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,
2017
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)
401
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, a smaller reporting company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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)
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☒
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, 2017, the aggregate market value of shares of common stock held by non-affiliates of the registrant was $370 million based on the number of shares held by non-affiliates as of June 30, 2017
and based on the closing sale price of the registrant's common stock as reported on the NASDAQ Stock Market on June 30, 2017 of $6.05 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 100,560,616 as of March 7, 2018.
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 2018 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, 2017.
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
Exhibit Index
Signatures
“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
12
37
37
38
38
39
41
44
66
68
97
97
98
99
99
99
99
99
100
101
106
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,” “potentially,”
“predict,” “plan,” “outlook,” “target,” “expect,” “future” 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; and
the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and
while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete,
and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon
these statements.
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
Mobile and cloud computing are the catalysts for modern work. Mobile lets employees make better decisions and take
faster actions because the information and tools they need to do their jobs are always available. Cloud lets developers build
innovative services quickly and lets employees start using them easily.
Modern work requires a new security model, however, because both mobile and cloud operate outside the traditional
network perimeter. Data no longer resides behind the firewall on locked-down PCs and servers, and so it cannot be secured by
firewall-based solutions. Instead, data is spread across an information fabric that spans a wide variety of modern endpoints and
cloud services. Modern endpoints are computing devices that run operating systems such as Android, iOS, macOS or Windows
10. While they can be desktops, they are increasingly portable, like smartphones, tablets, laptops, and wearables. Cloud services
are SaaS applications such as Box, Concur, Google G Suite, Microsoft Office 365, Salesforce, ServiceNow, Tableau, and
Workday, as well as custom applications built on infrastructure such as Amazon Web Services, Google Cloud Platform, and
Microsoft Azure.
CIOs face the challenge of giving employees the ability to use the cloud services and endpoints they want without
compromising either user experience or data security. To pass a security audit, IT will need to maintain control of company data.
This means deleting data if an endpoint is lost, stopping data from being shared with consumer apps, and stopping data from
ending up on endpoints that are not secure. But it is not enough to do this for just one cloud service or one type of endpoint. IT
will need to do this across the wide range of technologies their users choose.
We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, wearable or IoT device with access
to enterprise data, will require a solution like MobileIron’s to secure that data. MobileIron provides a government-grade security
platform to protect business data all the way from the cloud to the endpoint. The MobileIron platform combines cloud security,
unified endpoint management (UEM), secure connectivity, and threat intelligence into an integrated solution designed to deliver
enterprise services to users with a seamless experience that does not compromise data security.
Our platform establishes an adaptive data perimeter outside the firewall to ensure that only trusted users using trusted apps
on trusted endpoints can access business information. A trusted user is one who is authorized to access certain business data.
Trusted apps and endpoints are those that can then maintain the security of that data. Our cross-stack architecture (multi-cloud,
multi-app, multi-OS, multi-identity) allows customers to tap into the innovation of best-of-breed cloud services and modern
endpoints while still leveraging their existing infrastructure investments in identity management and network security. Our
platform and products protect the customer from being locked into a single-vendor computing stack.
Customers use MobileIron to:
1. Establish a trusted workspace on the endpoint that includes the applications, connectivity, and seamless authentication
2.
users need to be productive.
Separate business data from personal data both on the endpoint and across the network to prevent the loss of business
data and to preserve the privacy of personal data.
3. Block untrusted endpoints and apps from accessing business cloud services so that they cannot move business data
outside the company’s control.
4. Detect and remediate zero-day security threats to protect against new vulnerabilities and attacks.
Our customers can deploy MobileIron as either a cloud service or on-premises software. They can choose subscription or
perpetual licensing. We primarily target midsize and large enterprises around the world across a broad range of industries
including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology, and
telecommunications.
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Our business model is based on winning new customers, growing existing customers through seat expansion and product
upsell, and renewing subscriptions and software support agreements. Our channel partners include distributors, resellers, service
providers and system integrators. Our revenue grew to $176.5 million in 2017 and we have experienced rapid growth in our
customer base, having sold our platform to over 16,000 cumulative customers since 2009. In 2017, we generated over two-thirds
of our gross billings from recurring sources (subscriptions and software support agreements). No single end-user customer
accounted for more than 5% of our total revenue in 2017. One reseller, AT&T, Inc., accounted for 15% of our revenue in 2017.
Our
Product
Architecture
The MobileIron product platform has four components:
·
Policy
engine
: This is the central console for MobileIron, through which the administrator defines security policies,
distributes and configures business services like email, applications, and connectivity, and assigns those policies and
services to the appropriate users and endpoints. MobileIron can be deployed as either a cloud service (MobileIron Cloud)
or on-premises software (MobileIron Core). MobileIron Bridge adds the capability to apply legacy Windows
management policies to modern Windows 10 endpoints. MobileIron ServiceConnect extends the policy engine through a
set of APIs that enable other security and infrastructure solutions to either pull data from MobileIron or trigger actions in
MobileIron.
· Adaptive
access
: MobileIron Access blocks untrusted devices and apps from accessing cloud services, based on
security posture and compliance. Access also provides single sign-on (SSO) across applications on the device so that
users do not have to enter their passwords. In addition, MobileIron Tunnel provides secure connectivity through per-app
VPN to connect applications to back-end services.
·
Secure
applications
: MobileIron provides a set of secure applications for end-user productivity. These include
Apps@Work (enterprise app store), Docs@Work (secure content), Email+ (secure email and PIM), Help@Work
(troubleshooting), and Web@Work (secure browsing). In addition, MobileIron AppConnect is an SDK and wrapper that
third-party developers can integrate into their applications to provide a higher level of security through additional
encryption and advanced security controls.
· Threat
intelligence
: MobileIron Threat Defense uses machine learning-based analysis to identify zero-day threats on
the device, within client apps, and across the network. It then triggers the appropriate security response, from notification
to deletion of data.
Our
Competitive
Strengths
Customers buy the MobileIron solution when data security is a priority. Our strengths are:
· Government-grade security: We protect data on the device and across the network and enforce secure access to back-
end business services. This end-to-end approach simplifies the deployment of security policies for our customers. We
were the first company to receive Common Criteria certification against Version 2.0 of the Protection Profile for Mobile
Device Management. 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. We have been
positioned in the Leaders Quadrant of the Gartner Magic Quadrant for Enterprise Mobility Management Suites seven
years in a row because of our strength in modern security. We have been granted 65 patents in our solution category as
of December 31, 2017, which we believe is more than any of our competitors.
1
· Cross-stack architecture : We have extensive support for Android, iOS, macOS, and Windows 10 endpoints. Our
standards-based, adaptive access architecture allows us to protect cloud services across vendors such as Box, Concur,
Google G Suite, Microsoft Office 365, Salesforce, ServiceNow, Tableau, and Workday . Our cross-stack architecture lets
our customers securely deploy best-of-breed cloud services and endpoints.
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· Global customer support organization. T he capability and quality of our solution combined with the strength of our
global customer support organization has been a competitive differentiator. In 2017, we received the Service Capability
& Performance (SCP) Standards certification for our customer support operations.
·
Platform extensibility and ecosystem breadth. We provide extensive product support for the operating system ecosystem
(Apple, Google and Microsoft) with zero-day compatibility for new releases. Our AppConnect technology allows
customers and independent software vendors (ISVs) to build applications that can be secured by MobileIron. Our
ServiceConnect technology allows customers to deploy integrated workflows between MobileIron and their existing
security and infrastructure solutions. We believe that our best-of-breed ecosystem is a competitive advantage over the
single-stack lock-in of some of our competitors. As of December 31, 2017, our ecosystem had over 1,500 registered
developers. Of those registered developers, the top 210 ISVs that we track had released over 350 technology
integrations.
1
*Gartner "Magic Quadrant for Enterprise Mobility Management Suites" by Rob Smith, Bryan Taylor, Manjunath Bhat, Chris
Silva, Terrence Cosgrove, June 6, 2017.
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 Form 10-K) and the opinions expressed in the Gartner Report(s)
are subject to change without notice.
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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 2017. Medium to large enterprises accounted for
a majority of our gross billings. We have sold our products to over 16,000 customers globally, including more than 500
companies on the Forbes Global 2000 Leading Companies list, as of December 31, 2017. Our channel partners include resellers,
service providers and system integrators. We recognized 46%, 47% and 50% of total revenue from customers with a billing
address in the United States in 2017, 2016 and 2015, respectively. We recognized 12% and 13% of total revenue from customers
with a billing address in Germany in 2017 and 2016, respectively. No other country exceeded 10% of the total revenue in 2015.
AT&T, Inc., as a reseller, accounted for approximately 14%, 15% and 16% of our total revenue in 2017, 2016 and 2015,
respectively. No end user of our products accounted for more than 5% of our total revenue in 2017, 2016 or 2015.
