.
50
Table of Contents
Consolidated
of
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.
Year
ended
December
31,
2015
2016
2014
Revenue
Perpetual license
Subscription
Software support and services
Total revenue
Cost of revenue (1)
Perpetual license
Subscription
Software support and services
Restructuring charge
Total cost of revenue
Gross profit
Operating expenses:
Research and development (1)
Sales and marketing (1)
General and administrative (1)
Restructuring charge
Amortization of intangible assets
Total operating expenses
Operating loss
Other (income) expense - net
Loss before income taxes
Income tax expense
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to compute net loss per share, basic and diluted
(1) Amounts include stock-based compensation expense as follows:
$
45,775
61,357
56,794
163,926
$
53,512 $
48,080
47,706
66,816
30,227
35,252
149,298 132,295
2,658
8,297
19,412
181
30,548
133,378
2,881
7,181
18,115
—
28,177
4,448
5,719
13,868
—
24,035
121,121 108,260
67,398
101,757
29,695
871
—
199,721
(66,343)
(145)
(66,198)
982
$ (67,180)
$
(0.78)
85,845
61,871
46,278
105,520
99,870
36,037
22,400
1,049
—
782
—
204,477 169,330
(61,070)
302
(61,372)
517
$ (84,482) $ (61,889)
(1.30)
$
47,517
(83,356)
274
(83,630)
852
(1.07) $
78,755
Contra-revenue
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
Year
ended
December
31,
2015
2016
—
3,043
11,728
10,474
9,144
34,389
$
$
— $
2,774
10,607
9,508
5,902
28,791 $
2014
123
1,353
5,980
5,930
3,363
16,749
$
$
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Table of Contents
Revenue
Perpetual license
Subscription
Software support and services
Total revenue
Cost of revenue
Perpetual license
Subscription
Software support and services
Restructuring charge
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charge
Amortization of intangible assets
Total operating expenses
Operating loss
Other (income) expense - net
Loss before income taxes
Income tax expense
Net loss
Years
Ended
December
31,
2016,
2015
and
2014
Revenue
(in thousands,
except percentages)
Perpetual
Subscription
Software support and
services
Total revenue
Year
ended
December
31,
2015
2014
2016
50 %
23
27
100
3
4
11
—
18
82
35
75
17
—
1
128
(46)
—
(46)
—
(46) %
28 %
37
35
100
36 %
32
32
100
2
5
12
—
19
81
41
62
18
1
—
122
(41)
—
(41)
—
(41) %
2
5
12
—
19
81
41
71
24
1
—
137
(56)
—
(56)
1
(57) %
Change
Year
Ended
December
31,
$
2016
45,775
61,357
$
2015
53,512
48,080
$
2014
66,816
30,227
2016
vs
2015
Amount %
$ (7,737)
13,277
(14)% $ (13,304)
17,853
28 %
2015
vs
2014
Amount
%
56,794
$ 163,926
47,706
$ 149,298
35,252
$ 132,295
9,088
$ 14,628
19 %
10 % $
12,454
17,003
(20)%
59 %
35 %
13 %
Percentage of total revenue
Perpetual
Subscription
Software support and
services
28 %
37
35
100 %
36 %
32
32
100 %
50 %
23
27
100 %
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Table of Contents
2016
%
of
Total
For
the
year
ended
December
31,
2015
%
of
Total
2014
%
of
Total
Change
2016
vs
2015
2015
vs
2014
Amount
Revenue
Amount
Revenue Amount
Revenue Amount
% Amount
%
$
$
77,039
86,887
163,926
47 % $
53 %
100 % $
74,235
75,063
149,298
50 % $ 72,124
60,171
50 %
100 % $ 132,295
55 % $
45 %
100 % $
2,804
11,824
14,628
4 % $ 2,111
16 % 14,892
10 % $ 17,003
3 %
25 %
13 %
(in thousands,
except
percentages)
Revenue
United States
International
Total revenue
Comparison of 2016 and 2015
Perpetual license revenue decreased $7.7 million in 2016 compared to 2015, primarily due to a shift in favor of software
licenses priced as subscriptions, a slowdown in perpetual license orders and a $1.6 million 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 $13.3 million, or 28%, in 2016 compared to 2015, 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 included an increase in MRC revenue from $21.1 million in 2015 to $24.5 million in 2016.
Software support and services revenue increased $9.1 million, or 19%, in 2016 compared to 2015, primarily as a result
of an increased installed base of customers that pay recurring software support.
Revenue from international sales increased 16% in 2016 compared to 2015 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 4% in 2016 compared to 2015 due to an increase in the adoption of our products and
an increased cumulative installed base of customers, partially offset by the mix shift from perpetual to subscription, a slowdown
in perpetual license orders, and less revenue being recognized from licenses delivered prior to 2013.
Revenue from AT&T, as a reseller, was 15% of total revenue in 2016 compared with 16% in 2015. No other customer
accounted for 5% or more of total revenue in 2016 and 2015.
Comparison of 2015 and 2014
Perpetual license revenue decreased $13.3 million in 2015 compared to 2014, primarily due to a shift in favor of
software licenses priced as subscriptions, including MRC, a slowdown in perpetual license orders and a $3.4 million 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 $17.9 million, or 59%, in 2015 compared to 2014, 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 included an increase in MRC revenue from $12.6 million in 2014 to $21.1 million in 2015.
Software support and services revenue increased $12.5 million, or 35%, in 2015 compared to 2014, primarily as a result
of an increased installed base of customers that pay recurring software support.
Revenue from international sales increased 25% in 2015 compared to 2014 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.
53
Perpetual license
Subscription
Software support and
services
Restructuring charge
Table of Contents
Revenue from U.S. sales increased 3% in 2015 compared to 2014 due to an increase in the adoption of our products and
an increased cumulative installed base of customers, partially offset by the mix shift from perpetual to subscription, including
MRC, a slowdown in perpetual license orders, and less revenue being recognized from licenses delivered prior to 2013.
Revenue from AT&T, as a reseller, was 16% of total revenue in 2015 compared with 20% in 2014. No other customer
accounted for 5% or more of total revenue in 2015 and 2014.
Cost
of
Revenue
and
Gross
Margin
2016
%
of
Total
For
the
year
ended
December
31,
2015
%
of
Total
2014
%
of
Total
Change
2016
vs
2015
2015
vs
2014
Amount
Revenue
Amount
Revenue
Amount
Revenue
Amount
%
Amount
%
(in thousands,
except percentages)
Cost of revenue:
$
2,658
8,297
2 % $
5 %
2,881
7,181
2 % $
5 %
4,448
5,719
3 % $
4 %
(223)
1,116
(8)% $ (1,567)
1,462
16 %
(35)%
26 %
19,412
181
12 %
— %
18,115
—
12 %
— %
13,868
—
11 %
— %
1,297
7 %
181 100 %
4,247
—
31 %
—
Total cost of
revenue
Gross profit
Gross margin
$ 30,548
$ 133,378
19 % $ 28,177
$ 121,121
81 %
19 % $ 24,035
$ 108,260
81 %
Comparison of 2016 and 2015
18 % $
2,371
8 % $ 4,142
$ 12,257 10 % $ 12,861
17 %
12 %
82 %
Total cost of revenue increased $2.4 million, or 8%, in 2016 compared to 2015. Perpetual license cost of revenue
decreased $223,000, or 8%, primarily due to a decrease in royalty expense and intangible assets amortization, partially offset by
costs associated with a modest increase in sales of our hardware appliances. Subscription cost of revenue increased $1.1 million,
or 16%, due to an increase in data center operations and Global Customer Success organization expenses. Software support and
services cost of revenue increased $1.3 million, or 7%, primarily due to an increase in Global Customer Success organization
expense. Global Customer Success and data center operations expenses increased as a result of increases in payroll-related
expense as we increased headcount, professional services expense to supplement our Global Customer Success team, and
facilities and infrastructure expense. The $181,000 restructuring charge in 2016 resulted from workforce reductions designed to
align our spending with our expected growth rate. Our gross margin in 2016 was approximately flat compared to 2015.
Comparison of 2015 and 2014
Total cost of revenue increased $4.1 million, or 17%, in 2015 compared to 2014. Perpetual license cost of revenue
decreased $1.6 million, or 35%, primarily due to a decrease in sales of our hardware appliances and a decrease in royalties.
Subscription cost of revenue increased $1.5 million, or 26%, due to an increase in Global Customer Success organization expense
and other third-party costs. Software support and services cost of revenue increased $4.2 million, or 31%, due to an increase in
our global Customer Success organization expense, which included $3.7 million of increases in salaries, associated payroll taxes,
and fringe benefit costs as well as an approximately $1.4 million increase in stock-based compensation expense. The decrease in
gross margin in 2015 compared to 2014 was primarily due to the unfavorable impact of the decrease in revenue that was
recognized from perpetual licenses that were delivered prior to 2013 and due to increase in stock-based compensation by $1.3
million. Excluding the impact of the reduction in VSOE-related revenue, gross margin was 81% in 2015 and 2014.
54
Table of Contents
Operating
Expenses
2016
For
the
year
ended
December
31,
2015
2014
2016
vs
2015
2015
vs
2014
Change
Amount
%
of
Total
Revenue
%
of
Total
%
of
Total
Amount
Revenue
Amount
Revenue
Amount
%
Amount
%
$
67,398
101,757
29,695
871
41 % $
62 %
18 %
1 %
61,871
105,520
36,037
1,049
41 % $
71 %
46,278
99,870
35 % $
75 %
5,527
(3,763)
9 % $ 15,593
5,650
(4)%
34 %
6 %
24 %
1 %
22,400
—
17 %
— %
(6,342)
(178)
(18)%
(17)%
13,637
1,049
61 %
100 %
—
— %
—
— %
782
1 %
—
— %
(782)
(100)%
$
199,721
122 % $
204,477
137 % $ 169,330
115 % $ (4,756)
(2)% $ 35,147
21 %
(in thousands,
except percentages)
Operating expenses:
Research and
development
Sales and marketing
General and
administrative
Restructuring charge
Amortization of
intangible assets
Total operating
expenses
Comparison of 2016 and 2015
Research and development expense increased $5.5 million, or 9%, in 2016 compared to 2015, primarily due to an
increase in personnel costs of $2.6 million as we increased our development headcount to support continued investment in our
product and service offerings. This includes an increase in stock-based compensation expense of $1.1 million, which was driven
primarily by our stock-settled bonus program and restricted stock unit grants, partially offset by declining expense from stock
options. Facilities and other infrastructure expense increased by $2.3 million to support the increased headcount in research and
development and also reflects office rent increases in the U.S. and India. Professional fees increased by $442,000 to support
product development initiatives.
Sales and marketing expense decreased $3.8 million, or 4%, in 2016 compared to 2015, primarily due to decreases in
personnel costs of $3.0 million. Personnel costs decreased due to a decrease in payroll and payroll related expenses of $3.9
million, off-set by an increase of $966,000 for stock-based compensation expense, driven primarily by restricted stock unit grants
and our stock-settled bonus program, partially offset by declining expense from stock options. The headcount reduction
completed in the third quarter of 2015, a more measured approach to hiring and replacing personnel since then, and a reduction in
medical benefit costs were the primary reasons for the personnel costs decrease. Travel-related expense decreased $2.1 million,
due to cost reduction initiatives implemented in the third quarter of 2015 that we sustained through 2016. The decrease in payroll-
related and travel expenses was partially offset by an increase in professional fees of $827,000 to support sales and marketing and
an increase in third-party marketing-related expense of $530,000 as we devoted more resources to field marketing programs and
events.
General and administrative expense decreased $6.3 million, or 18%, in 2016 compared to 2015, primarily due to a $9.7
million decrease in litigation legal fees due to our settlement of patent litigation in 2015, partially offset by an increase in
personnel costs of $3.5 million. The increase in personnel costs includes an increase in stock-based compensation expense of $3.3
million, which was driven primarily by our stock-settled bonus program and restricted stock unit grants. In addition, professional
fees decreased $649,000 due to lower recruiting expense, and facilities and infrastructure expenses increased by $302,000.
Restructuring charges were $1.1 million in 2016 ($181,000 in cost of revenue and $871,000 in operating expenses) and
$1.0 million in 2015. The restructuring charges resulted from workforce reductions designed to align our spending with our
expected growth rate.
Comparison of 2015 and 2014
Research and development expense increased $15.6 million, or 34%, in 2015 compared to 2014, primarily due to an
increase in personnel costs of $10.7 million as we increased our development headcount to support continued investment in our
product and service offerings. This expense also includes an increase in stock-based compensation expense of $4.6 million. The
stock-based compensation expense increase was driven primarily by stock-settled bonus expense, associated with a new bonus
program in 2015, restricted stock unit grants and our 2014 Employee Stock Purchase Plan, or ESPP, which was introduced in
mid-2014 after our IPO, but was partially offset by a reduction in
55
Table of Contents
expense associated with restricted stock held by employees who terminated in 2014. Facilities and other infrastructure expenses
increased by $3.4 million 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. In order to accommodate
headcount growth we entered into several new office leases in 2015. Professional fees increased by $1.2 million, as we
supplemented our development resources.
Sales and marketing expense increased $5.7 million, or 6%, in 2015 compared to 2014, primarily due to an increase in
personnel costs of $3.6 million. While average sales and marketing headcount was higher in 2015 than 2014, we reduced our sales
and marketing personnel in the second half of 2015 to better align our cost structure with our slower billings growth. Personnel
costs include an increase of $4.0 million in salaries and an increase of $3.6 million for stock-based compensation expense, offset
by a $4.0 million decrease in commissions and other payroll-related expenses. The stock-based compensation expense increase
was driven primarily by restricted stock unit grants and the ESPP. Professional fees increased by $895,000 due to recruiting fees
and contractors supporting our sales team in non-U.S. locations. Travel-related expense increased $494,000 as a result of
increased travel requirements of our larger sales team. Our third-party marketing-related expense increased $451,000 as we
invested in events, demand generation, public relations, marketing infrastructure, and various other programs to expand our
customer base and maintain and grow relationships with our existing customers.
General and administrative expense increased $13.6 million, or 61%, in 2015 compared to 2014, primarily due to
increases in personnel costs of $5.2 million and litigation and other professional fees expense of $7.7 million. Personnel costs
include an increase in stock-based compensation expense of $2.5 million. The stock-based compensation expense increase was
driven primarily by stock-settled bonus expense, restricted stock unit grants and the ESPP. Litigation and other professional fees
increased $7.7 million primarily as a result of our patent litigation trial in California in July 2015 and extensive pre-trial work in
other jurisdictions. We settled the global patent litigation with Good Technology in November 2015. The settlement included a
mutual dismissal of all claims and an immaterial license agreement. Facilities and infrastructure expense for our general and
administrative personnel increased by $681,000.
We recorded a $1.0 million restructuring charge in 2015 as part of a workforce reduction. The workforce reduction was
designed to reduce our cost structure and align our spending with our billings growth rate.
We recorded no amortization of intangible assets in operating expenses in 2015 compared to $782,000 in 2014 as our
noncompete covenants intangible asset became fully amortized in 2014.
Other
(Income)
Expense—Net
(in thousands,
except percentages)
Other (income) expense—net
For
the
year
ended
December
31,
Change
2016
vs
2015
2015
vs
2014
2016
2015
2014
$
(145) $
274 $
Amount % Amount %
(9)%
(153)% $
(419)
(28)
302 $
Other (income) expense—net was primarily comprised of interest income and gains or losses from foreign currency
transactions and the translation of foreign-denominated balances to the U.S. dollar. Interest income was $454,000 in 2016 and
$238,000 in 2015. We recorded foreign exchange losses of $339,000, $518,000 and $304,000 in 2016, 2015 and 2014,
respectively.
Income
Tax
Expense
(in thousands,
except percentages)
Income tax expense
For
the
year
ended
December
31,
2016
2015
2014
$
982 $
852 $
517 $
Change
2016
vs
2015
Amount %
130
2015
vs
2014
Amount %
335
15 % $
65 %
Income tax expense was $982,000, $852,000 and $517,000 in 2016, 2015 and 2014, respectively. 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, most significantly in India. We have a full valuation allowance on our deferred tax assets.
56
Table of Contents
Quarterly
Results
of
Operations
The following table sets forth our unaudited quarterly statements of operations data for the last eight fiscal quarters. The
information for each of these quarters has been prepared on the same basis as the audited annual financial statements included
elsewhere in this annual report and, in the opinion of management, includes all adjustments, which includes only normal recurring
adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction
with our audited consolidated financial statements and related notes included elsewhere in this annual report. These quarterly
operating results are not necessarily indicative of our operating results for any future period.
We do not believe that inflation had a material effect on our business, financial condition or results of operations in the
last three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset
such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results
of operations.