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 substantial majority of our products through indirect sales channels and, as a result, maintain a sales force that
works closely with our channel partners to develop sales opportunities. We have an outside salesforce focused on large
organizations and an inside salesforce focused on mid-sized organizations. Our channel team works with our service providers to
address small to mid-sized organizations. Our marketing team focuses on driving customer demand, building brand reputation,
expanding market awareness, and enabling our internal and extended (channel) sales teams.
Our sales organization is supported by sales engineers with deep technical expertise and responsibility for pre-sales
technical support and the technical training of our channel partners. Our sales organization has strong alignment with our
customer success organization. Our sales cycle ranges from a few weeks for small businesses to many months for large
enterprises.
We work with mobile and security focused channel partners to 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.
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 and keep
pace with the rapidly evolving mobile and cloud 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.
Research and development expense totaled $75.4 million, $67.4 million and $61.9 million in 2017, 2016 and 2015,
respectively. We plan to continue to significantly invest in resources to conduct our research and development efforts.
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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 Microsoft, VMware, and IBM; 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;
brand awareness and reputation; and
focus on customer service and success.
We believe we compare favorably with our competitors on the basis of these factors. However, 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. Some of them embed their competitive solutions into broader software
and services bundles. For more information about the competitive risks we face, refer to Item 1A. “Risk Factors” included
elsewhere in this Annual Report on Form 10-K.
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, 2017, we owned 65 patents worldwide covering various
innovations of our modern unified endpoint management (UEM) 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.
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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, 2017, we had 884 full-time employees, 374 of whom were primarily engaged in research and
development, 272 of whom were primarily engaged in sales and marketing, 135 of whom were primarily engaged in customer
success and 103 of whom were primarily engaged in administration and finance. 414 of these employees were located outside of
the United States. 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.
Revenue by geographic region based on the billing address was as follows:
(in thousands)
Revenue
United States
International
Total
Year
Ended
December
31,
2016
2017
2015
$
$
81,335 $
95,156
176,491 $
77,039 $
86,887
163,926 $
74,235
75,063
149,298
$2.7 million and $1.3 million, or 30% and 24%, as of December 31, 2017 and 2016, 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 two buildings totaling approximately
78,000 square feet under leases expiring from June 2020 to May 2023. We have additional office locations in 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 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
9
Table of Contents
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.
On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court
granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and
entered final judgment in the case on October 11, 2017 releasing all parties . The settlement called for a payment of $7.5 million
to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company
contributed $1.1 million to the settlement in 2017. This amount represented the remainder of the Company’s retention amount
under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability
insurance.
While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the
Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid
further distractions to management.
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 and channel partners alleging that our software or the customer’s use thereof
infringes the third party’s intellectual property right, such as a patent right. These indemnification obligations are typically not
subject to limitation; however if we believe such a claim is reasonably likely to occur and 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
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 for software licensed on a perpetual basis). 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, 2017, we have not received any material written claim for indemnification.
Corporate
Information
Our principal executive offices are located at 401 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.
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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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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 more recently introduced products and services such
as MobileIron Access and MobileIron Threat Defense;
— 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 $56.3 million, $67.2 million and
$84.5 million in 2017, 2016 and 2015, respectively. As of December 31, 2017, our accumulated deficit was $398.7 million. Our
revenue growth rate from 2016 to 2017 slowed compared to the revenue growth rate from 2015 to 2016, and we may not be able
to sustain or increase our growth rate or achieve or sustain profitability in the future. The revenue growth rate 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 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,
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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
1
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;
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— changes in our mix of revenue as a result of our different deployment options and licensing models and the ensuing
revenue recognition effects;
— the effect of litigation;
— changes in foreign currency exchange rates; and
— general economic conditions in our domestic and international markets.
1
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. 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 and other term subscriptions, MRC is not reflected in deferred revenue.
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. 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 successfully develop and market 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 additional orders from those customers.
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, the pricing and
breadth of our solutions compared with the solutions offered by our competitors, and the impact of our competitors’ selling
enterprise mobility management or mobile security as a component of a broader suite, 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
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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 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. Because these competitors possess greater resources, they 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, purchase companies or new technologies, 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 or purchased
companies 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 pressure on pricing and renewals, 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 customers and potential customers of the
value of our solutions, our business, operating results and financial condition could be materially and adversely affected.
We compete in rapidly evolving markets and must develop new solutions and enhancements to our existing solutions. If we fail
to predict and respond rapidly to emerging technological trends and our customers’ changing needs, we may not be able to
remain competitive. In addition, we may not generate positive returns on our research and development investments, which
may harm our operating results.
Our markets are characterized by rapidly changing technology, changing customer needs, evolving operating system
standards and frequent introductions of new offerings. To succeed, we must effectively anticipate, and adapt in a timely manner
to, customer and multiple operating system requirements and continue to develop or acquire new solutions and features that meet
market demands and technology trends. Likewise, if our competitors introduce new offerings that compete with ours or
incorporate features that are not available in our solutions, we may be required to reposition our solutions or introduce new
solutions in response to such competitive pressure. We may not have access to or have adequate notice of new operating system
developments, and we may experience unanticipated delays in developing new solutions and cloud services or fail to meet
customer expectations for such solutions. If we fail to timely develop and introduce new solutions or enhancements that respond
adequately to new challenges in the mobile IT
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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 invested in MobileIron Access and MobileIron Threat Defense but have not yet gained substantial market
traction. Should our MobileIron Access or MobileIron Threat Defense 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 endpoints (E.g., phones, tablets or
laptops) that run on different operating systems, 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 and business would be harmed.
An increasing portion of our sales has been generated from subscription licenses, which involves certain risks.
An increasing portion of our sales has been generated from subscription licenses. This mix shift towards subscription
licensing, and differing revenue recognition patterns between the different types of subscriptions that we offer under the new
revenue accounting guidelines, present a number of risks to us. We recognize a substantial portion of our subscription revenues
over the term of the subscription agreement as compared to sales of perpetual licenses, which are recognized up-front at the time
of delivery. Under the new revenue accounting guidelines, a portion of subscriptions to on-premises software will be recognized
up-front, while the remainder of the subscription will be recognized over the subscription term. That revenue recognition pattern
is different from subscriptions to cloud offerings, for which all revenue will be recognized ratably over the term of the
subscription. MRC revenue, which is currently included in subscription revenue in our statements of operations, 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. 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
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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 have in the past may in the future 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.
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.
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 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.
A failure of our product strategy could harm our business.
Our product and business strategy is highly dependent on current and future customers continuing to adopt our solutions,
features, and functionality, including expanding to newer products, such as MobileIron Access and MobileIron Threat Defense,
and migrating to MobileIron Cloud. Slow adoption by enterprises of mobile business applications may slow the adoption of our
platform, because customers who are not deploying business apps other than email may not see
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value in our more advanced application security and management capabilities. If customers shift from client-side apps to web
apps as the preferred interface for end-users, it would reduce the value of our security solution because less confidential data
would reside on the endpoint. Operating system providers and larger software companies could harm our strategy by creating
competitive solutions and/or bundling those solutions in a broader portfolio of products. For example, Microsoft bundled certain
enterprise mobility management capabilities into Microsoft 365 in an attempt to dissuade customers from using solutions like
MobileIron. If our product strategy is not successful for these or other reasons, the value of our investment would be lost and our
results of operations would be harmed.
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 2016
and 2017 restructurings 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, customer
support, professional services, 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 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, settling or defending claims made
against us, or complying with specific laws or regulations such as breach notification requirements. 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.
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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 introduced or
released. We have 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 we rely on distributors, resellers, system vendors, and system integrators to
sell our products and services. 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, could
disrupt our operations and the solutions we provide to customers, could compromise our ability to protect our intellectual property
rights, and could damage our reputation, which could adversely affect our business, financial condition, and operating results.
We depend and rely upon technologies from third parties to operate our products, and interruptions or performance problems
with these technologies may adversely affect our business and results of operations.
We rely on applications from third parties in order to operate critical functions of our products. If these services become
unavailable due to extended outages, interruptions, errors or defects or because they are no longer available on commercially
reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and
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supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all
of which could adversely affect our business.
Real or perceived errors, failures or bugs in our software could adversely affect our business, results of operations, financial
condition, and growth prospects.
Our software is complex, and therefore, undetected errors, failures or bugs may occur in the future. Our software is used
in IT environments with different operating systems, system management software, applications, devices, databases, servers,
storage, middleware, custom and third-party applications and equipment and networking configurations, which may cause errors
or failures in the IT environment into which our software is deployed. This diversity increases the likelihood of errors or failures
in those IT environments. Despite testing by us, real or perceived errors, failures or bugs may not be found until our customers
use our software. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of or delay in
market acceptance of our software and harm our brand, weakening of our competitive position, claims by customers for losses
sustained by them or failure to meet the stated service level commitments in our customer agreements. In such an event, we may
be required, or may choose, for customer relations or other reasons, to expend significant additional resources in order to help
correct the problem. Any errors, failures or bugs in our software could impair our ability to attract new customers, retain existing
customers or expand their use of our software, which would adversely affect our business, results of operations and financial
condition.