December
31,
2016
September
30,
2016
June
30,
2016
Three
Months
Ended
December
March
31,
31,
2015
2016
September
30,
2015
June
30,
2015
March
31,
2015
9,783 $ 10,368 $ 15,462 $
11,311 $
15,570
14,685
41,566
14,803
14,295
38,881
14,623
13,016
38,007
14,413
13,171
43,046
(in thousands, except share and per share
data)
Revenue
Perpetual license
Subscription
Software support and services
Total revenue
(1)
Cost of revenue
Perpetual license
Subscription
Software support and services
Restructuring charges
Total cost of revenue
(1)
Gross profit
Operating expenses
Research and development
Sales and marketing
General and administrative
Restructuring charges
(1)
(1)
(1)
Total operating expenses
Operating loss
Other (income) expense - net
Loss before income taxes
Income tax expense
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to compute
net loss per share, basic and diluted
$ 14,313 $
16,361
14,798
45,472
518
2,113
4,721
—
7,352
38,120
16,213
24,843
6,921
—
47,977
(9,857)
39
(9,896)
310
$ (10,206)
(0.12)
$
652
2,202
4,774
181
7,809
33,757
16,238
24,001
6,961
871
48,071
(14,314)
(19)
(14,295)
298
$ (14,593)
(0.17)
$
629
2,199
5,289
—
8,117
30,764
18,019
27,246
8,265
—
53,530
(22,766)
(30)
(22,736)
198
$ (22,934)
(0.27)
$
13,644 $ 12,347 $ 12,059
10,197
12,253
11,238
12,104
33,494
38,001
11,217
11,193
34,757
745
1,939
4,889
627
1,688
4,254
599
1,739
4,157
7,573
30,428
6,569
28,188
6,495
26,999
859
1,783
4,628
—
7,270
30,737
910
1,815
4,815
7,540
35,506
16,503
24,822
8,065
—
—
16,927
25,668
7,548
—
50,143
(19,406)
(135)
(19,271)
176
49,390
(13,884)
138
(14,022)
392
$ (19,447) $ (14,414)
(0.18)
$
(0.23) $
16,968
25,856
10,469
1,049
54,342
(23,914)
(2)
(23,912)
183
$ (24,095)
(0.30)
$
14,899
29,037
9,105
53,041
(24,853)
16
(24,869)
144
$ (25,013)
(0.32)
$
13,501
25,805
8,398
—
47,704
(20,705)
122
(20,827)
133
$ (20,960)
(0.27)
$
88,335
86,713
85,317
82,977
80,748
79,373
78,198
76,990
(1) Amounts include stock-based compensation expense as follows:
(in thousands)
Stock-Based
Compensation
Expense:
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
December
31,
2016
September
30,
2016
June
30,
2016
Three
Months
Ended
December
31,
2015
March
31,
2016
September
30,
2015
June
30,
2015
March
31,
2015
$
851 $
747 $
2,606
2,056
2,210
2,709
2,307
2,109
1,055 $
3,812
2,992
2,686
390 $
846 $
2,601
3,119
2,139
2,898
2,894
1,780
1,055 $
3,832
2,586
1,812
443 $
2,149
2,193
1,167
430
1,728
1,835
1,143
$
7,723 $
7,872 $ 10,545 $
8,249 $
8,418 $
9,285 $
5,952 $
5,136
57
Table of Contents
Seasonality
There are seasonal factors that may cause us to record higher revenue in some quarters compared to 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
revenue in our fourth quarter, which we believe corresponds to the fourth quarter of a majority of our customers.
Liquidity
and
Capital
Resources
(in thousands)
Cash and cash equivalents
Short term-investments
Long-term investments
Total cash, cash equivalents and investments
2016
As
of
December
31,
2015
54,043
36,184
—
90,227
$
$
47,234
49,576
2,094
98,904
$
$
$
$
2014
104,287
13,869
22,220
140,376
(in thousands, except percentages)
Net cash used in operating activities
Net cash provided by (used in)
investing activities
Net cash provided by financing
activities
For
the
year
Ended
December
31,
2016
2015
$ (11,729) $ (48,535) $ (36,569)
2014
Change
2016
vs
2015
Amount %
(76)%
$ 36,806
2015
vs
2014
Amount
$ (11,966)
%
33 %
$ 12,567 $ (19,679) $ (39,873)
$ 32,246
(164)%
$ 20,194
(51)%
$
5,971 $ 11,161 $ 107,156
$ (5,190)
(47)%
$ (95,995)
(90)%
At December 31, 2016, we had cash and cash equivalents of $54.0 million, the significant majority of which are held in
the United States. At December 31, 2016, we had short-term investments of $36.2 million. In the twelve months ended December
31, 2016, we purchased $79.1 million of investment securities and received $94.6 million from maturities of investment
securities.
In the fourth quarter of 2014, we began to invest a portion of our IPO proceeds from cash and cash equivalents in fixed
income securities, including commercial paper, corporate debt securities and obligations of U.S. government agencies.
In addition, we have a revolving line of credit with a financial institution with potential borrowing capacity to $18.5
million that expires in August 2017. 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 1.25. As of December 31, 2016, we had no borrowings outstanding under
this revolving loan facility and we were in compliance with our loan covenants.
Prior to our IPO, we 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 may be adversely
affected.
58
Table of Contents
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 the 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. Cash used in operating activities was $11.7 million, $48.5 million and $36.6 million in
2016, 2015 and 2014, respectively.
In 2016, we used $11.7 million of cash in operating activities primarily as a result of the net loss incurred in the year.
While we increased our spending in research and development, we reduced spending in general and administrative and sales and
marketing compared to 2015 in an effort to align our expenses with our revenue. Our net loss decreased from $84.5 million in
2015 to $67.2 million in 2016 as we decreased our operating expenses 2% to $199.7 million and increased our cost of revenue 8%
to $30.5 million while increasing our revenue 10% to $163.9 million. The net loss included non-cash charges of $38.5 million,
primarily due to stock-based compensation and depreciation expense, compared to $32.9 million in 2015. Changes in operating
assets and liabilities, as sources of cash, consisted of an $18.2 million increase in deferred revenue that was partially offset by an
increase in accounts receivable of $1.2 million .
In 2015, we used $48.5 million of cash in operating activities primarily as a result of addition of headcount in research
and development, customer success, data center operations, investment in marketing programs, increase of our general and
administrative headcount and litigation legal expense. We incurred a net loss of $84.5 million in 2015 as we increased our
operating expenses 21% to $204.5 million and increased our cost of revenue 17% to $28.2 million. The net loss included non-cash
charges of $32.9 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 $15.7 million favorable increase
in deferred revenue that was partially offset by an increase in accounts receivable of $8.1 million, a $5.0 million unfavorable
change in accounts payable, accrued expenses and other long-term liabilities and an increase in other current and noncurrent
assets of $932,000.
In 2014, we used $36.6 million of cash in operating activities primarily as a result of our 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 teams. We incurred a net loss of $61.9 million in 2015 as we increased
our operating expenses 40% to $169.3 million and increased our cost of revenue 46% to $24.0 million. The net loss included non-
cash charges of $20.5 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 $13.4 million favorable increase
in deferred revenue and a $2.9 million favorable change in accounts payable, accrued expenses and other long-term liabilities that
were partially offset by increases in accounts receivable of $10.6 million and other current and noncurrent assets of $835,000.
Cash Provided by (Used in) Investing Activities
Our investing activities have consisted of purchases of property and equipment, a business and technology and other
assets. We expect to continue to make such purchases to support the growth of our business.
Cash provided by investing activities of $12.6 million in 2016 consisted of $94.6 million received from maturities of
investment securities that was partially offset by of our purchase of $79.1 million of short-term investments. In addition, we
purchased $2.9 million of property and equipment. We purchased equipment to expand, refresh and improve our infrastructure, to
support growth, and to outfit new office facilities.
Cash used in investing activities was $19.7 million and $39.9 million, in 2015 and 2014, respectively. In 2014, we
purchased $60.9 million of short and long-term investments, partially offset by $45.0 million received from maturities of
investment securities. In addition, we purchased $3.7 million of property and equipment. We purchased equipment to expand our
data centers and infrastructure to support growth and to outfit new office facilities. In 2014, we purchased $36.1 million of short
and long-term investments. In addition, we purchased $3.1 million of equipment and software and paid $650,000 to purchase
intellectual property. Property and equipment purchases were primarily to support our employee growth and expand our data
centers.
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Table of Contents
Cash Provided by Financing Activities
Our financing activities have consisted of proceeds from our IPO, the issuance of convertible preferred stock, the
exercise of stock options and ESPP, and borrowings and repayments under our revolving line of credit.
In 2016, our financing activities provided $6.0 million of cash. We received $4.3 million from employees who
participated in our ESPP and $1.6 million from the exercise of stock options.
In 2015, our financing activities provided $11.2 million of cash. We received $5.4 million from employees who
participated in our ESPP and $5.8 million from the exercise of stock options.
In 2014, our financing activities provided $107.2 million of cash. Cash from financing activities in 2014 included
proceeds from our IPO of $107.0 million, net of underwriting discounts and commissions, $2.0 million of proceeds from the
issuance of convertible preferred stock, $2.3 million from the exercise of stock options as well as $4.3 million of cash received
from employees related to our ESPP, partially offset by a net $4.3 million repayment of borrowings from our revolving line of
credit and $4.1 million in payments of IPO offering costs.
Contractual
Obligations
and
Commitments
The following table summarizes our contractual commitments and obligations as of December 31, 2016:
(In thousands)
Operating lease obligations
Purchase obligations
Total
Less
Than
1
year
More
Than
5
years
1-3
years 3-5
years
Total
$ 26,804 $ 5,778 $ 9,762 $ 7,385 $ 3,879
—
$ 29,835 $ 8,809 $ 9,762 $ 7,385 $ 3,879
3,031
3,031
—
—
We lease our office facilities under noncancelable operating lease agreements expiring between 2017 and 2023.
As of December 31, 2016, our net unrecognized tax benefits including interest and penalties were $5.3 million, $5.2
million of which are netted against deferred tax assets. At this time, we are unable to make a reasonably reliable estimate of the
timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the
above contractual obligation table.
Off-Balance-Sheet
Arrangements
Through December 31, 2016, we did not have any relationships with unconsolidated organizations or financial
partnerships, such as structured finance or special purpose entities that would have been 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.
Concentration
In 2016, AT&T accounted for approximately 16% of our revenue (including 1% as an end customer). In 2015, AT&T
accounted for approximately 17% of our revenue (including 1% as an end customer). Our agreements with this reseller were
made in the ordinary course of our business and may be terminated with or without cause by either party with advance notice.
Although we believe we would experience some short term disruption in the distribution of our products, subscriptions and
services if these agreements were terminated, we believe such termination would not have a material adverse effect on our
financial results and alternative resellers and other channel partners exist to deliver our products to our end customers.
60
Table of Contents
Critical
Accounting
Policies
and
Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates
and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material
differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumption and judgments that we believe have the most significant
impact on our consolidated financial statements as described below. Our senior management has discussed the development,
selection and disclosure of these estimates, assumptions and judgments with our audit committee. For further information on all
of our significant accounting policies, see Note 1 entitled “Description of Business and Significant Accounting Policies” in Part
II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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 consider following to be key accounting policy elections and estimates in our revenue recognition:
(i)
Determining VSOE of fair value and best estimate of selling price, or BESP, of fair value used to allocate revenue
between the elements of multiple elements arrangements requires significant judgment. 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 a
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. Because we did not achieve pricing consistency for our products, including product subscription and
cloud-based services, we use the residual method to allocate revenue in multiple element arrangement within
scope of ASC 985-605 Software Revenue Recognition and BESP to allocate the revenue in multiple element
arrangement within scope of ASC 605 Revenue recognition ;
(ii)
Determining whether collection of customer receivables is probable may require significant judgment. We assess
collection on customer-by-customer and deal-by-deal basis and assess such factors as history of payments,
financial condition, and payment terms;
(iii) Generally, sales made through resellers are fulfilled to the end customer and processed in the same period.
Inventory of the licenses held by the resellers was immaterial for all periods presented;
(iv) We consider our resellers our customers and recognize revenue based on the price charged to resellers; and
(v)
Sales commissions and other incremental costs to acquire contracts are expensed as incurred and are recorded in
sales and marketing expense.
61
Table of Contents
Goodwill and Intangible Assets with Indefinite Lives
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 evaluated our goodwill for impairment in 2016 and 2015 and observed no impairment
indicators.
We also review our indefinite lived intangible assets for impairment. We have determined that our intangible assets have
not been impaired in 2016.
Stock-Based Compensation
Stock-based compensation costs related to restricted stock and stock options granted to employees are measured at the date
of grant based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value, and the
resulting stock-based compensation expense, using the Black-Scholes option-pricing model. We recognize compensation costs for
awards with service and performance vesting conditions on an accelerated method under the graded vesting method over the
requisite service period of the award. For stock awards 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.
Key assumptions used in determining the fair value of our stock option grants are estimated as follows:
· Risk-Free
Interest
Rate.
We base the risk-free interest rate used in the Black-Scholes valuation model on the implied
yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options for each option
group.
· Expected
Term
. The expected term represents the period that our stock-based awards are expected to be outstanding.
We have opted to use the simplified method for estimating the expected term, which calculates the expected term as the
average time-to-vesting and the contractual life of the options.
· Volatility
. We determine the price volatility factor based on the historical volatilities of our peer group as we did not
have sufficient trading history for our common stock.
· Dividend
Yield
. The expected dividend assumption is based on our current expectations about our dividend policy. We
currently do not expect to issue any dividends.
· Forfeiture
Rate
. The forfeiture rate is calculated on expected employee turnover. We have applied the same forfeiture
rate to our entire employee population.
The fair value of the employee stock options was estimated using the following assumptions for the periods presented:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
2016
—
1.4% - 1.5%
Year
ended
December
31,
2015
—
1.6% - 1.8%
43% - 45%
5.5 - 6.1
2014
—
1.7% - 2.1%
48% - 56%
5.6 - 6.5
42%
6.1
62
Table of Contents
The fair value of the rights to acquire stock under our ESPP was estimated using the following assumptions for the periods
presented:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
2016
0.5% - 0.7%
34% - 41%
0.5 - 2.0
Year
ended
December
31,
2015
—
0.1% - 0.7%
34% - 35%
0.5 - 2.0
2014
—
0.1% - 0.5%
47% - 49%
0.7 - 2.2
We estimate the fair value of the rights to acquire stock under our ESPP using the Black-Scholes option pricing formula.
Our ESPP typically provides for consecutive 24 month offering periods, consisting of four tranches. We recognize compensation
expense on an accelerated-graded basis over the employee’s requisite service period. We account for the fair value of restricted
stock units, or RSUs, using the closing market price of our common stock on the date of grant. RSUs typically vest ratably on a
quarterly basis over one to four years.
Stock-based compensation expense associated with our stock-settled bonus program is recognized on a straight-line basis
over the required service period and the expense is evaluated each quarter based on our company’s performance relative to the
metrics that determine the bonus pool.
In 2016, 2015 and 2014, stock-based compensation expense was $34.4 million, $28.8 million and $16.6 million,
respectively. As of December 31, 2016, we had approximately $41.2 million of total unrecognized stock-based compensation
expense, net of related forfeiture estimates.
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 currently have a full valuation allowance against our U.S. net deferred tax assets of $117.8 million as of December 31,
2016. We continue to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions.
When evidence indicating that it becomes more likely than not that the tax asset may be utilized, the allowance will be released.
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 8, “Financial Statements and Supplementary
Data” of Part II of this Annual Report on Form 10-K.
Item
7
A.
Quantitative
and
Qualitative
Disclosures
about
Market
Risk
Foreign
Currency
Exchange
Risk
Our sales contracts are currently primarily denominated in U.S. dollars. A portion of our operating expenses are incurred
outside the United States and are denominated in foreign currencies and are subject to fluctuations due to changes in foreign
currency exchange rates, particularly changes in the British Pound, Indian Rupee and Euro. In 2015 and 2016, our operating
expenses benefitted from the increase in the value of the U.S. dollar versus the Euro and other foreign currencies. If, in 2017 or
future years, the U.S. dollar declines in value versus the Euro, British Pound, Indian Rupee or other currencies, our operating
expenses will increase. Approximately 18% of our 2016 expenses were denominated in foreign currencies. The effect of a
hypothetical 10% change in foreign currency exchange rates applicable to our business would have a material impact on our
consolidated financial statements. To date, we have not engaged in any hedging strategies. As our international operations grow
or if we more frequently enter into sales
63
Table of Contents
contracts denominated in foreign currencies, we will reassess our approach to managing our risk related to fluctuations in
currency rates.
Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in
our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial
statements.
Interest
Rate
Risk
We had cash, cash equivalents and fixed income investments of $90.2 million and $98.9 million as of December 31,
2016 and 2015, respectively, consisting of bank deposits, money market funds, corporate debt securities, commercial paper and
securities and obligations of U.S. government agencies.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial
instruments to manage our interest rate risk exposure. By policy, we limit the amount of credit exposure to any one issuer and our
investments are held with capital preservation as the primary objective.
Our cash equivalents and investments are subject to market risk due to changes in interest rates.
Due to increases in interest rates, we may suffer losses in principal if we are forced to sell securities that decline in
market value due to changes in interest rates. However, because we classify our investments as “held-to-maturity”, no gains or
losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in value are
determined to be other-than-temporary. We believe that we do not have any material exposure to changes in the fair value of our
investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment
income, if any. For instance the effect of a hypothetical 50 basis point increase or decrease in interest rates would result in a
change of approximately $180,000 to our annual interest income.
64
Table of Contents
Item
8.
Financial
Statements
and
Supplementary
Data
The Selected Financial Data information contained in Item 6 of Part II hereof is hereby incorporated by reference into
this Item 8 of Part II of this Form 10-K.
MobileIron,
Inc.
Index
to
Consolidated
Financial
Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
65
Page
No.
66
67
68
69
70
71
Table of Contents
Report
of
Independent
Registered
Public
Accounting
Fir
m
Board of Directors and Stockholders of MobileIron, Inc.
Mountain View, California
We have audited the accompanying consolidated balance sheets of MobileIron, Inc. and subsidiaries (the “Company”) as of
December 31, 2016 and 2015, and the related consolidated statements of operations, convertible preferred stock and stockholders’
equity (deficit), and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
MobileIron, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
San Jose, California
February 14, 2017
66
Table of Contents
MOBILEIRON,
INC.
CONSOLIDATED
BALANCE
SHEETS
(In
thousands,
except
share
and
per
share
data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $433 and $628 at
December 31, 2016 and December 31, 2015, respectively
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
Long-term investments
Property and equipment—net
Intangible assets—net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES
AND
STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue-current
TOTAL CURRENT LIABILITIES
Long-term liabilities:
Deferred revenue-noncurrent
Other long-term liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 13)
Stockholders’ equity:
December
31,
2016
2015
$
$
54,043 $
36,184
43,755
6,131
140,113
—
5,503
645
5,475
1,370
153,106 $
$
701 $
21,674
68,153
90,528
19,923
1,838
112,289
47,234
49,576
42,674
4,809
144,293
2,094
6,572
1,261
5,475
1,419
161,114
2,551
19,196
55,978
77,725
13,897
1,353
92,975
Common stock, $0.0001 par value, 300,000,000 shares authorized, 89,066,031 shares
and 81,326,237 shares issued and outstanding at December 31, 2016 and
December 31, 2015, respectively
Additional paid-in capital
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
9
383,193
(342,385)
40,817
153,106 $
8
343,336
(275,205)
68,139
161,114
See accompanying notes to the consolidated financial statements
67
Table of Contents
MOBILEIRON,
INC.
CONSOLIDATED
STATEMENTS
OF
OPERATIONS
(In
thousands,
except
per
share
data)
Revenue
Perpetual license
Subscription
Software support and services
Total revenue
Cost of revenue
Perpetual license
Subscription
Software support and services
Restructuring charge
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Restructuring charge
Amortization of intangible assets
Total operating expenses
Year
ended
December
31,
2015
2016
2014
$
45,775 $
61,357
56,794
163,926
53,512 $
48,080
47,706
149,298
66,816
30,227
35,252
132,295
2,658
8,297
19,412
181
30,548
133,378
2,881
7,181
18,115
—
28,177
121,121
4,448
5,719
13,868
—
24,035
108,260
67,398
101,757
29,695
871
—
199,721
61,871
105,520
36,037
1,049
—
204,477
46,278
99,870
22,400
—
782
169,330
Operating loss
Other (income) expense - net
Loss before income taxes
Income tax expense
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to compute net loss per share, basic and diluted
(66,343)
(145)
(66,198)
982
(67,180)
(0.78)
85,845
$
$
(83,356)
274
(83,630)
852
(84,482) $
(1.07) $
78,755
(61,070)
302
(61,372)
517
(61,889)
(1.30)
47,517
$
$
See accompanying notes to the consolidated financial statements
68
Table of Contents
MOBILEIRON,
INC.
CONSOLIDATED
STATEMENTS
OF
STOCKHOLDERS
’
EQUITY
(DEFICIT)
(In
thousands,
except
share
and
per
share
data)
BALANCE—December 31, 2013
Issuance of common stock for stock option
exercises
Vesting of early exercised stock options
and restricted stock
Issuance of Series F preferred stock at
$9.9550 per share—net of issuance costs of
$6
Stock-based compensation
Conversion of preferred stock for initial
public offering
Issuance of common stock for initial public
offering, net of issuance costs of $4,076
Purchase of Averail Corporation
Net loss
BALANCE—December 31, 2014
Issuance of common stock for stock option
exercises, net of repurchases
Vesting of early exercised stock options
and restricted stock
Issuance of common stock for pursuant to
the Employee Stock Purchase Plan
Vesting of restricted stock units
Stock-based compensation
Net loss
BALANCE—December 31, 2015
Issuance of common stock for stock option
exercises, net of repurchases
Vesting of early exercised stock options
Issuance of common stock pursuant to the
Employee Stock Purchase Plan
Issuance of common stock pursuant to the
Employee Stock-Settled Bonus Plan
Vesting of restricted stock units
Stock-based compensation
Net loss
BALANCE—December 31, 2016
Convertible
Preferred
Stock
Shares
49,446,072
Amount
$
160,259 11,008,283
Shares
Common
Stock
Additional
Paid-in
Amount Capital
2 $
$
19,007
Total
Stockholders’
Equity
(Deficit)
$
(109,825)
Accumulated
Deficit
(128,834)
$
—
—
1,044,087
—
—
1,400,259
—
—
2,280
669
—
2,280
—
669
200,903
—
1,994
—
—
—
—
—
—
16,749
—
—
—
16,749
(49,646,975)
(162,253) 49,646,975
5
162,248
—
162,253
—
—
—
— $
— 12,777,777
—
276,463
—
— 76,153,844
—
$
1
—
—
102,874
1,982
8 $ 305,809
—
$
—
— 2,776,221
—
5,846
—
—
198,564
—
246
—
—
—
—
— $
—
—
—
—
— $
— 1,273,147
—
7,359
—
924,461
—
—
—
—
—
24,076
—
— 81,326,237
—
$
—
—
1,040,902
9,957
1,799,341
1,653,371
3,236,223
—
—
—
—
— 89,066,031 $
—
8
$ 343,336
—
$
—
—
—
1
—
—
—
2,468
43
4,851
5,638
—
26,857
—
9 $ 383,193 $
—
—
—
—
(61,889)
(190,723)
$
—
—
—
—
—
(84,482)
(275,205)
$
—
—
—
—
—
—
(67,180)
(342,385) $
102,875
1,982
(61,889)
115,094
5,846
246
7,359
—
24,076
(84,482)
68,139
2,468
43
4,851
5,639
—
26,857
(67,180)
40,817
See accompanying notes to the consolidated financial statements
69
Table of Contents
MOBILEIRON,
INC.
CONSOLIDATED
STATEMENTS
OF
CASH
FLOWS
(In
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Depreciation
Amortization of intangible assets
Amortization of premium (accretion) of investment securities
Provision for doubtful accounts
Loss on disposal of equipment
Changes in operating assets and liabilities:
Accounts receivable
Other current and noncurrent assets
Accounts payable
Accrued expenses and other long-term liabilities
Deferred revenue
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Proceeds from maturities of investment securities
Purchase of investment securities
Purchase of intellectual property
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount drawn from revolving line of credit
Repayments of revolving line of credit
Proceeds from the issuance of convertible preferred stock-net of cash issuance costs
Proceeds from initial public offering
Payment of offering costs related to initial public offering
Proceeds from Employee Stock Purchase Plan
Proceeds from exercise of stock options
Net cash provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of period
CASH AND CASH EQUIVALENTS—End of period
$
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES RELATED TO
ACQUISITIONS
$
1,021
Fair value of assets acquired
Liabilities assumed
Issuance of common stock
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Value of shares issued under the 2015 Non-Executive Bonus Plan
Value of shares issued under the Employee Stock Purchase Plan
Purchase of property and equipment recorded in accounts payable
Tenant improvement allowance recorded in property and equipment and liabilities
Offering costs recorded in accrued liabilities
$
$
$
$
$
$
$
$
—
—
—
5,639
4,851
—
—
—
See accompanying notes to the consolidated financial statements
70
Year
ended
December
31,
2015
2014
2016
$
(67,180)
$
(84,482) $
(61,889)
34,389
3,348
616
(14)
77
99
(1,158)
(447)
(1,297)
1,637
18,201
(11,729)
(2,930)
94,631
(79,134)
—
12,567
—
—
—
—
—
4,332
1,639
5,971
6,809
47,234
54,043
28,791
2,757
870
368
150
—
(8,148)
(932)
1,414
(5,024)
15,701
(48,535)
(3,730)
44,964
(60,913)
—
(19,679)
—
—
—
—
—
5,406
5,755
11,161
(57,053)
104,287
47,234 $
16,749
2,215
1,430
—
54
21
(10,605)
(835)
(12)
2,881
13,422
(36,569)
(3,119)
—
(36,104)
(650)
(39,873)
3,300
(7,600)
1,994
106,950
(4,076)
4,280
2,308
107,156
30,714
73,573
104,287
595 $
271
— $
— $
— $
— $
7,359 $
554 $
1,068 $
— $
2,276
(294)
(1,982)
—
—
—
—
27
$
$
$
$
$
$
$
$
$
$
Table of Contents
1.
Description
of
Busines
s
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 audited consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, or GAAP, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation.
Stock Split
In May 2014, we amended and restated our amended and restated certificate of incorporation to effect a seven-for-five
reverse stock split of our common stock and convertible preferred stock. On the effective date of the reverse stock split, (i) each
seven shares of outstanding convertible preferred stock and common stock was reduced to five shares of convertible preferred
stock and common stock, respectively; (ii) the number of shares of common stock issuable under each outstanding option to
purchase common stock was proportionately reduced on a seven-for-five basis; (iii) the exercise price of each outstanding option
to purchase common stock was proportionately increased on a seven-for-five basis; and (iv) corresponding adjustments in the per
share conversion prices, dividend rates and liquidation preferences of the convertible preferred stock were made. All of the share
and per share information referenced throughout this Annual Report on Form 10-K and notes to the consolidated financial
statements have been retroactively adjusted to reflect this reverse stock split.
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 $339,000, $518,000 and $304,000 in 2016,
2015 and 2014, respectively, in other (income) expense—net in our consolidated statements of operations.
Use of Estimates
The preparation of 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, goodwill, intangible assets and accounting for income taxes. Actual
results could differ from those estimates.
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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 $15.0 million, are held in 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. Activity in our allowance for doubtful accounts was as follow (in
thousands):
Balance as of December 31, 2016
Balance as of December 31, 2015
Balance as of December 31, 2014
Balance
at
Beginning
of
Period
Bad
Debt
Expense
Write-offs,
Net
of
Recoveries
Balance
at
End
of
Period
$
$
$
628
550
492
77
150
54
(272) $
(72) $
4 $
433
628
550
One reseller accounted for 16% (1% as an end customer), 17% (1% as an end customer) and 22% (2% as an end
customer) of total revenue in 2016, 2015 and 2014, respectively. The same reseller accounted for 15% and 14% of net accounts
receivable as of December 31, 2016 and 2015, 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.
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
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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. We recognized $1.8 million and
$5.2 million of perpetual license revenue in 2015 and 2014, respectively, from sales made prior to January 1, 2013. In 2016, we
recognized no significant revenue from 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
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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.
Historically, sales made through resellers were fulfilled directly to end users, and we recognized revenue when we
delivered licenses to end users and all other revenue recognition criteria were met. Over time, however, our business has evolved
and some of our operators, system integrators and other resellers have requested that we deliver licenses to them. In those
instances we recognize revenue at the time that we deliver to our resellers and all other revenue recognition criteria are met; such
resellers have no rights of return or exchange.
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
December 31, 2016 and 2015, cash and cash equivalents consisted 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. In 2016, 2015
and 2014, there were no differences between net loss and comprehensive loss. Therefore, the consolidated statements of
comprehensive loss have been omitted.
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, convertible preferred stock, unvested restricted stock, restricted stock units and stock options are considered to
be potentially dilutive securities. Because we have reported a net loss for 2016, 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.
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
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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 life of the property and equipment, 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.
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 years ended December 31, 2016, 2015
and 2014.
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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 in 2016, 2015
and 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 and for our Employee Stock
Purchase Plan, or ESPP, on an accelerated method over the requisite service period of the award. For stock options 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 in
2016, 2015 and 2014 was $305,000, $256,000 and $526,000, respectively.
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 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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-13, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments, which introduces a
model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for
available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the
amortized cost of the securities. The standard is effective for annual reporting
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periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December
15, 2018. Entities will apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We are
evaluating the impact of the adoption on our consolidated balance sheet, results of operations, cash flows and disclosures.
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. As clarified by the FASB on July 9, 2015, provisions of this new
standard are effective for annual reporting periods (including interim reporting periods within those annual periods) beginning
after December 15, 2017. Early adoption is permitted for annual reporting periods (including interim reporting periods within
those annual periods) beginning after December 15, 2016. Entities have the option of using either a full retrospective or a
modified retrospective approach to adopt this new guidance. We currently plan to adopt the new standard effective January 1,
2018. We anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing
to assess all potential impacts of the standard, we believe the most significant impact relates to our accounting for subscriptions to
our on-premise licenses, specifically, as under the new standard we expect to recognize revenue from those subscriptions
predominantly at the time of billing rather than ratably over the license term. In addition, we expect accounting for commissions
to be impacted significantly as we will capitalize and amortize most commissions under the new standard instead of expensing
commissions as incurred. Due to the complexity of certain of our contracts, the revenue recognition treatment required under the
new standard will be dependent on contract-specific terms.
In February 2016, the FASB finalized the Accounting Standard Update, or ASU, 2016-02, “Leases”. ASU 2016-02
requires lessees to recognize the assets and liabilities on the balance sheet for the rights and obligations created by most leases
(leases with the term of 12 months or longer) and continue to recognize expenses on the income statements over the lease term. It
will also require disclosure designed to give financial statement users information on the amount, timing, and uncertainly of cash
flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim
periods within those fiscal years. As a result of this new standard, we expect to record a lease commitment liability and
corresponding asset for most of our leases. We will adopt ASU 2016-02 effective January 1, 2019.
In March 2016, the FASB issued new Accounting Standard Update, or ASU, 2016-09, “Improvements to Employee
Share-Based Payment Accounting”. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment
transactions including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in
the statement of cash flows. Under the new standard, excess tax benefits and tax deficiencies are to be recognized as income tax
expense or benefit in the income statement and the excess tax benefits and tax deficiencies are considered discrete items in the
reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate. Excess tax benefits will be
classified along with other cash flows related to income taxes as an operating activity. The ASU allows an entity to elect as an
accounting policy either to continue to estimate the total number of awards that are expected to vest or account for forfeitures
when they occur. The ASU modifies the current exception to liability classification of an award when an employer uses a net-
settlement feature to withhold shares to meet the employer’s minimum statutory tax withholding requirement. The guidance is
effective for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. We will
adopt all relevant provisions of this update in the first quarter of fiscal 2017. We do not expect, that adoption of this update will
have a significant effect on our consolidated balance sheet, results of operations, cash flows or statement of shareholders equity
because we have a full valuation allowance on our deferred tax assets but it will have an impact on our disclosures. As part of this
adoption, we will make an accounting policy election to continue to estimate the total number of awards that are expected to vest.
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2.
Significant
Balance
Sheet
Components
Property
and
Equipment
—Property and equipment at December 31, 2016 and 2015 consisted of the following (in
thousands):
Computers and appliances
Purchased software
Furniture and fixtures
Leasehold improvements
Total property and equipment
Accumulated depreciation and amortization
Total property and equipment—net
As
of
December
31,
2016
2015
$
$
9,754 $
2,297
1,477
2,985
16,513
(11,010)
5,503 $
7,908
2,220
1,338
2,887
14,353
(7,781)
6,572
Accrued
Expenses
—Accrued expenses at December 31, 2016 and 2015 consisted of the following (in thousands):
Accrued commissions
Accrued stock-settled bonus
Accrued vacation
Employee Stock Purchase Plan liability
Other accrued payroll-related expenses
Other accrued liabilities
Total accrued expenses
As
of
December
31,
2016
2015
$
$
5,908 $
6,608
611
1,811
3,085
3,651
21,674 $
4,181
4,714
512
2,329
2,483
4,977
19,196
Deferred
Revenue
—Current and noncurrent deferred revenue at December 31, 2016 and 2015 consisted of the
following (in thousands):
Perpetual license
Subscription
Software support
Professional services
Total current and noncurrent deferred revenue
3.