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 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 and subscription programs, 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
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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 and subscription programs and renewal programs, including specific license and
subscription models and terms and conditions. We have in the past implemented, and could in the future implement, new
licensing and subscription programs, 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. Such billing model, renewal programs or licensing and
subscription arrangement changes may result in delayed revenue recognition.
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 employment and retention of qualified support personnel and the need to rely on channel partners to provide
support.
We rely substantially on channel partners for the sale and distribution of our solutions and, in some instances, for the support
of our solutions. A loss of certain channel partners, a decrease in revenues from certain of these channel partners or any
failure in our channel strategy could adversely affect our business.
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 our
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 our 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 14% of our total revenue for the year ended
December 31, 2017.
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
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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.
In addition, we have sold and will 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 purchase
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, and may require evaluation of our product my multiple
functions within their company. As a result of our lengthy sales cycle, it is difficult to predict whether and when a sale will be
completed, and our operating results may vary significantly from quarter to quarter. Even if sales are completed, the revenues we
receive from these customers may not be sufficient to offset our upfront investments.
We seek to sell our solutions to large enterprises. Sales to and support of these types of enterprises involve risks that could
harm our business, financial position and results of operations.
Our growth strategy is dependent, in part, upon increasing sales of our solutions to large enterprises. Sales to large
customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller entities. These risks
include:
— more complicated network requirements, which result in more difficult and time-consuming implementation
processes;
— more intense and time-consuming customer support practices;
— increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us;
— more customer-favorable contractual terms, including penalties;
— longer sales cycles and the associated risk that substantial time and resources may be spent on a potential customer
that ultimately elects not to purchase our solution or purchases fewer licenses than we had anticipated;
— closer relationships with, and dependence upon, large technology companies that offer competitive solutions;
— an RFP process that may favor incumbent or larger technology companies;
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— 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.
The European Union data protection law, the General Data Protection Regulation (“GDPR”), which will become
effective in May 2018, is wide-ranging in scope. To adapt to these new requirements, we are investing resources necessary to
enhance our policies and controls across our business units, products and services relating to how we collect and use personal data
relating to customers, distributors, resellers, personnel and suppliers. Additionally, we expect that the international transfer of
personal data will present ongoing compliance challenges and complicate our business transactions as we negotiate and
implement suitable arrangements with international customers and international and domestic suppliers. Failure to comply may
lead to fines of up to €20 million or up to 4% of the annual global revenues of the infringer, whichever is greater. EU data
protection laws and their interpretations continue to develop, and may be inconsistent from jurisdiction to jurisdiction, which may
further impact our information processing activities. Further, laws such as the EU’s proposed e-Privacy Regulation are
increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities. In
addition, countries outside the EU are considering or have passed legislation that requires local storage and processing of data,
which could increase the cost and complexity of delivering our products and services. Our current arrangements for the transfer of
personal data will need to continue to adapt to future judicial decisions and regulatory activity as laws on privacy and the
protection of personal data continue to evolve in the countries in which we and our customers do business. If we do not adapt to
such changes in the laws or regulations, our business and reputation could be harmed.
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
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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.
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
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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 infrastructures, 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.
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
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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. 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.
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.
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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 continued to qualify
as an “emerging growth company,” as defined in the JOBS Act, and our independent registered public accounting firm was not
required to attest to the effectiveness of our internal controls over financial reporting for the year ended December 31, 2017.
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. Moreover, the new revenue recognition guidance, Topic 606 – Revenue from Contracts with
Customers, requires more judgment than did the prior guidance.
Impairment of goodwill and other intangible assets would result in a decrease in earnings.
We have in the past and may in the future acquire intangible assets. 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 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 estimated amortization periods could have a material adverse effect on our financial results.
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Risks
Related
to
Our
Intellectual
Property
We have been sued by third parties for alleged infringement of their proprietary rights and may be sued in the future.
There is considerable patent and other intellectual property development activity in our industry. Our success depends in
part on not infringing the intellectual property rights of others. From time to time, our competitors or other third parties have
claimed, and we expect they will continue in the future to claim, that we are infringing their intellectual property rights, and we
may be found to be infringing such rights.
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 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.
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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 years ended December
31, 2017, 2016 and 2015, 54%, 53%, and 50% of our revenue, respectively, was attributable to our international customers,
primarily those located in Europe. As of December 31, 2017, approximately 47% of our employees were located abroad.
We expect that our international activities will be dynamic over the foreseeable future as we continue to pursue
opportunities in international markets, which will require significant management attention and financial resources. Therefore, we
are subject to risks associated with having worldwide operations.
We have a limited history of marketing, selling and supporting our solutions internationally. As a result, we must hire
and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in
recruiting, training, managing and retaining an international staff, and specifically staff related to sales and engineering, we may
experience difficulties in foreign markets. In addition, business practices in the international markets that we serve may differ
from those in the United States and may require us to include non-standard terms in customer contracts, such as extended
warranty terms. To the extent that we may enter into customer contracts in the future that include non-standard terms related to
payment, warranties or performance obligations, our operating results may be adversely affected. International operations are
subject to other inherent risks, and our future results could be adversely affected by a number of factors, including:
— difficulties in executing an international channel partners strategy;
— 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;
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— 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.
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
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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 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.
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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, 2017. 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;
— 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;
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— 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.
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 sought, 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 named 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.
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On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court
granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and
entered final judgment in the case on October 11, 2017 releasing all parties . The settlement called for a payment of $7.5 million
to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company
contributed $1.1 million to the settlement in 2017. This amount represented the remainder of the Company’s retention amount
under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability
insurance.
While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the
Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid
further distractions to management.
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, 2017. 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 ended
December 31, 2017, we continued 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
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— the market for different types of funding and overall economic conditions.
We may require additional funds in the future, and we may not be able to obtain those funds on acceptable terms, or at
all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if
available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity
financing that we raise may contain terms that are not favorable to us or our stockholders.
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. At December 31, 2017, we have 97,203,950 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 resulted in the issuance of 1,010,550 shares of
common stock in the first quarter of 2017. On June 14, 2017, our shareholders approved in a proxy vote the amendment and
restatement of our 2014 Employee Stock Purchase Plan, or ESPP, to provide for a one-time increase of 1,200,000 shares of
common stock available for issuance under the ESPP. In February of 2018, we issued 1,220,822 shares of common stock under
our 2017 executive and non-executive stock-settled bonus plans. 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 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;
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— our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of
minority stockholders to elect director candidates;
— stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to
the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage
or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or
otherwise attempting to obtain control of our company; and
— our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to
issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to acquire us.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a
corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless 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.
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 are required to implement this guidance in the first quarter of our
fiscal year 2018. The most significant impact relates to our accounting for subscriptions to our on-premise licenses, specifically,
as under the new standard we recognize revenue from those subscriptions predominantly at the time of billing rather than ratably
over the license term, potentially making revenue more volatile and difficult to predict. In addition, accounting for commissions is
impacted significantly as we 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
is dependent on contract-specific terms. Any difficulties in implementing these pronouncements or adequately accounting after
adoption could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and h arm
investors’ confidence in us. In addition, to adopt the new standard we had to implement a new revenue recognition module in our
accounting system, hire consultants and increase our spending on audit fees, thereby increasing our general and administrative
expense. That increased spending will continue through at least our first quarter of 2018 and will likely increase our audit fees on
an ongoing basis thereafter.
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
78,000 square feet under leases expiring from June 2020 to May 2023. We have additional office locations in 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.
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Item
3.
Legal
Proceedings
The information set forth under “Litigation” in Note 12 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.
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Part
I
I
Item
5.
Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities
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. We raised approximately $102.9 million in net proceeds from the offering after deducting
underwriting discounts and commissions of approximately $8.0 million and other offering expenses of approximately $4.1
million.
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
2017
Quarters:
Fourth Fiscal Quarter
Third Fiscal Quarter
Second Fiscal Quarter
First Fiscal Quarter
Fiscal
2016
Quarters:
Fourth Fiscal Quarter
Third Fiscal Quarter
Second Fiscal Quarter
First Fiscal Quarter
Holders
of
Record
and
Dividends
High
Low
$
$
$
$
$
$
$
$
4.30 $
6.55 $
6.78 $
5.00 $
4.50 $
3.69 $
4.78 $
4.55 $
3.20
3.45
4.20
3.70
2.60
2.56
2.78
3.01
As of March 7, 2018, there were 41 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
39
Table of Contents
reinvestment of all dividends) from June 12, 2014 to December 31, 2017. The stock price performance on the following graph is
not necessarily indicative of future stock price performance.
MobileIron,
Inc.
Comparison
of
Total
Return
Performance
Company/Index
MobileIron, Inc.