Fair
Value
Measurement
As
of
December
31,
2016
2015
404 $
35,495
50,117
2,060
88,076 $
400
25,013
42,254
2,208
69,875
$
$
With the exception of our held-to-maturity fixed income investments, we report 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
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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 December 31, 2016 or 2015.
Our financial instruments measured at fair market value as of December 31, 2016 and 2015 were as follows:
(in thousands)
Money market funds
Corporate debt securities
Commercial paper
Total
(in thousands)
Money market funds
Corporate debt securities
Commercial paper
Securities and obligations of U.S. government agencies
Total
4.
Investments
As
of
December
31,
2016
Level
1
Level
2
Level
3
Total
15,003 $
—
—
15,003 $
— $
10,738
47,479
58,217 $
— $
—
—
— $
15,003
10,738
47,479
73,220
Level
1
As
of
December
31,
2015
Level
3
Level
2
18,850 $
—
—
—
18,850 $
— $
28,520
24,187
12,426
65,133 $
— $
—
—
—
— $
Total
18,850
28,520
24,187
12,426
83,983
$
$
$
$
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 December 31, 2016 and 2015 were as follows:
As
of
December
31,
2016
(in thousands)
Corporate debt securities
Commercial paper
Total
79
Amortized
cost
$ 10,740 $
47,473
$ 58,213 $
Gains
Losses
Fair
Value
— $
8
8 $
(2) $ 10,738
47,479
(2)
(4) $ 58,217
Table of Contents
(in thousands)
Corporate debt securities
Commercial paper
Securities and obligations of U.S. government agencies
Total
Amortized
cost
$ 28,549 $
24,187
12,431
$ 65,167 $
As
of
December
31,
2015
Gains
Losses
Fair
Value
1 $
1
—
2 $
(30) $ 28,520
24,187
(1)
(5)
12,426
(36) $ 65,133
The following table summarizes the balance sheet classification of our investments:
(in thousands)
Cash equivalents
Short-term investments
Long-term investments
Total investments
As
of
December
31,
2016
2015
$
$
22,029 $
36,184
—
58,213 $
13,499
49,574
2,094
65,167
The gross amortized cost and estimated fair value of our held-to-maturity investments at December 31, 2016 and 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.
(in thousands)
Due in one year or less
Due after one year through five years
Total
As
of
December
31,
2016
2015
Gross
Amortized
Cost
Fair
Value
Gross
Amortized
Cost
Fair
Value
$ 58,213 $ 58,217 $ 63,073 $ 63,040
2,093
—
$ 58,213 $ 58,217 $ 65,167 $ 65,133
2,094
—
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 2016, we had an insignificant amount of unrealized gains or losses, and we did not
recognize any other-than-temporary impairments .
5.
Acquisitions
In November 2014, we purchased developed technology for $650,000 to enhance our product portfolio, which we
capitalized in intangible assets—net on the accompanying balance sheet and expect to amortize on a straight-line basis over its
estimated useful life of three years.
In April 2014, we completed the acquisition of certain assets of Averail Corporation, or Averail, a privately-held content
security-oriented software company, for 276,463 shares of common stock and the assumption of certain liabilities. The assets
acquired will provide additional features in our Docs@Work product. Included in the total, 43,612 shares subject to a holdback
provision for standard representations and warranties were released in October 2015. The aggregate purchase price of the
transaction was approximately $2.0 million, net of liabilities assumed. In connection with this acquisition, 103,231 of these shares
were distributed to entities affiliated with Storm Ventures, and 103,232 of these shares were issued to entities affiliated with
Foundation Capital, subject to certain holdback provisions. The Storm Ventures entities and the Foundation Capital entities each
collectively hold more than 5% of our capital stock. In addition, Tae Hea Nahm, an affiliate of Storm Ventures, serves on our
board of directors and was a director of Averail prior to its acquisition. The aggregate value of the securities issued to our
investors was approximately $1.5 million.
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The total consideration for this transaction was approximately $2.0 million and consisted of the following (in thousands
except share data):
Common stock issued (232,854 shares)
Holdback common stock (43,612 shares)
Total consideration
$
$
1,670
312
1,982
Transaction costs associated with the acquisition were $167,000, all of which we expensed in 2014, and are included in
general and administrative expense in the accompanying consolidated statements of operations .
We accounted for the Averail acquisition as a business combination. The assets acquired and liabilities assumed were
recorded at fair market value. The excess of the purchase price over the fair value of the net tangible and identifiable intangible
assets acquired was recorded as goodwill. The goodwill generated from this business combination was primarily related to value
placed on the employee workforce and expected synergies. Goodwill for all acquisitions is not amortized and is not deductible for
tax purposes.
The purchase price was allocated as follows (in thousands):
Technology – intangible asset
Goodwill
Liabilities assumed
Net assets acquired
$
$
1,600
676
(294)
1,982
The technology intangible asset is being amortized on a straight-line basis over a period of four years and is reported, net
of accumulated amortization, in the accompanying consolidated balance sheets as of December 31, 2016 and 2015. Amortization
expense related to the intangible asset was $400,000 in each of 2016 and 2015 and $300,000 in 2014, and was included in cost of
revenue.
The amount of revenue and earnings from the acquisitions are included in the condensed consolidated statements of
operations and pro forma results of operations for the acquisition have not been presented because the effect of the acquisition
was not significant to our financial results.
6.
Goodwill
and
Intangibles
The following table reflects intangible assets subject to amortization as of December 31, 2016 and 2015 (in thousands):
Technology
Total
Technology
Total
Gross
Carrying
Accumulated
December
31,
2016
Amount
Amortization
(2,435)
(2,435) $
3,080 $
3,080 $
$
$
Impairment
Net
Book
Value
645
645
— $
— $
Gross
Carrying
Accumulated
December
31,
2015
Amount
Amortization
(1,819)
(1,819) $
3,080 $
3,080 $
$
$
Impairment
Net
Book
Value
— $ 1,261
— $ 1,261
Amortization of the technology intangible assets was recorded in cost of revenue.
The weighted average remaining life of our intangible assets on December 31, 2016 was 1.1 years.
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Estimated remaining intangible assets amortization expense for their remaining lives as follows (in thousands):
Year
2017
2018
2019
Total
545
100
—
$ 645
At December 31, 2016, 2015 and 2014, the carrying value of goodwill was $5.5 million.
7.
Restructuring
Charges
We initiated business restructuring plans in 2015 and 2016 to reduce our cost structure through workforce reductions. These
restructuring activities were substantially complete as of December 31, 2016.
The following table sets forth a summary of restructuring activities which took place during the years ended December 31,
2016 and 2015 (in thousands):
Balance, December 31, 2014
Provision for restructuring charges
Cash payments
Balance, December 31, 2015
Provision for restructuring charges
Cash payments
Balance, December 31, 2016
Severance
and
Related
Costs
—
$
1,049
(1,049)
—
1,052
(1,037)
15
$
$
The remaining restructuring balance as of December 31, 2016 relates to employee severance, which we expect to pay by
March 31, 2017.
8.
Line
of
Credit
We have a $20.0 million revolving line of credit with a financial institution that 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 prime rate. 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
covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, and the borrowing
capacity is limited to eligible accounts receivable. 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 1.25.
In 2014, we withdrew $3.3 million and repaid $7.6 million under our line of credit. There were no outstanding amounts
under the line of credit at December 31, 2016 and 2015.
In May 2015, we issued a letter of credit for $1.5 million as a security deposit for a new Mountain View facility lease
thereby reducing the borrowing capacity under our line of credit to $18.5 million.
In July 2015, we amended our revolving line of credit and extended its maturity date to August 2017.
There were no other outstanding amounts under the line of credit at December 31, 2016 and 2015, we were in
compliance with all financial covenants.
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9.
Preferred
Stock
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
December 31, 2016.
In January 2014, we issued 200,903 shares of Series F for net cash proceeds of $2.0 million.
The following table summarizes information regarding our convertible preferred stock by class immediately prior to the
IPO (in thousands, except share and per share data):
Series A
Series B
Series C
Series D
Series E
Series F
Total
10.
Common
Stock
Shares
Authorized
Outstanding
18,604,666
16,225,758
13,281,250
6,550,505
6,429,159
8,414,493
69,505,831
13,289,037
11,589,825
9,486,602
4,678,927
4,592,244
6,010,340
49,646,975
Per
share
liquidation
preference
$
0.70
0.95
1.79
4.27
9.96
9.96
$
$
Aggregate
liquidation
preference
Carrying
value
9,302
10,977
17,000
20,000
45,716
59,833
162,828
$
$
9,222
10,929
16,860
19,945
45,596
59,701
162,253
We were authorized to issue 300,000,000 shares of common stock with a par value of $0.0001 per share as of December
31, 2016 and 2015. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive
dividends from funds available, 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 December 31, 2016 and 2015, we reserved shares of common stock for issuance as follows:
Options outstanding
Unvested restricted stock units outstanding
Unvested early exercised stock options
Shares available for grant under the 2014 Equity Incentive Plan
Shares available for purchase under the Employee Stock Purchase Plan
Total
11.
Share
Based
Awards
2008 Plan
As
of
December
31,
2016
9,835,992
10,474,975
2,471
4,199,415
575,974
2015
11,498,747
7,832,962
12,428
6,672,236
1,561,929
25,088,827 27,578,302
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.
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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.
The number of shares of our common stock reserved for issuance under our 2014 Plan 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, 2016, we increased the number of shares of common stock reserved for
issuance under our 2014 Plan by 4,066,933 shares, which was 5% of the total number of capital stock outstanding at December
31, 2015.
Amended and Restated 2015 Inducement Plan
On December 20, 2015, our board of directors adopted our Amended and Restated 2015 Inducement Plan, or the
Inducement Plan, to reserve 1,600,000 shares of our common stock to be used exclusively for grants of awards to individuals that
were not previously employees or directors of the Company. The terms and conditions of the Plan are substantially similar to our
stockholder-approved 2014 Plan. On January 5, 2016 our board of directors approved the amendment and restatement of the
Inducement Plan to increase the share reserve under the Inducement Plan to 1,970,000 shares of our common stock. As of
December 31, 2016 there were 1,970,000 options and restricted stock units outstanding under the Inducement Plan.
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.
As of December 31, 2016 and 2015 , approximately 575,974 and 1,561,929 shares of common stock were available for
future issuance under our ESPP, respectively. The number of shares of our common stock reserved for issuance under our ESPP
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
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having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2016, we
increased the number of shares available for issuance under the ESPP by 813,386 shares, which was 1% of the total number of
capital stock outstanding at December 31, 2015.
Restricted Stock and Restricted Stock Units
Restricted stock activity in 2014 and 2015 was as follows:
Unvested, December 31, 2013
Granted
Vested
Cancelled/Forfeited
Unvested, December 31, 2014
Granted
Vested
Cancelled/Forfeited
Unvested, December 31, 2015
Time
-
based
shares
Restricted
Stock
Time
-
and
-
performance
based
shares
886,718
16,294
(491,313)
(350,440)
61,259
—
(41,137)
(20,122)
—
1,031,902
—
(586,204)
(413,152)
32,546
—
(32,546)
—
—
Total
shares
1,918,620
16,294
(1,077,517)
(763,592)
93,805
—
(73,683)
(20,122)
—
No restricted stock was granted, vested or cancelled/forfeited in 2016.
For stock-based compensation expense, we measured the value of the restricted stock based on the fair value of our
common stock on the date of grant. Our restricted stock grants were subject to service only or service and performance-based
vesting conditions. We expensed 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 restricted stock subject to service and performance conditions, we evaluated the probability of meeting the vesting
conditions at the end of each reporting period to determine how much compensation expense to record. We amortized 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 differed from our original estimates, the cumulative effect on
current and prior periods of those changes was recorded in the period those estimates were revised.
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.
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Our restricted stock unit activity for 2014, 2015 and 2016 was as follows:
Restricted
Stock
Units
Unvested, December 31, 2013
Granted
Vested
Cancelled/Forfeited
Unvested, December 31, 2014
Granted
Vested
Cancelled/Forfeitures
Unvested, December 31, 2015
Granted
Vested
Cancelled/Forfeitures
Unvested, December 31, 2016
Bonus Plans
Number
of
Shares
Weighted-
Average
Grant
Date
Fair
Value
—
9.45
—
9.18
9.45
6.92
8.36
8.06
6.66
3.36
4.99
5.39
4.45
— $
480,456
—
(1,667)
478,789 $
9,932,561
(924,461)
(1,653,927)
7,832,962 $
10,724,225
(4,889,594)
(3,192,618)
10,474,975 $
In 2015, our board of directors approved the 2015 Executive Bonus Plan and 2015 Non-Executive Bonus Plan, or 2015
Bonus Plan, which provided for the issuance of shares of unrestricted common stock to employees based on meeting certain
Company metrics.
We issued 1,653,371 shares of unrestricted common stock in the first quarter of 2016 based on amounts earned under the
2015 Non-Executive Bonus Plan. No shares were issued under the 2015 Executive Bonus Plan. Shares issued from the 2015 Non-
Executive Bonus Plan reduced the 2014 Plan shares available for issuance.
In May 2016, our compensation committee approved the 2016 Executive Bonus Plan and 2016 Non-Executive Bonus
Plan, or 2016 Bonus Plans, each effective as of January 1, 2016.
We recorded stock-based compensation expense related to the 2015 and 2016 Bonus Plans over the service period of
eligible employees based on forecasted performance relative to the Company metrics. To the extent that updated estimates of
bonus expense differed from original estimates, the cumulative effect on current and prior periods of those changes was recorded
in the period those estimates were revised.
In 2015 we recorded $4.7 million of stock-based compensation expense under the 2015 Non-Executive Bonus Plan. In
2016 we recorded $6.6 million of stock-based compensation expense under the 2016 Bonus Plans and $923,000 under the 2015
Non-Executive Bonus Plan.
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Stock Options
Stock option activity under the 2008 Plan, 2014 Plan and the Inducement Plan in 2014, 2015 and 2016 was as follows:
Number
of
Shares
Available
Number
of
Weighted-
Average
Weighted-
Average
Remaining
Contractual
Aggregate
Intrinsic
Value
Options
Outstanding
Balance—December
31,
2013
Authorized
Stock options granted
Restricted stock units granted
Exercised (1)
Stock options canceled
Restricted stock units canceled
Repurchased
Balance—December
31,
2014
Authorized
Stock options granted
Restricted stock units granted
Exercised
Stock options canceled
Restricted stock units canceled
Repurchased
Balance—December
31,
2015
Authorized
Stock options granted
Issuance of shares under 2016 Bonus Plans
Restricted stock units granted
Exercised
Stock options canceled
Restricted stock units canceled
Balance—December
31,
2016
Vested and exercisable—
December 31, 2016
Vested and expected to vest(2)—
December 31, 2016
for
Issuance
Shares
2,085,338 13,330,882 $
—
Exercise
Price Term
(Years) (In
thousands)
38,339
8.38 $
2.90
—
9,913,915
(5,373,131)
(480,456)
1,178,737
1,667
66,088
7,392,158
5,418,242
(1,089,100)
(9,932,561)
9,019
3,208,006
1,653,927
12,545
6,672,236
4,436,933
(1,316,200)
(1,653,371)
(9,070,854)
—
1,938,053
3,192,618
4,199,415
5,373,131
—
(1,089,708)
(1,178,737)
16,435,568
—
—
$
—
1,089,100
—
(2,817,915)
(3,208,006)
—
—
$
11,498,747
—
1,316,200
—
—
(1,040,902)
(1,938,053)
—
9,835,992
7,023,833
9,497,378
$
$
$
6.97
2.27
4.55
4.15
6.95
2.12
5.61
4.51
3.36
2.37
5.46
4.39
4.08
4.37
7.83
$
95,791
6.86
$
6,256
6.23
$
$
$
5,734
5,210
5,657
(1)
Includes early exercises of 42,772 in 2014. In 2015 or 2016 no shares of common stock were issued for the exercise of
common stock options prior to their vesting dates, or early exercises.
(2) Options expected to vest are net of an estimated forfeiture rate.