Nasdaq Computer Index
Nasdaq Composite Index
Unregistered
Sales
of
Equity
Securities
$
Base
Period
6/12/14
100.00
100.00
100.00
$
12/31/14
12/31/15
12/31/16
12/31/17
$
99.60
111.55
109.55
$
36.10
118.49
115.83
37.50 $
133.03
124.52
39.00
184.60
159.69
In the year ended December 31, 2017, we did not repurchase any shares subject to repurchase.
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 broker-assisted 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 10 to the Consolidated Financial Statements).
We withheld shares through net settlements (where the award holder receives the net of the shares vested, after surrendering
a portion of the shares back to the company for tax withholding) for our stock-settled bonus programs (the 2016 Executive Bonus
Plan and 2016 Non-executive Bonus Plan) . The following table provides a summary of the
40
Table of Contents
purchase activity upon the employee vesting and release of shares under the stock-settled bonus programs to satisfy tax
withholding obligations in 2017:
Period
February 1, 2017 through February 28, 2017
Total shares repurchased
Total
number
of
shares
repurchased
Average
price
paid
per
share
677,547 $
677,547 $
4.65
4.65
These purchases represent shares cancelled when surrendered in lieu of cash payments for tax obligations due from employees.
These shares were not purchased as part of a publicly announced program to purchase shares.
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 2017, 2016, 2015, 2014 and 2013 and the balance sheet data as of December 31, 2017,
2016, 2015, 2014 and 2013 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 2014 and 2013 and the balance
sheet data as of December 31, 2015, 2014 and 2013 is derived from audited financial
41
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
Litigation settlement charge
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
2017
2016
2015
2014
2013
Year
ended
December
31,
$
41,165 $
70,470
64,856
176,491
45,775
61,357
56,794
163,926
$
53,512 $
48,080
47,706
66,816 $
30,227
35,252
149,298
132,295
69,810
15,085
20,679
105,574
1,869
8,626
19,731
311
30,537
145,954
75,350
96,477
28,091
1,143
1,038
—
—
2,658
8,297
19,412
181
30,548
133,378
67,398
101,757
29,695
—
871
—
—
202,099
(56,145)
988
(55,157)
1,142
(56,299)
(0.60)
199,721
(66,343)
145
(66,198)
982
(67,180)
(0.78)
$
$
$
$
$
$
2,881
7,181
18,115
—
28,177
121,121
4,448
5,719
13,868
—
24,035
108,260
3,327
3,684
9,489
—
16,500
89,074
61,871
105,520
36,037
—
1,049
—
—
204,477
(83,356)
(274)
(83,630)
852
(84,482) $
(1.07) $
46,278
99,870
22,400
—
—
782
—
169,330
(61,070)
(302)
(61,372)
517
(61,889) $
(1.30) $
36,400
68,309
12,081
—
—
208
3,925
120,923
(31,849)
(396)
(32,245)
252
(32,497)
(3.27)
93,770
85,845
78,755
47,517
9,953
(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,
2017
2016
2015
2014
2013
$
$
3,772 $
14,520
8,659
6,780
33,731 $
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
42
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)
2017
2016
As
of
December
31,
2015
2014
2013
85,833 $
6,797 $
35,480 $
162,597 $
112,501 $
— $
— $
73,573
$
—
$
49,054
$
111,259
$
40,751
$
4,300
$
$
160,259
$ (398,684) $ (342,385) $ (275,205) $ (190,723) $ (128,834)
115,094 $ (109,825)
$
47,234 $
51,670 $
66,568 $
161,114 $
69,875 $
— $
— $
54,043 $
36,184 $
49,585 $
153,106 $
88,076 $
— $
— $
104,287 $
36,089 $
90,448 $
191,842 $
54,174 $
— $
— $
68,139 $
40,817 $
21,851 $
43
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.
Mobile and cloud computing are the catalysts for modern work. Mobile lets employees make better decisions and take
faster actions because the information and tools they need to do their jobs are always available. Cloud lets developers build
innovative services quickly and lets employees start using them easily.
Modern work requires a new security model, however, because both mobile and cloud operate outside the traditional
network perimeter. Data no longer resides behind the firewall on locked-down PCs and servers, and so it cannot be secured by
firewall-based solutions. Instead, data is spread across an information fabric that spans a wide variety of modern endpoints and
cloud services. Modern endpoints are computing devices that run Android, iOS, macOS or Windows 10. While they can be
desktops, they are increasingly portable, like smartphones, tablets, laptops, and wearables. Cloud services are SaaS applications
such as Box, Concur, Google G Suite, Microsoft Office 365, Salesforce, ServiceNow, Tableau, and Workday, as well as custom
applications built on infrastructure such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure.
CIOs face the challenge of giving employees the ability to use the cloud services and endpoints they want without
compromising either user experience or data security. To pass a security audit, IT will need to maintain control of company data.
This means deleting data if an endpoint is lost, stopping data from being shared with consumer apps, and stopping data from
ending up on endpoints that are not secure. But it is not enough to do this for just one cloud service or one type of endpoint. IT
will need to do this across the wide range of technologies their users choose.
We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, wearable or IoT device with access
to enterprise data, will require a solution like MobileIron’s to secure that data. MobileIron provides a government-grade security
platform to protect business data all the way from the cloud to the endpoint. The MobileIron platform combines cloud security,
unified endpoint management (UEM), secure connectivity, and threat intelligence into an integrated solution designed to deliver
enterprise services to users with a seamless experience that does not compromise data security.
Our platform establishes an adaptive data perimeter outside the firewall to ensure that only trusted users using trusted apps
on trusted endpoints can access business information. A trusted user is one who is authorized to access certain business data.
Trusted apps and endpoints are those that can then maintain the security of that data. Our cross-stack architecture (multi-cloud,
multi-app, multi-OS, multi-identity) allows customers to tap into the innovation of best-of-breed cloud services and modern
endpoints while still leveraging their existing infrastructure investments in identity management and network security. Our
platform and products protect the customer from being locked into a single-vendor computing stack.
Customers use MobileIron to:
1. Establish a trusted workspace on the endpoint that includes the applications, connectivity, and seamless authentication
2.
users need to be productive.
Separate business data from personal data both on the endpoint and across the network to prevent the loss of business
data and to preserve the privacy of personal data.
3. Block untrusted endpoints and apps from accessing business cloud services so that they cannot move business data
outside the company’s control.
4. Detect and remediate zero-day security threats to protect against new vulnerabilities and attacks.
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Table of Contents
Our customers can deploy MobileIron as either a cloud service or on-premises software. They can choose subscription or
perpetual licensing. We primarily target midsize and large enterprises around the world across a broad range of industries
including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology, and
telecommunications.
Our total revenue was $176.5 million in 2017, an increase of 8% from $163.9 million in 2016.
Revenue from subscriptions represented 40% and revenue from perpetual licenses represented 23% of total revenue in
2017. The balance, constituting 37% of total revenue in 2017, 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 37% of our total revenue from subscriptions, 28% from perpetual licenses and 35% from software support and
services in 2016.
Our perpetual license revenue in 2017 was $41.2 million, representing a decrease of $4.6 million, or 10%, compared to
2016. 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.
Our subscription revenue in 2017 was $70.5 million, representing an increase of $9.1 million, or 15%, compared to 2016,
reflecting our customers’ preference to purchase licenses priced as subscriptions. When we sell our solutions on a subscription
basis, we typically offer 12 months or longer terms and bill in advance. 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. Our MRC revenue, included in our reported subscription revenue, comprised approximately 11% of total revenue in 2017
and 15% of total revenue in 2016 . The decrease in MRC revenue as a percentage of total revenue was largely due to customers
switching from MRC to longer-term subscriptions or perpetual licenses. 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, on-premises and cloud term subscriptions, and MRC
transactions.
Our software support and services revenue in 2017 was $64.9 million, representing an increase of $8.1 million, or 14%,
compared to 2016. 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 $200.9 million, $182.1 million, and $165.0 million in 2017, 2016 and 2015, respectively,
representing growth rates of 10% from both 2016 to 2017 and 2015 to 2016. See “Key Metrics and Non-GAAP Financial
Information” and “Recent Accounting Pronouncements” for more information and a reconciliation of gross billings to total
revenue.
45
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 2017 , 2016 and 2015, 54%, 53% and 50%, respectively, of our total revenue was
generated from customers located outside of the United States, primarily those located in Europe. International market trends that
may affect sales of our products and services include heightened concerns and legal requirements relating to data security and
privacy, the importance of execution on our international channel partner strategy, the importance of recruiting and retaining
sufficient international personnel, the effect of exchange rates, and political and financial market instability.
In 2016 and 2017, we focused on driving more efficiency in our business. However, we have continued to incur net losses.
We incurred net losses of $56.3 million, $67.2 million and $84.5 million in 2017, 2016 and 2015, 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 primarily
dependent on revenue growth, which may be challenging for a number of reasons including possible continued mix shift towards
cloud subscription licensing, increasing and entrenched competition, changes in our pricing model, our ability to continue to
develop and evolve our products, any failure to capitalize on market opportunities, the ability of our sales organization to retain its
key employees and leadership team, and continued stock-based compensation charges from restricted stock unit grants and stock-
settled bonuses. Future profitability is also dependent on our ability to manage our expenses, which are being impacted by
increasing overhead costs associated with security initiatives, new revenue guidance implementation, office expansion in India,
increased depreciation expense from capital expenditures for our new headquarters office and office in India, network and data
center upgrades, and software projects. We will need to increase operating efficiency, which may be challenging given our
operational complexity. In addition, the new revenue accounting standard may impact our profitability and may make our
financial results more difficult to predict.
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, a litigation settlement charge, and
restructuring charges. Beginning 2016, we no longer excluded 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 insignificant in 2017 and 2016 and was $1.8
million in 2015.
Stock-based compensation expenses
In our non-GAAP financial measures, we have excluded the effect of stock-based compensation expenses. Stock-based
compensation expenses will recur in future periods.
Amortization of intangible assets
In our non-GAAP financial measures, we have excluded the effect of the amortization of intangible assets. Amortization of
intangible assets is significantly affected by the timing and size of our acquisitions. Amortization of intangible assets will recur in
future periods if we acquire companies or intangible assets.
46
Table of Contents
Litigation settlement charge
In our non-GAAP financial measures, we have excluded a charge for the cost of the settlement of our shareholder
litigation. While it is possible that we will have material litigation-related charges in the future, we do not expect such charges to
consistently recur.
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, the litigation
settlement charge, 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
have not historically had a material litigation-related settlement charge. While it is possible that we will have material litigation
settlement charges in the future, we do not expect it to be a consistently recurring expense. 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 a recurring expense and may recur in the future if we acquire companies or
intangible assets.
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
47
Table of Contents
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 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,
2016
182,127
2017
200,916
150,834
131,773
$
10 %
$
75 %
14 %
$
10 %
$
72 %
23 %
$ 130,292
$ 113,414
$
74 %
15 %
69 %
25 %
150,582
(19,377)
$
85.3 %
$
(11.0)%
$
$
$
(19,531)
(0.21)
(3,418)
137,218
(30,286)
$
83.7 %
$
(18.5)%
$
$
$
(31,123)
(0.36)
(14,659)
$
$
$
$
$
48
2015
164,999
—
107,485
65 %
—
90,563
61 %
—
124,765
83.6 %
(52,646)
(35.3)%
(53,772)
(0.68)
(52,265)
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: Litigation settlement charge
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: Litigation settlement charge
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: Litigation settlement charge
Add: Restructuring charge per share
Non-GAAP
net
loss
per
share
Free
cash
flow:
Net cash provided by (used in) operating activities
Purchase of property and equipment
Free
cash
flow
49
For
the
year
ended
December
31,
2016
2017
2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
176,491
112,501
(88,076)
24,425
200,916
176,491
(41,165)
(2,983)
109,152
(85,612)
23,540
(5,049)
150,834
176,491
(41,165)
(2,983)
(2,051)
130,292
145,954
3,772
545
311
150,582
$
$
$
$
$
$
$
82.7 %
2.6 %
85.3 %
(56,145)
33,731
545
1,143
1,349
(19,377)
$
$
(31.8)%
20.8 %
(11.0)%
(56,299)
33,731
545
1,143
1,349
(19,531)
(0.60)
0.36
0.01
0.01
0.01
(0.21)
3,036
(6,454)
(3,418)
$
$
$
$
$
$
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)
Table of Contents
(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.
(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 enterprise mobility management
or mobile security as a component of a broader suite. We believe the degree to which prospective customers view our value
proposition as differentiated will determine the customer demand for our solutions. For example, the level of security desired, the
preservation of the native experience on end user devices, and the ability of the solution to work with multiple cloud offerings are
evaluated by our prospective customers as they make buying decisions.
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.
50
Table of Contents
Expansion and Upsell within Existing Customer Base
After the initial sale to a new customer, we focus on providing increased value expanding our relationship with such
customer to sell additional licenses and subscriptions. To increase our revenue, in addition to customers’ renewing their
subscriptions or support contracts with us, 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 customers’ renewing
their existing agreements with us and the degree to which and our expansion and upsell sales strategy is successful.
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
continue to increase over time and there may be significant increases or decreases on a quarterly basis. We have also seen our
cloud subscriptions increase as a proportion of our total revenue and expect this trend to continue. Under the new revenue
accounting standard, revenue associated with the license portion of on-premise term subscriptions is recognized up-front with the
remainder being recognized over the subscription term whereas all cloud subscription revenue is recognized ratably over the
subscription term. Such differences in accounting treatment for on-premise and cloud subscriptions may cause revenue to
fluctuate and to be less predictable on a quarterly basis.
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
revenue is also included in perpetual license revenue and constitutes less than 10% of total revenue in 2017, 2016 and 2015.
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.
51
Table of Contents
Cost of Revenue
Perpetual license
Our cost of perpetual license revenue consists of cost of third-party software royalties, appliances and amortization of
intangible assets.
Subscription
Our cost of subscription revenue primarily consists of costs associated with our data center operations for our cloud
service, our global 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, including products we resell or pay a significant
royalty on, 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
52
Table of Contents
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 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.
Litigation Settlement Charge
The litigation settlement charge is the expense associated with the settlement of outstanding shareholder litigation.
Restructuring Charges
Restructuring charges consist of severance and severance-related costs and, in 2017, the estimated cost to exit a
facility. These restructuring charges were designed to align our cost structure with our expected growth rate.
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.
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.
53
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,
2016
2017
2015
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)
Litigation settlement charge
Restructuring charge
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:
$
41,165
70,470
64,856
176,491
$
45,775 $
61,357
56,794
53,512
48,080
47,706
163,926 149,298
1,869
8,626
19,731
311
30,537
145,954
2,658
8,297
19,412
181
30,548
2,881
7,181
18,115
—
28,177
133,378 121,121
75,350
96,477
28,091
1,143
1,038
202,099
(56,145)
988
(55,157)
1,142
$ (56,299)
$
(0.60)
93,770
67,398
61,871
101,757 105,520
36,037
29,695
—
—
1,049
871
199,721 204,477
(83,356)
(274)
(83,630)
852
$ (67,180) $ (84,482)
(1.07)
$
78,755
(66,343)
145
(66,198)
982
(0.78) $
85,845
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
Year
ended
December
31,
2016
2015
2017
$
$
3,772
14,520
8,659
6,780
33,731
$
$
3,043 $
11,728
10,474
9,144
34,389 $
2,774
10,607
9,508
5,902
28,791
54
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
Litigation settlement charge
Restructuring charge
Total operating expenses
Operating loss
Other income (expense) - net
Loss before income taxes
Income tax expense
Net loss
Years
Ended
December
31,
2017,
2016
and
2015
Revenue
(in thousands,
except percentages)
Perpetual
Subscription
Software support and
services
Total revenue
Percentage of total
revenue
Perpetual
Subscription
Software support and
services
Year
ended
December
31,
2016
2015
2017
23 %
40
37
100
1
5
11
—
17
83
43
54
16
1
—
114
(31)
—
(31)
1
(32) %
28 %
37
35
100
2
5
12
—
19
81
41
62
18
—
1
122
(41)
—
(41)
—
(41) %
36 %
32
32
100
2
5
12
—
19
81
41
71
24
—
1
137
(56)
—
(56)
1
(57) %
Change
Year
Ended
December
31,
$
2017
41,165
70,470
$
2016
45,775
61,357
$
2015
53,512
48,080
2017
vs
2016
Amount %
$ (4,610)
9,113
(10)% $
15 %
2016
vs
2015
Amount
%
(7,737)
13,277
(14)%
28 %
64,856
$ 176,491
56,794
$ 163,926
47,706
$ 149,298
8,062
$ 12,565
14 %
8 % $
9,088
14,628
19 %
10 %
23 %
40
37
100 %
28 %
37
35
100 %
36 %
32
32
100 %
55
Table of Contents
2017
%
of
Total
For
the
year
ended
December
31,
2016
%
of
Total
2015
%
of
Total
Change
2017
vs
2016
2016
vs
2015
Amount
Revenue
Amount
Revenue Amount
Revenue Amount
% Amount
%
$
$
81,335
95,156
176,491
46 % $
54 %
100 % $
77,039
86,887
163,926
47 % $ 74,235
75,063
53 %
100 % $ 149,298
50 % $
50 %
100 % $
4,296
8,269
12,565
6 % $ 2,804
10 % 11,824
8 % $ 14,628
4 %
16 %
10 %
(in thousands,
except
percentages)
Revenue
United States
International
Total revenue
Comparison of 2017 and 2016
Perpetual license revenue decreased $4.6 million in 2017 compared to 2016, primarily due to a shift in favor of software
licenses priced as subscriptions and a slowdown in perpetual license orders.