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Additional information regarding options outstanding at December 31, 2016 is as follows :
Options
Outstanding
Weighted-
Average
Options
Exercisable
Range
of
exercises
$0.04 — $2.90
$3.08 — $3.70
$3.77 — $5.77
$6.20 — $10.80
$12.05 — $12.05
Outstanding
at
December
31,
2016
Remaining Weighted-
Average
Number
of
Term
(Years) Exercise
Price Shares
Weighted-
Average
Exercise
Price
Number
of Contractual
Shares
2,000,481
2,883,203
2,868,971
2,027,512
55,825
9,835,992
4.08 $
7.14
5.96
7.26
7.67
6.23 $
1.19
3.54
4.98
7.73
12.05
4.39
2,000,481 $
1,618,203
2,106,222
1,266,344
32,583
7,023,833 $
1.19
3.70
4.88
7.58
12.05
4.08
The aggregate pretax intrinsic value of vested options exercised in 2016, 2015 and 2014 was $1.4 million, $11.8 million
and $5.4 million, respectively. The intrinsic value is the difference between the estimated fair value of the Company’s common
stock at the date of exercise and the exercise price for in-the-money options. The weighted-average grant-date fair value of
options granted in 2016, 2015 and 2014 was $1.42, $3.04 and $4.09 per share, respectively.
Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):
Year
Ended
December
31,
Contra-revenue
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
Determining Fair Value of Stock Options
2016
2015
— $
$
— $
3,043
2,774
10,607
9,508
5,902
$ 34,389 $ 28,791
11,728
10,474
9,144
2014
123
1,353
5,980
5,930
3,363
16,749
The fair value of each grant of stock options was determined by us using the methods and assumptions discussed below.
Each of these inputs is subjective and generally requires significant judgment to determine.
Expected Term— The expected term of stock options represents the weighted-average period the stock options are expected
to be outstanding. For option grants that are considered to be “plain vanilla”, we have opted to use the simplified method
for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method
calculates the expected term as the average of time-to-vesting and the contractual life of the options.
Expected Volatility— The expected stock price volatility assumption was determined by examining the historical volatilities
of a group of industry peers, as we do not have a significant trading history for our common stock. We will continue to
analyze our historical stock price volatility and expected term assumptions as more historical data for our common stock
becomes available.
Risk-Free Interest Rate— The risk free rate assumption was based on the U.S. Treasury instruments with terms that were
consistent with the expected term of our stock options.
Expected Dividend— The expected dividend assumption was based on our history and expectation of dividend payouts.
Forfeiture Rate— Forfeitures were estimated based on historical experience.
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Fair Value of Common Stock— Prior to the IPO, the fair value of the shares of common stock underlying the stock options
was historically been the responsibility of and determined by our board of directors. Because there was no public market for
our common stock, the board of directors determined fair value of common stock at the time of grant of the option by
considering a number of objective and subjective factors including independent third-party valuations of our common stock,
sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of
capital stock and general and industry specific economic outlook, amongst other factors. Following the closing of the IPO
offering, the fair value of our common stock is determined based on the closing price of our common stock on the
NASDAQ Global Select Market.
We used the Black-Scholes Model to estimate the fair value of our stock options granted to employees with the
following weighted-average assumptions:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
Year
ended
December
31,
2016
—
2015
—
1.4% - 1.5% 1.6% - 1.8%
43% - 45%
2014
—
1.7% - 2.1%
48% - 56%
5.5 - 6.1
5.6 - 6.5
42%
6.1
We used the Black-Scholes model to estimate the fair value of our Employee Stock Purchase Plan awards with the
following assumptions:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
Year
ended
December
31,
2016
—
0.5% - 0.7%
34% - 41%
0.5 - 2.0
2015
—
0.1% - 0.7%
34% - 35%
0.5 - 2.0
2014
—
0.1% - 0.5%
47% - 49%
0.7 - 2.2
As required by Topic 718 Compensation—Stock Compensation, we estimate expected forfeitures and recognize
compensation costs only for those equity awards expected to vest. Our stock options granted are typically granted with vesting
terms of 48 months.
The following table summarizes our unrecognized stock-based compensation expense as of December 31, 2016 net of
estimated forfeitures:
Stock options
Restricted stock units
ESPP
Total
Early Exercise of Common Stock
Unrecognized
Stock-based
Compensation
Expense
(in
millions)
$
$
4.6
35.3
1.3
41.2
Remaining
Weighted-Average
Recognition
Period
(in
years)
2.2
2.9
0.6
In 2014 we issued 42,772 shares of common stock for the exercise of common stock options prior to their vesting dates,
or early exercises. In 2015 or 2016 no shares of common stock were issued for the exercise of common stock options prior to their
vesting dates, or early exercises. Cash received from all such early exercises 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.
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As of December 31, 2016 and 2015 there were 2,471 and 12,428 shares, respectively, legally outstanding, but not
included within common stock outstanding for accounting purposes as a result of the exercise of common stock options which
were not yet vested.
As of December 31, 2015, the aggregate price of shares subject to repurchase recorded in accrued expenses totaled
$48,000. The aggregate price of shares subject to repurchase in accrued expenses as of December 31, 2016 was insignificant.
12.
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 $18,000 annually (with a $6,000 catch up contribution limit for employees aged 50 or older). We
have the option to provide matching contributions, but have not done so to date.
13.
Commitments
and
Contingencies
Operating Leases
We lease our office facilities under noncancelable agreements expiring between 2017 and 2023. Rent expense in 2016,
2015 and 2014 was $6.7 million, $4.7 million and $2.6 million. respectively. The aggregate future minimum lease payments
under the agreements are as follows (in thousands):
Year
2017
2018
2019
2020
2021
Thereafter
Total
Litigation
$
$
5,778
4,952
4,810
4,053
3,332
3,879
26,804
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 was 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 asserted claims for violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The complaint sought, among other things, compensatory damages and attorney’s fees and
costs on behalf of the putative class. An amended complaint was filed on September 28, 2015. On February 22, 2016, the District
Court issued an order granting MobileIron’s motion to dismiss the amended complaint and on March 15, 2016 the Court
dismissed the case. MobileIron paid no money to the plaintiffs or their attorneys in connection with the dismissal of the action
On August 5, 2015, August 21, 2015 and August 24, 2015, purported stockholder class action lawsuits were filed in the
Superior Court of California, Santa Clara County against the Company, certain of its officers, directors, underwriters and
investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v. MobileIron, Inc., et al,
which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The actions are
purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued pursuant or
traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert claims for
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things, compensatory
damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected consolidated
complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company filed a demurrer
to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016. The Company intends to defend
this litigation vigorously.
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We continually evaluate uncertainties associated with litigation and record a charge equal to at least the minimum
estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to
issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial
statements and (ii) the loss or range of loss can be reasonably estimated. If we determine that a loss is possible and a range of the
loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.
We evaluate, on a quarterly basis, developments in our legal matters that could affect the amount of liability that has been
previously accrued, if any, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to
our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated
amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss, and such
amounts could be material. An estimate of a reasonably possible loss (or a range of loss) cannot be made in our lawsuits at this
time.
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, directors, and certain key employees while
they are serving in such capacities in good faith. Through December 31, 2016, we have not received any material written claim
for indemnification.
14.
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:
(in thousands)
Revenue
United States
International
Total
Year
ended
December
31,
2015
2014
2016
$
77,039 $
86,887
72,124
60,171
$ 163,926 $ 149,298 $ 132,295
74,235 $
75,063
We recognized revenue of $21.3 million, or 13% of total revenue, from customers with a billing address in Germany in
2016. No other country, outside of the United States, exceeded 10% of the total revenue in 2016. No country, outside of the
United States, exceeded 10% of the total revenue in the year ended December 31, 2015 or 2014.
As of December 31, 2016 and 2015, $1.3 million and $1.4 million or 24% and 22%, respectively, of our net Property
and Equipment was attributable to our operations located in India. Substantially all other long-lived assets were attributable to
operations in the United States.
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Table of Contents
15.
Net
Loss
per
Share
The following table sets forth the computation of basic and diluted net loss per share for 2016, 2015 and 2014 (in
thousands, except per share data):
Numerator:
Net loss
Denominator:
Year
ended
December
31,
2015
2016
2014
$
(67,180) $
(84,482) $ (61,889)
Weighted–average shares outstanding
Less: weighted average shares subject to repurchase
Weighted–average shares used to compute basic and diluted net loss per share
85,853
(8)
85,845
78,867
(112)
78,755
Basic and diluted net loss per share
$
(0.78) $
(1.07) $
48,332
(815)
47,517
(1.30)
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 2016, 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.
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):
Options to purchase common stock and unvested
restricted stock and restricted stock units
16.
Income
Taxes
2016
December
31,
2015
2014
20,313,438
19,344,137
17,125,349
Loss before income taxes consisted of the following (in thousands):
United States
International
Total
$
$
Year
ended
December
31,
2015
(84,595) $ (61,733)
361
(83,630) $ (61,372)
2016
(67,402) $
1,204
(66,198) $
965
2014
A significant portion of our international income is earned by foreign branches of our United States parent corporation
and thus is already subject to United States taxation. The income of our foreign branches has been included as part of the United
States jurisdiction in the table above.
Income tax expense for 2016, 2015 and 2014, was composed of the following (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense
Year
ended
December
31,
2015
2016
2014
$
$
— $
22
960
982
$
— $
26
826
852 $
—
25
492
517
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For 2016, 2015 and 2014, our effective tax rate differs from the amount computed by applying the statutory federal and
state income tax rates to net loss before income tax, primarily as the result of changes in valuation allowance.
Federal tax benefit at statutory rate
State tax benefit net of federal effect
Foreign taxes
Change in valuation allowance
Credits
Stock-based compensation
Non-deductible expenses and other
Effective tax rate
Year
ended
December
31,
2015
34.0 %
2.2
(0.4)
(33.9)
1.5
(4.1)
(0.4)
(1.1)%
2016
34.0 %
4.4
(0.4)
(33.0)
1.8
(8.0)
(0.3)
(1.5)%
2014
34.0 %
2.8
(0.3)
(35.0)
1.9
(3.5)
(0.7)
(0.8) %
Income tax expense for 2016, 2015 and 2014 relates to state minimum income tax, income tax on our earnings in foreign
jurisdictions, and, in 2016 and 2015, withholding taxes on sales to customers in certain jurisdictions. A significant portion of our
international income is earned by foreign branches of our United States parent corporation and thus is already subject to United
States taxation. The income of our foreign branches has been included as part of the United States jurisdiction in the table above.
The components of net deferred tax assets at December 31, 2016 and 2015 consisted of the following (in thousands):
Deferred tax assets:
Accruals and allowances
Gains on foreign exchange
Net operating loss carryforwards
Depreciation and amortization
R&D tax credits
Stock-based compensation
Valuation allowance
Net deferred tax assets
As
of
December
31,
2015
2016
$
8,862 $
81
81,623
6,489
10,461
10,272
(117,788)
$
— $
6,489
127
64,674
7,413
7,969
9,278
(95,950)
—
Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our net
deferred tax assets. We primarily considered such factors as our history of operating losses, the nature of our deferred tax assets
and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences
and carryforwards become deductible. At present, we do not believe that it is more likely than not that the deferred tax assets will
be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying
consolidated balance sheets.
As of December 31, 2016, we had net operating loss carryforwards of approximately $241.3 million and $101.7 million
available to reduce future taxable income, if any, for both federal and state income tax purposes, respectively. The federal and
state net operating loss carryforwards will expire at various dates beginning 2027 and 2017, respectively.
We had federal and California R&D tax credit carryforwards at December 31, 2016 of $8.4 million and $9.5 million,
respectively. If not utilized, the federal R&D tax credit carryforward will expire in various portions beginning 2027. The
California R&D tax credit can be carried forward indefinitely.
A limitation may apply to the use of the net operation loss and credit carryforwards, under provisions of the Internal
Revenue Code that are applicable if we experience an “ownership change”. That may occur, for example, as a result of trading in
our stock by significant investors as well as issuance of new equity. Should these limitations apply, the carryforwards would be
subject to an annual limitation, resulting in a substantial reduction in the gross deferred tax
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assets before considering the valuation allowance. Further, a portion of the carryforwards may expire before being applied to
reduce future earnings.
As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities shown above
does not include certain deferred tax assets as of December 31, 2016 and 2015 that arose directly from tax deductions related to
equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $5.4 million if and
when such deferred tax assets are ultimately realized. We use ASC 740 ordering when determining when excess tax benefits have
been realized.
We follow the provisions of ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a
comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax
positions that have been taken or expected to be taken on a tax return. No non-current liability related to uncertain tax positions is
recorded in the financial statements as the deferred tax assets have been presented net of these unrecognized tax benefits. At
December 31, 2016 and 2015, our reserve for unrecognized tax benefits was approximately $5.3 million and $4.1 million,
respectively. Due to the full valuation allowance at December 31, 2016, current adjustments to the unrecognized tax benefit will
have no impact on our effective income tax rate; any adjustments made after the valuation allowance is released will have an
impact on the tax rate. We do not anticipate any significant change in our uncertain tax positions within 12 months of this
reporting date. We include penalties and interest expense related to income taxes as a component of other expense and interest
expense, respectively, as necessary.
A reconciliation of the gross unrealized tax benefits is as follows (in thousands):
Unrecognized tax benefits, beginning of year
Gross increases—tax positions from prior periods
Gross increases—tax positions from current period
Unrecognized tax benefits, end of year
2016
2014
Year
ended
December
31,
2015
$ 4,052 $ 2,794 $ 1,674
10
1,211 1,258 1,110
$ 5,306 $ 4,052 $ 2,794
—
43
We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2016, the
statute of limitations is open for all tax years from inception, that is, for the period from July 23, 2007 (date of inception) to
December 31, 2016 and forward for federal, state and foreign tax purposes.
Item
9
.
Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure
None.
Item
9
A.
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 evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of December 31, 2016. 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 by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
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Table of Contents
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 provide a reasonable assurance 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 this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31,
2016, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act were (i) recorded, processed, summarized, and reported within
the time periods specified in Securities and Exchange Commission rules and forms, and (ii) accumulated and reported to our
management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required
disclosure.
Management’s
Report
on
Internal
Controls
Our management is responsible for establishing and maintaining effective internal control over financial reporting as
defined in Rule 13a-15(f) under the Exchange Act. Our internal controls over financial reporting are designed to provide
reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of
published financial statements in accordance with the GAAP, including those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the
Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations
of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2016 based on the criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework).
Based on our assessment, we concluded that our internal control over financial reporting was effective as of December
31, 2016.
This Annual Report on Form 10-K does not include an audit or attestation report from our registered public accounting
firm regarding our internal control over financial reporting. Our management’s report was not subject to audit or attestation by
our registered public accounting firm pursuant to rules of the SEC that permits us to provide only management’s report in this
annual report for so long as we remain an “emerging growth company” under the Jumpstart Our Business Startups Act.
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 December 31, 2016 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9
B.
Other
Information
On February 10, 2017, the Board of Directors approved an option grant for Barry Mainz, our Chief Executive Officer.
The option was comprised of 100,000 shares at $4.90 per share, which 1/48th of the shares subject to the option
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Table of Contents
vest and become exercisable monthly over 4 years measured from the one month period of February 10, 2017, subject to Mr.
Mainz continued service with the Company.
The option for Mr. Mainz was approved pursuant to and in accordance with the terms and conditions of the Company’s
2014 Equity Incentive Plan and the current form of option agreement, as previously filed with the Securities and Exchange
Commission.
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PART
II
I
Certain information required by Part III is omitted from this Annual Report on Form 10-K since we intend to file our
definitive proxy statement for our 2017 annual meeting of stockholders, or the Definitive Proxy Statement, pursuant to Regulation
14A of the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2016, and certain
information to be included in the Definitive Proxy Statement is incorporated herein by reference
Item
10
.
Directors,
Executive
Officers
and
Corporate
Governance
Executive
Officers
and
Directors
Information responsive to this Item with respect to executive officers and directors is incorporated herein by reference to
the information from our 2017 Proxy Statement under the sections titled “Executive Officers,” “Election of Directors,” “Section
16(a) Beneficial Ownership Reporting Compliance” and “Information Regarding the Board of Directors and Corporate
Governance.”
Code
of
Conduct
As part of our system of corporate governance, our board of directors has adopted a code of business conduct and ethics.
The code applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions), agents and representatives, including our independent
directors and consultants, who are not employees of ours, with regard to their MobileIron-related activities. Our code of business
conduct and ethics is available on our website at www.mobileiron.com . We will post on our website any amendment to our code
of business conduct and ethics, as well as any waivers of our code of business conduct and ethics, that are required to be disclosed
by the rules of the SEC or the NASDAQ Stock Market.
Item
11
.
Executive
Compensation
Information responsive to this Item with respect to executive compensation is incorporated herein by reference to the
information from our 2017 Proxy Statement under the section titled “Executive Compensation,” “Director Compensation,”
“Summary Compensation Table,” “Outstanding Equity Awards at Fiscal Year-End,” and “Compensation Committee.”
Item
12
.
Security
Ownership
of
Certain
Beneficial
Owners
and
Management
and
Related
Stockholder
Matters
Information responsive to this Item with respect to security ownership of certain beneficial owners and management is
incorporated herein by reference to the information from our 2017 Proxy Statement under the section titled “Security Ownership
of Certain Beneficial Owners and Management” and “Potential Payments and Acceleration of Equity upon Termination or
Termination in Connection with a Change in Control.” Information regarding our stockholder approved and non-approved equity
compensation plans are incorporated by reference to the section entitled “Equity Compensation Plan Information
Item
13
.
Certain
Relationships
and
Related
Transactions,
and
Director
Independence
Information responsive to this item with respect to certain relationships and related transactions, and director
independence is incorporated herein by reference to the information from our 2017 Proxy Statement under the section titled
“Transactions with Related Persons” and “Independence of the Board of Directors.”
Item
14.
Principal
Accountant
Fees
and
Services
Information responsive to this item with respect to principal accountant fees and services is incorporated herein by
reference to the information from our 2017 Proxy Statement under the section titled “Principal Accountant Fees and Services.”
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Table of Contents
PART
I
V
Item
15
.
Exhibits
and
Financial
Statement
Schedules
Documents filed as part of this report are as follows:
1. Consolidated Financial Statements:
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” Under Part II, Item 8
of this report.
2.
Financial Statement Schedules:
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the
Consolidated Financial Statements or Notes to Consolidated Financial Statements included in Part II, Item 8 “Financial
Statements and Supplementary Data” of this report.
3. Exhibits:
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this report, in each
case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
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Table of Contents
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.
SIGNATURE S
MOBILEIRON, INC.
By: /s/ Barry Mainz
Barry Mainz
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Simon Biddiscombe
Simon Biddiscombe
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
Dated: February 14, 2017
The undersigned directors and officers of MobileIron, Inc. (the “Company”), a Delaware corporation, hereby constitute
and appoint Barry Mainz and Simon Biddiscombe, and each of them with full power to act without the other, the undersigned’s
true and lawful attorney-in-fact, with full power of substitution and re-substitution, for the undersigned and in the undersigned’s
name, place and stead in the undersigned’s capacity as an officer and/or director of the Company, to execute in the name and on
behalf of the undersigned this Report and to file such Report, with exhibits thereto and other documents in connection therewith
and any and all amendments thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done and to take
any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be of
benefit to, in the best interest of, or legally required of, the undersigned, it being understood that the documents executed by such
attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such
terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below (and the above
Powers of Attorney granted) by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Barry Mainz
Barry Mainz
/s/ Simon Biddiscombe
Simon Biddiscombe
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
Chief Financial Officer (Principal Financial Officer and
Accounting Officer)
/s/ Kenneth Klein
Kenneth Klein
Director
/s/ Aaref Hilaly
Aaref Hilaly
Director
/s/ Matthew Howard
Matthew Howard
Director
/s/ Frank Marshall
Frank Marshall
Director
/s/ Tae Hea Nahm
Tae Hea Nahm
Director
/s/ James Tolonen
James Tolonen
Director
/s/ Robert Tinker
Robert Tinker
Director
100
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
February 14, 2017
Table of Contents
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
(1)
10.2
(1)
10.3
(1)
10.4
(1)
10.5
(1)
10.6
(1)
10.7
(1)
10.8†
Description
Amended and Restated
Certificate of
Incorporation of
MobileIron, Inc.
Amended and Restated
Bylaws of MobileIron,
Inc.
Reference is made to
Exhibits 3.1 and 3.2
above
Amended and Restated
Investors’ Rights
Agreement, dated
August 29, 2013
Amended and Restated
MobileIron, Inc. 2014
Equity Incentive Plan
Form of Option
Agreement and Option
Grant Notice for
MobileIron, Inc. 2008
Stock Plan
Current Form of Option
Agreement, Option Grant
Notice, Notice of Option
Exercise, Restricted
Stock Unit Grant Notice
and Restricted Stock Unit
Award Agreement for
MobileIron, Inc. 2014
Equity Incentive Plan.
MobileIron, Inc. 2014
Employee Stock Purchase
Plan
Amended and Restated
MobileIron, Inc. 2015
Inducement Plan
Form of Stock Option
Grant Notice and Option
Agreement under the
MobileIron, Inc. 2015
Inducement Plan
Form of Restricted Stock
Unit Grant Notice and
Restricted Stock Unit
Award Agreement under
the MobileIron, Inc. 2015
Inducement Plan
Resale Agreement
between MobileIron, Inc.
and AT&T Services, Inc.,
dated April 22, 2010, as
amended and
supplemented
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Number
3.1
Filing
8-K
Filing
Date
June 17, 2014
File No.
001-36471
Filed
Herewith
3.4
S-1/A
May 29, 2014
333-195089
4.2
S-1
April 7, 2014
333-195089
10.2
10.4
10-Q
July 29, 2016
001-36471
S-1/A
May 29, 2014
333-195089
10.1
10-Q
October 31,
2014
001-36471
10.5
10.2
10.2
S-1/A
June 9, 2014
333-195089
10-Q
July 29, 2016
001-36471
8-K
January 6, 2016
001-36471
10.3
8-K
January 6, 2016
001-36471
10.17
S-1/A
May 7, 2014
333-195089
101
Table of Contents
10.9
10.10
10.11
10.12
10.13
10.14
10.15
(1)
10.16
(1)
10.17
(1)
Amendment to Resale
Agreement between
MobileIron, Inc. and
AT&T Services, Inc.,
dated April 4, 2016
Lease Agreement, dated
April 14, 2011 between
MobileIron, Inc. and
Renault & Handley
Employees Investment
Company
First Amendment to Lease
Agreement, dated April
18, 2014 between the
Registrant and Renault &
Handley Middlefield Road
Joint Venture, as successor
to Renault & Handley
Employees Investment
Company
Lease Agreement, dated
June 25, 2014, between
MobileIron Inc. and
Handley-Tittle Middlefield
Joint Venture
Lease between
MobileIron, Inc., and
WTA Middlefield LLC,
dated May 14, 2015
Second Amendment to
Lease, dated November 9,
2015, by and among the
Company and Renault &
Handley Middlefield Road
Joint Venture
Form of Indemnity
Agreement entered into
between MobileIron, Inc.
and each of its directors
and its executive officers
Executive Employment
Agreement effective
January 6, 2016, between
MobileIron, Inc. and Barry
Mainz
At-Will Employment
Agreement between
MobileIron, Inc., and
Simon Biddiscombe, dated
April 30, 2015
10.6
10-Q
July 29, 2016
001-36471
10.7
S-1
April 7, 2014
333-195089
10.8
S-1/A
April 23, 2014
333-195089
10.8
10-Q
August 7, 2014
001-36471
10.1
8-K
May 20, 2015
001-36471
10.1
8-K
November 12,
2015
001-36471
10.6
S-1
April 7, 2014
333-195089
10.4
8-K
January 6, 2016
001-36471
10.1
8-K
May 12, 2015
001-36471
102
Table of Contents
10.18
(1)
10.19
(1)
10.20
(1)
10.21
(1)
10.22
(1)
10.23
(1)
10.24
(1)
10.25
(1)
10.26
(1)
10.27
(1)
Amended and Restated
Severance Benefit Plan
Participation Notice
between MobileIron, Inc.
and Simon Biddiscombe,
dated August 28, 2015
Amendment to
Employment Offer Letter
and Severance Benefit
Plan Participation Notice
between MobileIron, Inc.
and Simon Biddiscombe,
dated October 25, 2016
At-Will Employment
Agreement between
MobileIron, Inc. and
Daniel Fields, dated
December 29, 2015
Severance Benefit Plan
Participation Notice
between MobileIron, Inc.
and Daniel Fields, dated
December 29, 2015
At-Will Employment
Agreement between
MobileIron, Inc. and
Laurel Finch, dated
February 20, 2013
Employment offer letter
between MobileIron, Inc.
and Robert B. Tinker,
dated December 20, 2007
Amendment to
Employment Offer Letter
between MobileIron, Inc.
and Robert B. Tinker,
dated March 12, 2008
Second Amendment to
Employment Offer Letter
between MobileIron, Inc.
and Robert B. Tinker,
dated March 12, 2008
Third Amendment to
Employment Offer Letter
between MobileIron, Inc.
and Robert B. Tinker,
dated March 12, 2008
Separation Agreement
between MobileIron, Inc.
and Robert B. Tinker,
dated October 7, 2016
10.1
10-Q
October 28,
2016
001-36471
10.31
10-K
February 23,
2016
001-36471
10.10
S-1
April 7, 2014
333-195089
10.11
S-1
April 7, 2014
333-195089
10.12
S-1
April 7, 2014
333-195089
10.13
S-1
April 7, 2014
333-195089
103
X
X
X
X
Table of Contents
10.28
(1)
10.29
(1)
10.30
(1)
10.31
(1)
10.32
(1)
10.33
(1)
10.34
(1)
21.1
23.1
24.1
31.1
31.2
32.1
(2)
At-Will Employment
Agreement between
MobileIron, Inc. and
Suresh Batchu, dated
September 6, 2007
At-Will Employment
Agreement between
MobileIron, Inc. and Greig
Patton, dated June 1, 2016
At-Will Employment
Agreement between
MobileIron, Inc., and
Damian Artt, dated
September 14, 2015
MobileIron, Inc.
Severance Benefit Plan
and Participation Notice
MobileIron, Inc. 2016
Non- Executive Bonus
Plan, as amended
MobileIron, Inc. 2016
Executive Bonus Plan, as
amended
MobileIron, Inc. Amended
and Restated Non-
Employee Director
Compensation Policy
Subsidiaries of Registrant
Consent of Deloitte &
Touche LLP, Independent
Registered Public
Accounting Firm
Power of Attorney
(contained in signature
page hereto)
Certification of Principal
Executive Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of
2002
Certification of Principal
Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of
2002
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
10.1
10-Q
July 29, 2016
001-36471
10.4
10-Q
November 2,
2015
001-36471
10.4
10.4
10.5
10.3
10-Q
May 4, 2015
001-36471
10-Q
July 29, 2016
001-36471
10-Q
July 29, 2016
001-36471
10-Q
July 29, 2016
001-36471
104
X
X
X
X
X
X
X
Table of Contents
99.1*
Amendments to Resale
Agreement between
MobileIron, Inc. and
AT&T Services, Inc.,
various dates
99.1
8-K
February 6, 2016
001-36471
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
†
*
Certain portions of this exhibit are subject to a confidential treatment order. Omitted portions have been filed separately with
the Securities and Exchange Commission.
Confidential treatment requested as to certain portions of this exhibit, which portions are omitted and filed separately with
the Securities and Exchange Commission.
(1) Management contract or compensation plan or arrangement.
(2) The certifications attached as Exhibit 32.1 accompany this Annual Report on Form 10-K 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.
105
Exhibit
10.18
Exhibit
10.18
MOBILEIRON,
INC.
SEVERANCE
BENEFIT
PLAN
AMENDED
AND
RESTATED
PARTICIPATION
NOTICE
To: Simon Biddiscombe
Date: August 28, 2015
This Amended and Restated Participation Notice under the MobileIron, Inc. Severance
Benefit Plan (the “ Amended
Participation
Notice
”) serves to supersede and replace in its entirety
that Participation Notice executed by you on or about May 10, 2015, pursuant to which you were
initially designated as eligible to be_ a Participant in the MobileIron, Inc. Severance Benefit Plan. A
copy of the Plan document is attached to this Amended Participation Notice. The terms and
conditions of your participation in the Plan are as set forth in the Plan document and this Amended
Participation Notice, which together constitute the Summary Plan Description for the Plan.
The table below designates the benefits you are eligible to receive pursuant to the Plan.
Qualifying Termination
that is NOT a Change in
Control Termination
Qualifying Termination
that is a Change in
Control Termination
Salary Continuation
12 months of your
Monthly Base Salary
12 months of your
Monthly Base Salary
Maximum Duration of
COBRA Payment
Period
12 months
Percentage of
Outstanding Equity
Awards That Will
Accelerate
0%
12months
100%
In the event that a Qualifying Termination that is not a Change in Control Termination occurs
within the first eight (8) months following May 11, 2015, the Company will enter into a consulting
agreement with you with a term that expires on February 28, 2016, during which term your
outstanding equity awards will continue to vest in accordance with the provisions set forth in your
equity award agreements, subject to your continued provision of consulting services. The continued
vesting of your equity awards will be the sole consideration for the consulting agreement. If a Change
in Control occurs on or before February 28, 2016 and your consultancy is terminated other than for
Cause in connection with such Change in Control, you will receive acceleration of vesting for
your outstanding equity awards that would have vested had your consultancy continued through
February 28, 2016.
1.
In addition to other terms defined in the Plan document, the definitions on Attachment A to
this Amended Participation Notice are used to define the benefits to which you are entitled under the
Plan.
By accepting participation in the Plan, you represent that you have either consulted
your personal tax or financial planning advisor about the tax consequences of your participation in
the Plan, or you have knowingly declined to do so. Please return to the Company a copy of this
Amended Participation Notice signed by you and retain a copy of this Amended Participation Notice,
along with the Plan.
/s/ Simon Biddiscombe
Name: Simon Biddiscombe
Title: Chief Financial Officer
Date:8/28/15
2.
Exhibit
10.21
MOBILEIRON,
INC.
SEVERANCE
BENEFIT
PLAN
PARTICIPATION
NOTICE
Exhibit
10.21
To: Daniel Fields
You have been designated as eligible to be a Participant in the MobileIron, Inc. Severance
Benefit Plan. A copy of the Plan document is attached to this Participation Notice. The terms and
conditions of your participation in the Plan are as set forth in the Plan document and this Participation
Notice, which together constitute the Summary Plan Description for the Plan.
The table below designates the benefits you are eligible to receive pursuant to the Plan.
Qualifying
Termination
that
is
NOT
a
Change
in
Control
Termination
Qualifying
Termination
that
is
a
Change
in
Control
Termination
Salary
Continuation
6
months
of your
Monthly Base Salary
12 months of your
Monthly Base Salary
Maximum
Duration
of
COBRA
Payment
Period
6 months
Percentage
of
Outstanding
Equity
Awards
That
Will
Accelerate
0%
12 months
100%
The
definition
of
“
Constructive
Termination
”
for
the
purpose
of
this
Participation
Notice
is
hereby
defined
as
follows:
“ Constructive
Termination
” means the Participant resigns (resulting in a Separation from
Service) because one of the following events or actions is undertaken without the Participant’s
written consent:
(i)
a reduction of more than 20% or more in the Participant’s annual base salary (unless
pursuant to a salary reduction program applicable to all similarly situated employees);
(ii)
a non-temporary relocation of the Participant’s business office to a location that
increases the Participant’s one-way commute by more than 50 miles from the primary
location at which the Participant performed duties at the time of Constructive
Termination;
(iii)
a material breach by the Company or any successor entity of the Plan or any
employment agreement between the Company and the Participant; or
(iv)
a material reduction of Participant’s duties, authority or responsibilities relative to
Participant’s duties, authority or responsibilities as in effect immediately prior to such
reduction, provided that such a “reduction” will not be deemed to occur if Participant’s
duties, authority and responsibilities with respect to the successor subsidiary or
division of the parent entity following a Change in Control are substantially similar to
Participant’s duties, authority and responsibilities with respect to the business of the
Company immediately prior to the Change in Control.
An event or action will not give the Participant grounds for Constructive Termination unless (A) the
Participant gives the Company written notice within 30 days after the initial existence of the event or
action that the Participant intends to resign in a Constructive Termination due to such event or action;
(B) the event or action is not reasonably cured by the Company within 30 days after the Company
receives written notice from the Participant; and (C) the Participant’s Separation from Service occurs
within 90 days after the end of the cure period.
In addition to other terms defined in the Plan document, the definitions on Attachment A to
this Participation Notice are used to define the benefits to which you are entitled under the Plan.
By accepting participation in the Plan, you represent that you have either consulted your
personal tax or financial planning advisor about the tax consequences of your participation in the
Plan, or you have knowingly declined to do so.
Please return to the Company a copy of this Participation Notice signed by you and retain a
copy of this Participation Notice, along with the Plan document, for your records.
/s/ Daniel Fields
(Signature)
Daniel Fields
(Print Name)
12/29/2015
(Date)
2.
Attachment
A
“ Monthly
Base
Salary
” means the Participant’s monthly base salary in effect immediately
prior to date of the Qualifying Termination, ignoring any reduction that forms the basis for
Constructive Termination.