Subscription revenue increased $9.1 million, or 15%, in 2017 compared to 2016, due to increased sales of subscriptions
to licenses sold under a cloud-based delivery model and, to a lesser extent, subscriptions for license to our on premise software
products. MRC revenue decreased from $24.5 million in 2016 to $20.0 million in 2017, largely due to the conversion of MRC
agreements to longer-term subscription or perpetual license agreements.
Software support and services revenue increased $8.1 million, or 14%, in 2017 compared to 2016, primarily as a result
of an increased installed base of customers that pay recurring software support.
Revenue from international and U.S. sales increased 10% and 6%, respectively, in 2017 compared to 2016 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, and a slowdown in perpetual license orders.
Revenue from AT&T, as a reseller, was 14% of total revenue in 2017 compared to 15% in 2016. No other customer
accounted for 5% or more of total revenue in 2017 or 2016.
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 or 2015.
56
Perpetual license
Subscription
Software support
and services
Restructuring charge
Table of Contents
Cost of Revenue and Gross Margin
2017
%
of
Total
For
the
year
endedDecember
31,
2016
%
of
Total
2015
%
of
Total
Change
2017
vs
2016
2016
vs
2015
Amount
Revenue
Amount
Revenue
Amount
Revenue
Amount
%
Amount
%
(in thousands,
except percentages)
Cost of revenue:
$
1,869
8,626
1 % $
5 %
2,658
8,297
2 % $
5 %
2,881
7,181
2 % $
5 %
(789)
329
(30)% $
4 %
(223)
1,116
(8)%
16 %
19,731
311
11 %
— %
19,412
181
12 %
— %
18,115
—
12 %
— %
319
130
2 %
72 %
1,297
7 %
181 NM
Total cost of
revenue
Gross profit
Gross margin
$ 30,537
$ 145,954
17 % $ 30,548
$ 133,378
83 %
19 % $ 28,177
$ 121,121
81 %
19 % $
(11)
$ 12,576
(0) % $ 2,371
9 % $ 12,257
8 %
10 %
81 %
Comparison of 2017 and 2016
Total cost of revenue was flat in 2017 compared to 2016. Perpetual license cost of revenue decreased $789,000 due
primarily to lower appliance sales. Subscription cost of revenue increased $329,000 due to higher data center operations spending
to support our growing cloud business and, to a lesser extent, higher royalty expense. Software support and services cost of
revenue increased $319,000 due to an increase in Global Customer Success expense. Global Customer Success expense increased
primarily due to higher stock-based compensation and other payroll-related expense, partially offset by lower fees paid for
consulting services, which had supplemented our technical support and professional services teams. We incurred a $311,000
restructuring charge in 2017 due to a reduction in workforce, which was $130,000 higher than our restructuring charge in 2016, to
align our cost structure with our revenue growth.
Comparison of 2016 and 2015
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.
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Table of Contents
Operating Expenses
2017
For
the
year
ended
December
31,
2016
2015
2017
vs
2016
2016
vs
2015
Change
(in thousands,
except percentages)
Operating expenses:
Amount
%
of
Total
Revenue
Amount
%
of
Total
Revenue
Amount
Revenue
Amount
%
Amount
%
%
of
Total
Research and
development
Sales and
marketing
General and
administrative
Litigation
settlement charge
Restructuring
charge
Total operating
expenses
$
75,350
43 % $
67,398
41 % $
61,871
41 % $
7,952
12 % $
5,527
9 %
96,477
54 %
101,757
62 % 105,520
71 %
(5,280)
(5)%
(3,763)
(4)%
28,091
16 %
29,695
18 %
36,037
24 %
(1,604)
(5)%
(6,342)
(18)%
1,143
1 %
1,038
— %
—
871
— %
—
— %
1,143 NM %
— NM %
1 %
1,049
1 %
167
19 %
(178)
(17)%
$ 202,099
113 % $
199,721
122 % $ 204,477
137 % $
2,378
1 % $ (4,756)
(2)%
Comparison of 2017 and 2016
Research and development expense increased $8.0 million, or 12%, in 2017 compared to 2016 primarily due to an
increase in personnel costs of $5.0 million, facilities and infrastructure expense of $2.1 million, and professional services expense
of $650,000. Stock-based compensation expense, part of personnel costs, increased by $2.8 million primarily because of higher
expense associated with restricted stock unit grants and our stock-settled bonus plan, partially offset by lower stock option and
ESPP expense. The remainder of the increase in personnel costs was due primarily to increased headcount. Facilities and
infrastructure expense increased due to an investment in our IT infrastructure, office move costs including exit costs accrued for a
Bangalore office, depreciation on equipment purchases, rent, and other infrastructure and costs to support higher headcount. We
incurred additional professional services expense to supplement our development work and improve processes.
Sales and marketing expense decreased $5.3 million, or 5%, in 2017 compared to 2016. Personnel costs decreased by
$3.7 million. Within personnel costs, stock-based compensation expense and other payroll-related expense decreased $1.8 million
and $1.9 million, respectively, in 2017 compared to 2016. The stock-based compensation expense decrease was driven by lower
expense associated with restricted stock unit grants, stock options, and ESPP. A more measured approach to hiring and replacing
personnel, which accounted for a decrease in headcount, was the primary reason for the decrease in other payroll-related
expenses. Outside professional services fees decreased $1.4 million due to lower costs associated with contractors who
supplemented our sales team, expense associated with security initiatives, and recruiting expense. Travel-related expense
decreased $952,000 due to lower sales headcount and continued cost control. Those expense decreases were partially offset by a
$542,000 increase in facilities and infrastructure expense due to an investment in our IT infrastructure, office move expenses,
software subscription costs, and rent.
General and administrative expense decreased $1.6 million, or 5%, in 2017 compared to 2016 primarily due to a $2.7
million decrease in personnel costs but partially offset by an $803,000 increase in facilities and infrastructure costs. The decrease
in personnel costs includes a decrease in stock-based compensation expense of $2.4 million, which was driven primarily by lower
stock option grant expense due to terminations but partially offset by higher restricted stock unit expense due to new grants. Other
personnel-related expense decreased $284,000 due to a change in the mix of general and administrative personnel. Litigation
legal fees decreased $922,000 as the shareholder lawsuit settled but this was offset by a $1.1 million increase in accounting and
consulting fees associated with implementation of the new revenue recognition accounting standard. Facilities and infrastructure
expense increased $803,000 due to an investment in our IT infrastructure, office move expense, software subscriptions and other
support expenses.
We recorded a litigation settlement charge of $1.1 million for expense associated with the settlement of our shareholder
litigation which received final court approval in 2017.
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We incurred a $1.0 million restructuring charge in 2017 due to a reduction in force, which was $167,000 higher than our
restructuring charge in 2016. The restructuring charges resulted from workforce reductions and a building exit, which
were designed to align our spending with our revenue growth rate and company initiatives .
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.
Other Income (Expense)—Net
(in thousands,
except percentages)
Other income (expense)—net
For
the
year
ended
December
31,
Change
2017
vs
2016
2016
vs
2015
2017
2016
2015
$
988 $
145 $
(274) $
Amount % Amount %
NM %
581 % $
419
843
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 $716,000, $454,000 and
$238,000 in 2017, 2016 and 2015, respectively. We recorded a foreign currency gain of $242,000 in 2017 and foreign exchange
losses of $339,000 and $518,000 in 2016 and 2015, respectively. Interest income has increased due to a general rise in interest
rates. The strengthening of foreign currencies, in particular the Euro, relative to the U.S dollar resulted in gains on cash and
accounts receivable denominated in foreign currencies in 2017.
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Income Tax Expense
(in thousands,
except percentages)
Income tax expense
For
the
year
ended
December
31,
Change
2017
2016
2015
$
1,142 $
982 $
852 $
2017
vs
2016
Amount %
160
2016
vs
2015
Amount %
130
16 % $
15 %
Income tax expense was $1.1 million, $982,000 and $852,000 in 2017, 2016 and 2015, 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.