“ Qualifying
Termination
” means a Change in Control Termination or any other Involuntary
Termination Without Cause.
“ Change
in
Control
Termination
” means (i) an Involuntary Termination Without Cause, or
(ii) a Constructive Termination, in either case that occurs within the period starting three months prior
to a Change in Control and ending on the first anniversary of the Change in Control.
“ Involuntary
Termination
Without
Cause
” means a Participant’s involuntary termination of
employment by the Company, resulting in a Separation from Service, for a reason other than death,
disability, or Cause.
“ Cause
” means any of the following events: (i) Participant’s willful failure substantially to
perform his or her duties and responsibilities to the Company; (ii) willful breach of any obligation
under any written agreement with the Company that is not cured within 30 days of written notice to
the Participant; (iii) Participant’s deliberate violation of a Company policy, or commission of any
felony or any act of fraud, embezzlement, dishonesty or any other willful misconduct, that has caused
or is reasonably expected to result in material injury to the Company; or (iv) material unauthorized
use, disclosure or misappropriation by Participant of any proprietary information, trade secret or other
asset of the Company or entrusted to the Company by a third party.
Mobile Iron, Inc.
Page 1
3.
Mobile Iron, Inc.
February 20, 2013
Laurel Finch
Dear Laurel:
Page 1
Exhibit
10.22
On behalf of Mobile Iron, Inc. (the “Company”), I am pleased to offer you the position
of Vice President, General Counsel. Speaking for myself, as well as the other members of
the Company’s management team, we are all very impressed with your credentials and we
look forward to your future success in this position.
The terms of your new full-time position with the Company are as set forth below:
1. Position
.
(a) You will become the Vice President, General Counsel of the Company,
working out of the Company’s headquarters office. This is a full-time position. Your initial
responsibilities will include but not be limited to (i) leading the legal commercial activities to
enable the business, (ii) leading legal corporate activities such as corporate structuring, risk
management, intellectual property or executing financings, (iii) working with the CEO and
functional leads in making business decisions, (iv) providing guidance on business
development activities, and (v) assuming a leadership position in the Company and
exercising business judgment on the executive team for the Company. You will report to the
CEO.
(b) You agree to the best of your ability and experience that you will at all
times loyally and conscientiously perform all of the duties and obligations required of and
from you pursuant to the express and implicit terms hereof, and to the reasonable
satisfaction of the Company. During the term of your employment, you further agree that
you will devote all of your business time and attention to the business of the Company, the
Company will be entitled to all of the benefits and profits arising from or incident to all such
work services and advice, you will not render commercial or professional services of any
nature to any person or organization, whether or not for compensation, without the prior
written consent of the Company, and you will not directly or indirectly engage or participate
in any business that is competitive in any manner with the business of the Company.
Nothing in this letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding equity
securities of a corporation whose stock is listed on a national stock exchange.
2. Start
Date
.
Subject to fulfillment of any conditions imposed by this letter
agreement, you will commence this new position with the Company on Monday February 25
2013 (the “ Start Date ”).
MobileIron Inc.,
415 East Middlefield Road, Mountain View, CA 94043
Mobile Iron, Inc.
Page 2
3. Proof
of
Right
to
Work
.
For purposes of federal immigration law, you will
be required to provide to the Company documentary evidence of your identity and eligibility
for employment in the United States Such documentation must be provided to us within
three business days of your date of hire, or our employment relationship with you may be
terminated.
4. Compensation
.
You will be paid at the rate of $ 18,333.33 per month (which
is equivalent to $220,000 on an annualized basis), less payroll deductions and withholdings
(the “Base Salary”), payable pursuant to the Company’s regular payroll practices. The Base
Salary will be reviewed annually as part of the Company’s normal salary review process.
Additionally, upon completion of a public market stock offering (“IPO”) your Base Salary will
change to $250,000 on an annualized basis. Should the company add an incentive plan for
the executive team, the VP/General Counsel would be included in that incentive plan .
5. Stock
Option
Grant
.
In connection with the commencement of your
employment and subject to the approval of the Company’s Board of Directors, you will be
granted an option to purchase 210,000 shares (“Option Shares”) of Common Stock of the
Company. The Option Shares will have an exercise price equal to the fair market value on
the date of the grant. The Option Shares will vest at the rate of 25% of the shares on the
twelve (12) month anniversary of your Vesting Commencement Date (as defined in your
Stock Option Agreement, which date will be your Start Date, as defined above) and the
remaining Option Shares will vest monthly thereafter at the rate of 1/48 of the total number
of the Option Shares per month, until either your Option Shares are fully vested or your
employment ends, whichever occurs first. The option will be subject to the terms of the
Company’s Stock Plan and the Stock Option Agreement betvveen you and the Company.
(a) Change
of
Control
Double
Trigger
. Notwithstanding the provisions of
the immediately preceding paragraph, in the event of a Change of Control (as defined
below) and if, within eighteen (18) months following such a Change of Control (a) there is a
Constructive Termination (as defined below) or (b) your employment is involuntarily
terminated by Company (or a successor) other than for Cause (as defined below), the
vesting of fifty percent (50%) of your then unvested Option Shares will be accelerated as of
the date of such termination or Constructive Termination, provided that (i) if such Change of
Control occurs within the first 18 months from your Start Date, the accelerated vesting shall
be seventy-five percent (75%) of your then unvested Option Shares instead of the above
fifty percent (50%) and (ii) in the event of such acceleration, the aggregate vested Option
Shares (those previously vested together with those whose vesting was accelerated) shall
be not less than seventy-five percent (75%) of the total Option Shares. As a condition to
your receipt of such vesting acceleration, you are required to comply with your continuing
obligations (including the return of any Company property) and resign from all positions you
hold with the Company. In addition, as a condition of receiving the vesting acceleration
under this Section 5(a), you will be required to execute, and allow to become effective, a
standard form release agreement releasing any claims you may have against the Company
(the “ Release ”) not later than fifty (50) days following your employment termination in the
MobileIron Inc.,
415 East Middlefield Road, Mountain View, CA 94043
Mobile Iron, Inc.
Page 3
form provided by the Company. Unless the Release is timely executed by you, is delivered
to the Company, and becomes effective within the required period (the date on which the
Release becomes effective, the “ Release Date ”), you will not receive any of the vesting
acceleration provided for under this letter. In no event will vesting acceleration be provided
to you until the Release becomes effective.
6. Benefits
.
(a) Insurance
Benefits
.
The Company will provide you with the
opportunity to participate in the standard benefits plans currently available to other
Company employees, subject to any eligibility requirements imposed by such plans.
(b) Vacation;
Sick
Leave
.
You will be entitled to paid time off according
to the Company’s standard policies.
7. Confidential
Information
and
Invention
Assignment
Agreement/Employee
Handbook
. Your acceptance of this offer and commencement of
employment with the Company is contingent upon your execution, and delivery to an officer
of the Company, of the Company’s Confidential Information and Invention Assignment
Agreement, a copy of which is enclosed for your review and execution (the “ Confidentiality
Agreement ”), prior to or on your Start Date.
As a Company employee, you will be expected to abide by Company rules and
policies, and acknowledge in writing that you have read the Company’s Employee
Handbook.
8. At-Will
Employment
.
Your employment with the Company will be on an
“at will” basis, meaning that either you or the Company may terminate your employment at
any time and for any reason, with or without cause or advance notice.
9. No
Conflicting
Obligations
.
You understand and agree that by accepting
this offer of employment, you represent to the Company that your performance will not
breach any other agreement to which you are a party and that you have not, and will not
during the term of your employment with the Company, enter into any oral or written
agreement in conflict with any of the provisions of this letter or the Company’s policies. You
are not to bring with you to the Company, or use or disclose to any person associated with
the Company, any confidential or proprietary information belonging to any former employer
or other person or entity with respect to which you owe an obligation of confidentiality under
any agreement or otherwise. The Company does not need and will not use such information
and we will assist you in any way possible to preserve and protect the confidentiality of
proprietary information belonging to third parties. Also, we expect you to abide by any
obligations to refrain from soliciting any person employed by or otherwise associated with
any former employer and suggest that you refrain from having any contact with such
persons until such time as any non-solicitation obligation expires.
10. Background
check:
This offer is contingent upon a background check
clearance.
MobileIron Inc.,
415 East Middlefield Road, Mountain View, CA 94043
Mobile Iron, Inc.
Page 4
11. Entire
Agreement
. This letter, together with the Confidentiality Agreement,
sets forth the entire agreement and understanding between you and the Company with
respect to your employment and supersedes all prior agreements and promises made to
you by anyone, whether oral or written, This letter (and your employment at will status) may
not be modified or amended except by a written agreement, signed by an officer of the
Company, although the Company reserves the right to modify unilaterally your work
location, compensation, benefits, job title and duties, and reporting relationships. This letter
will be governed by the laws of the State of California without regard to its conflict of laws
provision.
13. Definitions
.
a) Cause.
For the purposes of this letter, “Cause” shall mean: any of the following:
(A) gross dereliction of your duties or your repeated failure to perform one or
more of your essential duties or responsibilities to the Company, (B) willful and
gross misconduct which results in material injury to the Company, (C) willful and
material violation of laws applicable to the Company which result in material injury
to the Company, (D) embezzlement or theft of Company property, (E) material
violation of the Confidentiality Agreement which result in material injury to the
Company, (F) conviction of any felony, or (G) shutdown of the Company.
b) Constructive
Termination.
For the purposes of this letter, “Constructive
Termination” means your resignation of your employment with the Company
within sixty (60) days following the occurrence of any of the following without your
written consent: (A) a reduction in your annual base compensation by more than
20% (except for a reduction in a similar percent applicable to all other members of
the Company’s senior management team) or (B) a reduction in your annual base
compensation by more than 10% (up to 20%) that is not offset by a
commensurate dollar for dollar increase in your annual target cash bonus (B) the
requirement that you relocate more than 50 miles from the then-current Company
headquarters
c) Change
of
Control
means the occurrence of any of the following events:
i) The closing of a sale of all or substantially all of the assets of the Company; or
ii) The closing of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the
MobileIron Inc.,
415 East Middlefield Road, Mountain View, CA 94043
Mobile Iron, Inc.
Page 5
Company or such surviving entity outstanding immediately after such merger or
consolidation; or
ill) Completion of a tender or exchange offer or other transaction or series of
transactions (other than a financing transaction or financing transactions with
venture capital firms primarily for the purpose of raising operating capital)
resulting in less than a majority of the outstanding voting shares of the surviving
corporation being held, immediately after such transaction or series of
transactions, by the holders of the voting shares of the Company outstanding
immediately prior to such transaction or series of transactions.
We are all delighted to be able to extend you this offer and look forward to working
with you. To indicate your acceptance of the Company’s offer, please sign and date this
letter in the space provided below and return it to me, along with a signed and dated copy of
the Confidentiality Agreement. This offer will terminate if not accepted by you on or before
11pm PT February 21, 2013.
Very Truly Yours,
Moble
Iron,
Inc.
/s/ Robert B. Tinker
Hiring Manager Signature
CEO
Title
Feb. 20, 2013
Date
ACCEPTED
AND
AGREED
/s/ Laurel Finch
Employee Signature
2/20/13
Date
Attachment A: Confidential Information and Invention Assignment Agreement
MobileIron Inc.,
415 East Middlefield Road, Mountain View, CA 94043
MobileIron
Exhibit
10.27
October 4, 2016
Robert Tinker
Re:
Separation
Agreement
Dear Bob:
As discussed, this letter sets forth the terms of the separation agreement (the "Agreement")
that Mobilelron, Inc. (the "Company'')
is offering to you.
1.
Separation
Date.
Your last day of work with the Company and your employment termination date is December 1, 2016 (the
"Separation
Date"
).
2.
Transition.
During the period from the date of this Agreement through the Separation Date (the "Transition
Period"
),
you will work
principally from home under the direction of Barry Mainz. During the
Transition Period, you will continue to comply with all of your contractual, statutory, and common law obligations to the Company.
3.
Accrued
Salary.
On the Separation Date, the Company will pay you all accrued salary through the Separation Date, subject to standard
payroll deductions and withholdings. You are entitled to receive this
payment regardless of whether or not you sign this Agreement and the Release (as defined in Section 5 below).
4.
Health
Insurance;
Other
Benefits.
Your current health insurance benefits will continue until the end of the month
of your Separation Date, if you are currently enrolled in the health plan(s). To the extent permitted by
the federal COBRA law or applicable state insurance laws (collectively, "COBRA"
),
and by the Company's current
group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense and later to
convert to an individual policy if you wish. You will be provided with a separate notice regarding your health insurance continuation rights
under COBRA within the time period required by law. Your eligibility
to continue as a participant in all other Company provided benefit plans will terminate on the Separation Date.
5.
Severance
Benefits.
You are currently a participant in the Mobilelron, Inc. Executive Severance Plan (attached as Exhibit A-
1), which along with the Participation Notice dated May 1, 2015 (attached as Exhibit A-2), is collectively the "Severance
Plan."
You and
the Company agree that as of the date of this Agreement, your
Qualifying Termination is an Involuntary Termination Without Cause (and not a Change in Control Termination),
provided however that in accordance with the Severance Plan, if the Company closes a Change in Control on or before March 1, 2017, then
your Qualifying Termination will instead be deemed to be a Change in Control
Termination. Subject to your execution of the form of Release attached as an exhibit to the Severance Plan on or
within 45 days after the receipt of this letter (and your execution of an additional form of such Release on or within 45 days after your
Separation Date), and your compliance with all applicable obligations under the Severance Plan and the Confidentiality and Invention
Assignment Agreement between you and the Company attached as Exhibit B hereto (the "Confidentiality
Agreement''
):
(a)
The Company will make the applicable payments set forth under the headings Salary
Continuation and Health Insurance Premiums in Section 2 of the Severance Plan and your Participation Notice (and
in the event that your Qualifying Termination is later deemed a Change in Control Termination, you will receive the
Accelerated Vesting described in Section 2 of the Severance Plan).
(b)
The Termination Period (as defined in your option agreements) for your stock options that have vested as of the Separation Date (the
"Vested
Stock
Options''
)
shall be and hereby is amended such that the Vested Stock Options may be exercised until the earlier of: (a) any
date set forth for the termination of options in connection with a Corporate Transaction as defined In Section 13(c) of the Company's 2008
Stock Plan, or (b) November 30, 2018 (the "Extended
Exercise
Period”
).
6.
No
Continued
Vesting
or
Acceleration
of
Stock
Options
and
RSUs
In
Absence
of
Change
in
Control.
If the
Company does not close a Change in Control prior to March 1, 2017, you acknowledge and agree that all unvested
Stock Options and all unvested Company issued restricted stock units as of the Separation Date will lapse and be
forfeited on the Separation Date and that you have no right, title, or interest in or to any shares of the capital stock
of the Company under the stock option agreements issued to you or any other agreement (oral or written) or plan
with the Company. Your option agreements and RSU agreements are hereby amended such that your options and
RSUs will not continue vesting after your Separation Date as a result of any continued service as a member of the Board of Directors.
7.
No
Other
Compensation
or
Benefits.
You acknowledge that, except as expressly provided in this Agreement and the Severance Plan,
you have not earned and will not receive from the Company any additional compensation, severance, or benefits on or after the Separation
Date, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g.,
401(k) account).
8.
Expense
Reimbursements.
You agree that, within thirty (30) days of the Separation Date, you will
submit your final documented
expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek
reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice.
9.
Return
of
Company
Property.
You acknowledge that on or about your Separation Date, you will execute and deliver the form of
Termination Certificate attached to your Confidentiality Agreement, in which you will certify that you have returned to the Company all
Company documents (and all copies thereof) and other Company property that was in your possession or control, including, but not limited
to, Company files, notes, financial and operational information, customer lists and contact information, product and services information,
research and development information, drawings, records, plans, forecasts, reports, payroll information, spreadsheets, studies, analyses,
compilations of data, proposals, agreements, sales and marketing information, personnel information, specifications, code, software,
databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines,
mobile telephones, tablets, servers and other handheld devices), credit cards, entry cards, identification badges and keys; and any materials of
any kind which contain or embody any proprietary or confidential information of the Company and all reproductions thereof in whole or in
part and in any medium. You agree that you have made a diligent search to
locate any such documents, property and information. In addition, if you have used any personally owned computer, server, or e-mail system
to receive, store, review, prepare or transmit any confidential or proprietary data, materials or information of the Company, then within two
(2) business days following the Separation Date, you must provide the Company with a computer-useable copy of such information and then
permanently delete and expunge such confidential or proprietary information from those systems without retaining any reproductions (in
whole or in part); and you agree to provide the Company access to your system, as requested, to verify that the necessary copying and
deletion is done.
10.
Nondisparagement.
You agree not to disparage the Company or the Company's officers, directors, employees, shareholders, parents,
subsidiaries, and affiliates, in any manner likely to be harmful to them or their business, business reputation or personal reputation, and the
Company agrees (through its officers and directors) not to disparage you in any manner likely to be harmful to your business reputation or
personal reputation; provided that both you and the Company may respond accurately and fully to any question, inquiry or request for
information when required by legal process. Any breach by you of this Section shall be a material breach of this Agreement.
11.
Cooperation
and
Assistance.
You agree that you will not voluntarily provide assistance, information or
advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any
claim or cause of action of any kind brought against the Company, nor shall you induce or encourage any person or
entity to bring such claims. However, it will not violate this Agreement if you testify truthfully when required to do so by a valid subpoena
or under similar compulsion of law. Further, you agree to voluntarily cooperate with the Company, if you have knowledge of facts relevant
to any threatened or pending claim, investigation, audit or litigation against or by the Company, by making yourself reasonably available
without further compensation for
Interviews with the Company or its legal counsel, preparing for and providing truthful and accurate deposition and trial testimony.
12.
No
Admissions.
The promises and payments in consideration of this Agreement shall not be construed to be an admission of any
liability or obligation by either party to the other party, and neither party makes any such admission.
13.
Representations.
You hereby represent that you have been paid all compensation owed and for all hours worked, you have received all
the leave and leave benefits and protections for which you are eligible pursuant to the federal Family and Medical Leave Act, the California
Family Rights Act, or otherwise, and you have not suffered any on-the-job Injury for which you have not already filed a workers'
compensation claim.
14.
Dispute
Resolution.
Before either party initiates this dispute resolution provision it/he must give the other party 30 days' notice in which
to cure any alleged breach of this Agreement if a cure is possible for such breach. You and the Company agree that any and all disputes,
claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, interpretation, or execution of
this Agreement, shall be resolved solely and exclusively, to the fullest extent permitted by law, by final, binding and confidential arbitration
in San Jose, California conducted before a single arbitrator by Judicial Arbitration and Mediation Services, Inc. ( "JAMS"
) or its successor,
under the then-applicable JAMS rules (which can be found at the following web address: http://www.jamsadr.com/rulesclauses). By
agreeing
to
this
arbitration
procedure,
both
you
and
the
Company
waive
the
right
to
resolve
any
such
dispute
through
a
trial
by
jury
or
judge
or
by
administrative
proceeding.
The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of
the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the
arbitrator's essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to determine if an issue is
subject to this arbitration obligation, and to award any or all remedies that you or the Company would be entitled to seek in a court of law.
The Company shall pay all costs and fees in excess of the amount of court fees that you would be required to incur if the dispute were filed
or decided in a court of law. Nothing in this Agreement shall prevent either you or the Company from obtaining injunctive relief in court if
necessary to prevent irreparable harm pending the conclusion of any arbitration. Any awards or orders in such arbitrations may be entered
and enforced as judgments in the federal and the state courts of any competent jurisdiction.
15.
Miscellaneous.
This Agreement, the Confidentiality Agreement and the Severance Plan constitute the complete, final and exclusive
embodiment of the entire agreement between you and the Company with regard to the subject matter hereof. Defined terms that are used
herein and not defined herein shall have the meanings ascribed to them in the Severance Plan. This Agreement is entered into without
reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other
agreements, promises, warranties or representations concerning its subject matter. This Agreement may not be modified or amended except
in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and
assigns. If any provision of this Agreement Is determined to be invalid or unenforceable, in whole or in part, this determination shall not
affect any other provision of this Agreement and the provision in question shall be modified so as to be rendered enforceable in a manner
consistent with the intent of the parties insofar as possible under applicable law. This Agreement shall be construed and enforced In
accordance with the laws of the State of California without regard to conflicts of law principles. Any ambiguity in this Agreement shall not
be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall
not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may be executed in counterparts which shall be
deemed to be part of one original, and facsimile and scanned image copies of signatures shall be equivalent to original signatures.
If this Agreement Is acceptable to you, please sign and date below and return the fully signed Agreement and Release to me within forty five
(45) days after your receipt of this Agreement. The Company's offer of the Severance Benefit will automatically expire if we do not receive
the fully signed Agreement and Termination Certification from you within this timeframe.
Sincerely,
MOBILEIRON,
INC.
By: /s/ Jared Lucas
Jared Lucas
Chief People Officer
10/5/2016
UNDERSTOOD AND AGREED:
/s/ Bob Tinker
Robert Tinker
10/7/2016
September
5,
2007
Exhibit
10.28
Suresh Batchu
Dear Suresh:
On behalf of the Board of Directors of Mobile Iron, Inc., (the “ Company ”), I am pleased to
extend an offer of employment to you as Vice President of Engineering reporting to the Company’s
CEO. Your primary duties will be to manage and provide leadership to the engineering organization
of the Company, including but not limited to responsibilities such as assisting in developing a
strategic business plan; developing and providing direction to the engineering team along with
establishing inter-functional processes; establishing a Company “culture”; engineering resource
planning, budgeting; developing hiring plans, establishing the development engineering environment,
recruiting managerial staff and engineers, developing and managing technology partnerships; and
securing capital financing.
1) Compensation
.
a) Base
Wage
.
In this
position
you will earn a starting salary of $12,500 per month, which is
equivalent to $150,000 on an annualized basis, subject to applicable tax withholding. After
the Company closes a Series A Preferred Stock financing of $6 to $8m (the “Financing”),
your cash compensation will be increased from $150K per year to $170K per year. Your
salary will be payable in two equal payments per month
pursuant to the Company’s regular
payroll policy.
b) Incentive
Bonus
. In addition, you may be eligible for an incentive bonus for each fiscal year
after the Financing. The bonus will be awarded based on criteria established by the CEO and
the Company’s Board of Directors. The determinations of the Company’s Board of Directors
with respect to your bonus will be final and binding.
2) Employee
Benefits.
The Company will provide you with the opportunity to participate in the
standard benefits plans currently available to other similarly situated employees, subject to any
eligibility requirements imposed by such plans.
3) Restricted
Stock.
a) You will be granted the right to purchase 500,000 shares (the “Shares”) of Common Stock of
the Company at a purchase price equal to $.001 per share (the “Purchase Price”) pursuant to
the terms of a restricted stock purchase agreement (the “Stock Purchase Agreement”) to be
entered into between the Company and you. The Company anticipates that the Shares should
comprise 3% of the Company after completion of the $6 to $8m Financing.
b)
Initially, 100% of the Shares will be subject to the Company's right to repurchase the Shares
at the Purchase Price upon your termination of employment for any reason. A portion of the
Shares will be released from the Company's repurchase option based upon your continued
employment with the Company as follows: 3/48th of the Shares will be released on the three
month anniversary of your Start Date (as defined below) and 1/48th of the Shares will be
released at the end of each one-month period thereafter, subject to your continued
employment with the Company. In addition, the Company will have a right of first refusal
with respect to your resale of any Shares. The price at which the Company may exercise its
right of first refusal will be equal to the price most recently set by the Board of Directors as
the fair market value of the Company's Common Stock. The right of first refusal will
terminate upon the closing of an initial public offering of the Company's Common Stock in
which all outstanding shares of Preferred Stock are converted to Common Stock.
4) Pre-employment
Conditions
.
a) Confidentiality
Agreement
.
Your acceptance of this offer and commencement of
employment with the Company are contingent upon the execution, and delivery to an officer
of the Company, of the Company’s Confidential Information and Invention Assignment
Agreement, a copy of which is enclosed for your review and execution (the “ Confidentiality
Agreement ”), prior to or on your Start Date.
b) Right
to
Work
.
For purposes of federal immigration law, you will be required to provide to
the Company documentary evidence of your identity and eligibility for employment in the
United States. Such documentation must be provided to us within three (3) business days of
your Start Date, or our employment relationship with you may be terminated.
i) Verification
of
Information
.
This offer of employment is also contingent upon the
successful verification of the information you provided to the Company during your
application process, as well as a general background check performed by the
Company to confirm your suitability for employment. By accepting this offer of
employment, you warrant that all information provided by you is true and correct to
the best of your knowledge, and you expressly release the Company from any claim or
cause of action arising out of the Company’s verification of such information. You
have a right to review copies of any public records obtained by the Company in
conducting this verification process unless you check the box below.
5) No
Conflicting
Obligations
.
You understand and agree that by accepting this offer of
employment, you represent to the Company that your performance will not breach any other
agreement to which you are a party and that you have not, and will not during the term of your
employment with the Company, enter into any oral or written agreement in conflict with any of
the provisions of this letter or the Company’s policies. You are not to bring with you to the
Company, or use or disclose to any person associated with the Company, any confidential or
proprietary information belonging to any former employer or other person or entity with respect
to which you owe an obligation of confidentiality under any agreement or
-2-
otherwise. The Company does not need and will not use such information and we will assist you
in any way possible to preserve and protect the confidentiality of proprietary information
belonging to third parties. Also, we expect you to abide by any obligations to refrain from
soliciting any person employed by or otherwise associated with any former employer and suggest
that you refrain from having any contact with such persons until such time as any non-solicitation
obligation expires.
6) General
Obligations
.
As an employee, you will be expected to adhere to the Company’s
standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. Please
note that the Company is an equal opportunity employer. The Company does not permit, and
will not tolerate, the unlawful discrimination or harassment of any employees, consultants, or
related third parties on the basis of sex, race, color, religion, age, national origin or ancestry,
marital status, veteran status, mental or physical disability or medical condition, sexual
orientation, pregnancy, childbirth or related medical condition, or any other status protected by
applicable law. Any questions regarding this EEO statement should be directed to Human
Resources.
7) Severance
.
a) General
Terms
.
In no way limiting the Company’s policy of employment at-will (as
described below), if your employment is terminated by the Company without Cause (as
defined below), and other than as a result of your death or disability, the Company will offer
certain severance benefits to you as described below. As a condition to your receipt of such
benefits, you are required to comply with your continuing obligations (including the return of
any Company property), resign from all positions you hold with the Company, and execute
the Company’s standard form of release agreement releasing any claims you may have
against the Company.
i) If your employment is terminated by the Company other than for Cause (as defined
below), as a severance benefit, you will be entitled to continuation of your base salary for a
period of one (1) month, less all applicable deductions and withholdings.
ii) Notwithstanding the provisions of the immediately preceding paragraph and
paragraph 3 above, in the event of a Change of Control (as defined below) and if, within
twelve (12) months following such a Change of Control (a) there is a Constructive
Termination (as defined below) or (b) your employment is terminated other than for Cause (as
defined below), you will also be entitled to the vesting of fifty percent (50%) of the Shares to
be accelerated as of the date of termination or Constructive Termination.
iii) As further consideration, if you elect continued group medical insurance coverage
pursuant to COBRA or Cal-COBRA (as applicable) in connection with a Constructive
Termination as described in clause (ii) above or a termination other than for Cause, the
Company will reimburse you for the applicable premiums for you and your eligible
dependents for the first one (1) month of such coverage.
8) At-Will
Employment.
Employment with the Company is for no specific period of time. Your
employment with the Company will be on an “at will” basis, meaning that either you or
-3-
the Company may terminate your employment at any time for any reason or no reason, without
further obligation or liability, except as set forth above. Although your job duties, title,
compensation and benefits, as well as the Company’s personnel policies and procedures, may
change from time-to-time, this policy of at-will employment is the entire agreement as to the
duration of your employment and may only be modified in an express written agreement signed
by you and another officer of the Company specifically authorized by the Board of Directors to
make such change.
9) Definitions
.
a) Cause.
For the purposes of this letter, “Cause” shall mean:
i) your repeated failure to perform one or more of your essential duties and responsibilities
to the Company;
ii) gross dereliction of your duties which continues after written notice from the Company’s
CEO or Board of Directors, specifying in reasonable detail the tasks which must be
accomplished and a timeline for their accomplishment to avoid termination for Cause;
iii) your material violation of any Company policy;
iv) your commission of any act of fraud, embezzlement, dishonesty or any other willful
misconduct that has caused or is reasonably expected to result in material injury to the
Company;
v) your unauthorized use or disclosure of any proprietary information or trade secrets of the
Company or any other party to whom you owe an obligation of nondisclosure as a result of
your relationship with the Company;
vi) your willful breach of any of your obligations under any written agreement or covenant
with eh Company, or your conviction of a felony; or
vii) a shutdown of the Company.
b) Constructive
Termination
shall be deemed to have occurred if you resign within 30 days
after the occurrence of one of the following events without your consent: (a) there is a
material diminution in your duties and responsibilities (other than a change of title), (b) your
office is relocated more than fifty (50) miles from your office location at the time of the
Change of Control, or (c) there is a material reduction in your salary or benefits.
c) Change
of
Control
means the occurrence of any of the following events:
i) The closing of a sale of all or substantially all of the assets of the Company; or
ii) The closing of a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity)
at least fifty percent (50%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such merger or
consolidation; or
-4-
iii) Completion of a tender or exchange offer or other transaction or series of transactions
resulting in less than a majority of the outstanding voting shares of the surviving
corporation being held, immediately after such transaction or series of transactions, by the
holders of the voting shares of the Company outstanding immediately prior to such
transaction or series of transactions.
We are delighted to be able to extend you this offer and look forward to working with you. To
indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided
below and return it to me, along with a signed and dated original copy of the Confidentiality
Agreement, on or before September 5, 2007. The Company requests that you begin work in this new
position on or before September 24, 2007. Please indicate the date (either on or before the
aforementioned date) on which you expect to begin work in the space provided below. This letter,
together with the Confidentiality Agreement, sets forth the entire agreement regarding your
employment with the Company and supersedes any prior representations or agreements, whether
written or oral. This letter will be governed by the laws of California, without regard to its conflict of
laws provisions. This letter may not be modified or amended except by a written agreement, signed
by you and an officer of the Company: provided, however, that the Company reserves the right to
modify unilaterally your job title, duties or reporting relationships, subject to the provisions of
Section 7(a)(ii).
Very truly yours,
Mobile Iron, Inc.
/s/ Ajay Mishra
Title: For and On Behalf of the Board of Directors
ACCEPTED AND AGREED:
By: /s/ Suresh Batchu
Suresh Batch
9/6/07
Date
___ I hereby waive my right to receive any public records as described above.
Anticipated Start Date: 9/24/07
Attachment A: Confidential Information and Invention Assignment Agreement
-5-
Attachment
A
Confidential
Information
and
Invention
Assignment
Agreement
EXHIBIT
21.1
SUBSIDIARIES
OF
MOBILEIRON,
INC.
EXHIBIT
21.1
The following is a list of MobileIron, Inc.’s subsidiaries including their jurisdiction of incorporation as of December 31,
2016:
Subsidiaries
MobileIron International, Inc.
MobileIron India Software Private Limited
Jurisdiction
of
Incorporation
Delaware, U.S.A.
India
Exhibit
23.1
CONSENT
OF
INDEPENDENT
REGISTERED
PUBLIC
ACCOUNTING
FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-196762, 333-207742 and 333-211057
on Form S-8 of our report dated February 14, 2017, relating to the consolidated financial statements of MobileIron, Inc. and its
subsidiaries appearing in this Annual Report on Form 10-K of MobileIron, Inc. for the year ended December 31, 2016.
Exhibit
23.1
/s/ DELOITTE & TOUCHE LLP
San Jose, California
February 14, 2017
Exhibit
31.1
Exhibit
31.1
I, Barry Mainz, certify that:
1.
I have reviewed this Annual Report on Form 10-K of MobileIron, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
c
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2017
/s/ Barry Mainz
Barry Mainz
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit
31.2
Exhibit
31.2
I, Simon Biddiscombe, certify that:
1.
I have reviewed this Annual Report on Form 10-K of MobileIron, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
d
5.
Date February 14, 2017
/s/ Simon Biddiscombe
Simon Biddiscombe
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit
32.1
CERTIFICATION
Exhibit
32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Barry Mainz, President and Chief
Executive Officer (Principal Executive Officer) of MobileIron, Inc. (the “Company”), and Simon Biddiscombe, Chief Financial
Officer (Principal Financial and Accounting Officer) of the Company, each hereby certifies that, to the best of his or her
knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the period ended December 31, 2016 (the “Annual Report”), to which this
Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the
Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
I
N
W
ITNESS
W
HEREOF
, the undersigned have set their hands hereto as of the 14th day of February, 2017.
Arry
/s/ Barry Mainz
Barry Mainz
President and Chief Executive
(Principal Executive Officer)
/s/ Simon Biddiscombe
Simon Biddiscombe
Chief Financial Officer
(Principal Financial and Accounting Officer)
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of MobileIron, Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such filing.”