Quarterly
Results
of
Operations
The following table presents our operating results for each of the eight fiscal quarters in the period ended December 31,
2017. The information for each of these quarters is derived from our unaudited interim financial statements and should be read in
conjunction with our audited consolidated financial statements included in this Annual Report. In our opinion, all necessary
adjustments, which consist only of normal and recurring accruals, have been included to fairly present
our unaudited quarterly results. 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,
2017
September
30,
2017
June
30,
2017
Three
Months
Ended
December
March
31,
2017
31,
2016
September
30,
2016
June
30,
2016
March
31,
2016
(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
Litigation settlement charge
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
$ 12,593 $
19,038
17,200
48,831
411
2,285
4,522
—
7,218
41,613
18,910
23,184
6,853
—
549
49,496
(7,883)
287
(7,596)
261
(7,857)
(0.08)
$
$
$
$
9,704 $
8,986 $
17,277
16,457
42,720
17,248
15,700
42,652
9,882 $
16,907
15,499
42,288
606
2,266
4,835
311
8,018
34,702
453
2,182
5,396
—
399
1,893
4,978
—
7,270
35,018
8,031
34,621
—
—
19,581
24,317
7,210
19,666
25,674
7,840
—
489
51,597
(16,895)
188
(16,707)
358
(17,065)
(0.18)
53,180
(18,559)
339
(18,220)
324
$ (18,544)
(0.20)
$
17,193
23,302
6,188
1,143
—
47,826
(12,808)
174
(12,634)
199
47,977
(9,857)
(39)
(9,896)
310
$ (12,833) $ (10,206)
(0.12)
$
(0.14) $
$
$
14,313 $
16,361
14,798
45,472
518
2,113
4,721
—
7,352
38,120
16,213
24,843
6,921
—
11,311 $
15,570
14,685
41,566
9,783 $ 10,368
14,623
13,016
38,007
14,803
14,295
38,881
652
2,202
4,774
181
7,809
33,757
629
2,199
5,289
—
859
1,783
4,628
—
7,270
30,737
8,117
30,764
16,238
24,001
6,961
18,019
27,246
8,265
16,927
25,668
7,548
871
48,071
(14,314)
19
(14,295)
298
(14,593)
(0.17)
—
53,530
(22,766)
30
(22,736)
198
$ (22,934)
(0.27)
$
—
50,143
(19,406)
135
(19,271)
176
$ (19,447)
(0.23)
$
96,574
95,024
92,963
90,439 88,335
86,713
85,317
82,977
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(1) Amounts include stock-based compensation expense as follows:
December
31,
2017
September
30,
2017
June
30,
2017
Three
Months
Ended
December
31,
2016
March
31,
2017
September
30,
2016
June
30,
2016
March
31,
2016
$
913 $
932 $
3,474
2,047
1,048
3,914
2,258
1,974
1,226 $
4,366
2,582
2,450
701 $
851 $
747 $
2,766
1,772
1,308
2,606
2,056
2,210
2,709
2,307
2,109
1,055 $
3,812
2,992
2,686
390
2,601
3,119
2,139
$
7,482 $
9,078 $ 10,624 $
6,547 $
7,723 $
7,872 $ 10,545 $
8,249
(in thousands)
Stock-Based
Compensation
Expense:
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
expense
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
2017
As
of
December
31,
2016
85,833
6,797
—
92,630
$
$
54,043
36,184
—
90,227
$
$
$
$
2015
47,234
49,576
2,094
98,904
(in thousands, except percentages)
Net cash provided by (used in) operating
activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
For
the
year
Ended
December
31,
2015
2016
2017
2017
vs
2016
Amount %
2016
vs
2015
Amount %
Change
$
$
3,036
22,991
5,763
$ (11,729)
12,567
5,971
$
$ (48,535)
(19,679)
$ 11,161
$ 14,765
10,424
(208)
$
(126)%
83 %
(3)%
$ 36,806
32,246
$ (5,190)
(76)%
(164)%
(47)%
At December 31, 2017, we had cash and cash equivalents of $85.8 million, the significant majority of which are held in
the United States. At December 31, 2017, we had short-term investments of $6.8 million. In 2017, we purchased $8.6 million of
investment securities and received $38.0 million from maturities of investment securities.
In addition, we have a revolving line of credit with a financial institution with potential borrowing capacity
of approximately $15.5 million that expires in June 2018. 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, 2017, we had no borrowings
outstanding under this revolving loan facility and we were in compliance with our loan covenants.
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
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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.
Cash Provided by (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.
In 2017, we generated $3.0 million of cash from operating activities compared to a use of $11.7 million of cash from
operating activities in 2016. We incurred a net loss of $56.3 million in 2017 compared to a net loss of $67.2 million in 2016 as we
increased our revenue by 8% and only slightly increased our operating expenses. The net loss included non-cash charges of $37.7
million, primarily due to stock-based compensation and depreciation expense, compared to $38.5 million in 2016. Changes in
operating assets and liabilities, as sources of cash, consisted of a $24.4 million increase in deferred revenue and a $2.0 million
increase in accrued expenses and other long-term liabilities that were partially offset by an increase in accounts receivable of $4.6
million.
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.
Cash Provided by (Used in) Investing Activities
Our investing activities have consisted of the purchase and maturities of investment securities and purchases of property
and equipment. We expect to continue to make such purchases to support the growth of our business.
Cash provided by investing activities was $23.0 million in 2017. We received $38.0 million from maturities of
investment securities and invested $8.6 million in new investment securities. Cash paid for the purchase of property and
equipment was $6.5 million in 2017 as we continued to upgrade our network and data centers, equipped new headquarters and
India office facilities, and implemented or enhanced systems associated with our quote-to-cash process.
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 2015. In 2015, 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.
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Cash Provided by Financing Activities
Our financing activities have consisted of proceeds from the exercise of stock options and contributions to our ESPP.
In 2017, our financing activities provided $5.8 million of cash. We received $4.1 million from the exercise of stock
options and $4.8 million from ESPP contributions. We used $3.1 million to pay employee payroll taxes as part of the net
settlement of our stock-settled bonuses.
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.
Contractual
Obligations
and
Commitments
The following table summarizes our contractual commitments and obligations as of December 31, 2017:
(In thousands)
Operating lease obligations
Purchase obligations
Total
$
$
Total
28,189 $
4,046
32,235 $
Less
Than
1
year
1-3
years
3-5
years
More
Than
5
years
7,195 $
4,046
11,241 $
12,675 $
—
12,675 $
7,156 $
—
7,156 $
1,163
—
1,163
We lease our office facilities under noncancelable operating lease agreements expiring between 2018 and 2023.
As of December 31, 2017, our net unrecognized tax benefits including interest and penalties were $6.8 million, $6.7
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, 2017, we have no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-
K.
Segment
Information
We have one primary business activity and operate in one reportable segment.
Concentration
In 2017, AT&T accounted for approximately 15% of our revenue (including 1% as an end customer). In 2016, AT&T
accounted for approximately 16% 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.
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
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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 the 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.
The new revenue recognition standard will have a material impact on our revenue and commission accounting. See Note
1 – Accounting Policies in the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for further discussion.
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
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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 2017 and 2016 and observed no
impairment indicators.
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 a term equivalent to 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 . When we did not have a sufficient trading history for our common stock, the expected stock price volatility
assumption was determined by examining the historical volatilities of a group of industry peers. As more historical data
for our common stock became available, we began to use our own historical stock price volatility to determine
expected stock price volatility.
· 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 based 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)
2017
—
2.1%
40%
6.1
Year
ended
December
31,
2016
—
1.4% - 1.5%
42%
6.1
2015
—
1.6% - 1.8%
43% - 45%
5.5 - 6.1
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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)
2017
—
0.9% - 1.3%
34% - 54%
0.5 - 2.0
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
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 2017, 2016 and 2015, stock-based compensation expense was $33.7 million, $34.4 million and $28.8 million,
respectively. As of December 31, 2017, we had approximately $44.9 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 $99.7 million as of December 31,
2017. 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.
Because we have a full valuation allowance against our U.S. net deferred tax assets, the Tax Cuts and Jobs Act of 2017, or
Tax Act, will not materially impact our balance sheet or statement of operations. See Note 15 – Income Taxes in the Notes to
Financial Statements (Part II, Item 8 of this Form 10-K) for the Tax Act’s impact to our net deferred tax assets.
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
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Table of Contents
foreign currencies while in 2017, our operating expenses increased as a result of the appreciation of foreign currencies versus the
U.S. dollar. Approximately 23% of our 2017 expenses were denominated in foreign currencies. If, in 2018 or future years, the
U.S. dollar continues to decline in value versus the Euro, British Pound, Indian Rupee or other currencies, our operating expenses
will increase. 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 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 $92.6 million and $90.2 million as of December 31,
2017 and 2016, respectively, consisting of bank deposits, money market funds, corporate debt securities, and commercial paper.
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 $350,000 to our annual interest income.
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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 Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
68
Page
No.
69
70
71
72
73
74
Table of Contents
REPORT
OF
INDEPENDENT
REGISTERED
PUBLIC
ACCOUNTING
FIRM
To the stockholders and the Board of Directors of MobileIron, Inc.
Opinion
on
the
Financial
Statements
We have audited the accompanying consolidated balance sheets of MobileIron, Inc. and subsidiaries (the “Company”) as of
December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for
each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis
for
Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
San Jose, California
March 12, 2018
We have served as the Company’s auditors since 2011
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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 $475 and $433 at
December 31, 2017 and December 31, 2016, respectively
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
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 12)
Stockholders’ equity:
December
31,
2017
2016
$
$
85,833 $
6,797
48,171
5,510
146,311
8,812
100
5,475
1,899
162,597 $
$
1,369 $
24,995
84,467
110,831
28,034
1,881
140,746
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
Common stock, $0.0001 par value, 300,000,000 shares authorized, 97,203,950 shares
and 89,066,031 shares issued and outstanding at December 31, 2017 and
December 31, 2016, respectively
Additional paid-in capital
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
10
420,525
(398,684)
21,851
162,597 $
9
383,193
(342,385)
40,817
153,106
See accompanying notes to the consolidated financial statements
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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
Litigation settlement charge
Restructuring charge
Total operating expenses
MOBILEIRON,
INC.
CONSOLIDATED
STATEMENTS
OF
OPERATIONS
(In
thousands,
except
per
share
data)
Year
ended
December
31,
2016
2017
2015
$
41,165 $
70,470
64,856
176,491
45,775 $
61,357
56,794
163,926
53,512
48,080
47,706
149,298
1,869
8,626
19,731
311
30,537
145,954
2,658
8,297
19,412
181
30,548
133,378
2,881
7,181
18,115
—
28,177
121,121
75,350
96,477
28,091
1,143
1,038
202,099
67,398
101,757
29,695
—
871
199,721
61,871
105,520
36,037
—
1,049
204,477
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
(56,145)
988
(55,157)
1,142
(56,299)
(0.60)
93,770
$
$
(66,343)
145
(66,198)
982
(67,180) $
(0.78) $
85,845
(83,356)
(274)
(83,630)
852
(84,482)
(1.07)
78,755
$
$
See accompanying notes to the consolidated financial statements
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Table of Contents
MOBILEIRON,
INC.
CONSOLIDATED
STATEMENTS
OF
STOCKHOLDERS
’
EQUITY
(DEFICIT)
(In
thousands,
except
share
and
per
share
data)
BALANCE—December 31, 2014
Shares
76,153,844
Common
Stock
Additional
Paid-in
Amount Capital
$
8 $ 305,809
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
$
(190,723)
$
Issuance of common stock for stock option exercises, net of repurchases
2,776,221
—
5,846
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
198,564
—
246
1,273,147
—
7,359
924,461
—
—
—
—
24,076
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
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
Shares withheld for net settlement of Stock-Settled Bonus Plans
Vesting of restricted stock units
Stock-based compensation
Net loss
BALANCE—December 31, 2017
81,326,237
—
$
1,040,902
9,957
1,799,341
1,653,371
3,236,223
—
—
89,066,031 $
1,172,409
2,477
1,676,158
1,688,097
(677,547)
4,276,325
—
—
97,203,950 $
—
8
—
—
—
$ 343,336
—
$
2,468
43
4,851
5,638
—
26,857
—
1
—
—
—
9 $ 383,193 $
—
—
—
3,287
—
4,562
8,272
(3,149)
—
24,360
—
—
—
1
—
—
10 $ 420,525 $
—
—
—
—
—
$
(84,482)
(275,205)
—
—
—
—
—
—
(67,180)
(342,385) $
—
—
—
—
—
—
—
(56,299)
(398,684) $
See accompanying notes to the consolidated financial statements
72
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
3,287
—
4,562
8,272
(3,149)
1
24,360
(56,299)
21,851
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:
Year
ended
December
31,
2016
2015
2017
$
(56,299)
$
(67,180) $
(84,482)
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 provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Proceeds from maturities of investment securities
Purchase of investment securities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan
Proceeds from exercise of stock options
Taxes paid for net settlement of stock-settled bonus
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 FINANCING ACTIVITIES:
Value of shares issued under Bonus Plans
Value of shares issued under the Employee Stock Purchase Plan
Tenant improvement allowance recorded in property and equipment and liabilities
Other unpaid property and equipment purchases
33,731
3,389
545
(57)
149
(16)
(4,565)
(734)
439
2,029
24,425
3,036
(6,454)
38,015
(8,570)
22,991
4,798
4,114
(3,149)
5,763
31,790
54,043
85,833
1,189
5,123
4,562
—
228
$
$
$
$
$
$
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
1,021 $
595
5,639 $
4,851 $
— $
— $
—
7,359
1,068
554
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements
73
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 and additional employees in India primarily focused on research and development.
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.
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 gain of $242,000 in 2017, and foreign currency losses of $339,000
and $518,000 in 2016 and 2015, 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.
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 $10.6 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, 2017
Balance as of December 31, 2016
Balance as of December 31, 2015
Balance
at
Beginning
of
Period
Bad
Debt
Expense
Write-offs,
Net
of
Recoveries
Balance
at
End
of
Period
$
$
$
433
628
550
149
77
150
(107) $
(272) $
(72) $
475
433
628
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One reseller accounted for 15% (1% as an end customer), 16% (1% as an end customer) and 17% (1% as an end
customer) of total revenue in 2017, 2016 and 2015, respectively. The same reseller accounted for 17% and 15% of net accounts
receivable as of December 31, 2017 and 2016, 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 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
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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 of
perpetual license revenue in 2015 from sales made prior to January 1, 2013. In 2016 and 2017, 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 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.
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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, 2017 and 2016, 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 2017, 2016
and 2015, 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 2017, 2016 and 2015, 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 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
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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, 2017, 2016
and 2015.
Long-Lived Assets with Finite Lives
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying
amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including
purchased intangible assets and property and equipment, by comparison of its carrying amount to the future undiscounted cash
flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the
difference between the carrying amount and the fair value of the impaired asset.
Stock-Based Compensation
We use the estimated grant-date fair value method of accounting in accordance with Accounting Standards Codification,
or ASC, Topic 718 Compensation—Stock Compensation . Fair value is determined using the Black-Scholes Model using various
inputs, including our estimates of expected volatility, term and future dividends. We estimated the forfeiture rate in 2017, 2016
and 2015 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
2017, 2016 and 2015 was $102,000, $305,000 and $256,000, 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.
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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.
Financial Instruments – Credit Losses
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 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.
Leases
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 uncertainty 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.
Revenue from Contracts with Customers
In May 2014, the FASB, jointly with the International Accounting Standards Board, issued a comprehensive new
standard, Accounting Standard Codification Topic 606, Revenue Recognition from Contracts with Customers, or ASC 606. 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 addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows
arising from contracts with customers.
The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full
retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of
initial application (modified retrospective method). We have adopted the standard using the full retrospective method to restate
each prior reporting period presented.
The standard is effective for us beginning January 1, 2018. In preparation for adoption of the standard, we have
implemented internal controls and key system functionality to enable the preparation of financial information and have
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reached conclusions on key accounting assessments related to the standard, including our assessment of the impact of accounting
for costs incurred to obtain a contract.
The most significant impact of the standard relates to the elimination of the requirement to have VSOE of fair value to
separate and recognize revenue for products and services in a contract. The elimination of the VSOE requirement will cause a
significant change to the timing of revenue recognition for on-premises software term license revenue and other multiple-element
arrangements with products or services that lacked VSOE of fair value. Our on-premises term license agreements include distinct
software licenses and software update and support services. Under ASC 606, we will recognize the software license revenue at the
time of delivery and will recognize the software update and support services revenue ratably over the term of subscription
agreements. Under ASC 605, we have recognized all revenue from those arrangements ratably over the term of the subscription
agreements. Due to the complexity of certain of our revenue contracts, the actual revenue recognition treatment required under the
new standard will depend on contract-specific terms and in some instances may vary from recognition at the time of billing. The
timing of revenue recognized from our cloud offerings, perpetual licenses, professional services and hardware will remain
substantially unchanged.
In addition, Accounting Standards Codification Subtopic 340-40, Other Asssets and Deferred Costs - Contracts with
Customers, or ASC 340, requires us to recognize an asset for the incremental costs of obtaining a contract with a customer if our
sales incentive programs meet requirements for capitalization. Previously we recorded these incremental costs of obtaining a
contract, primarily commission expense, when we booked a sales transaction whereas under ASC 340, we record an asset for the
incremental cost to obtain a contract and recognize the cost over the expected revenue recognition period.
We expect the adoption of the new standards to impact our 2017 and 2016 financial results as described below.
Adoption of the standard will result in the recognition of additional revenue of $3.3 million and $2.3 million in 2017 and
2016, respectively, primarily due to an increase in revenue recognized from on-premises software subscriptions delivered and
recognized in 2017 and 2016 and earlier recognition from other arrangements that lacked VSOE of fair value under ASC 985-
605, partially offset by lower on-premises software subscription revenue from amounts billed prior to 2016. The new standard for
accounting for costs to obtain a contract will result in an increase in sales and marketing expense of $330,000 and $570,000 in
2017 and 2016, respectively, primarily due to the net impact of the capitalization of commissions earned in 2017 and 2016 and
the amortization expense from commissions capitalized prior to 2016.
We do not expect the adoption of the new standard to have a material impact on net cash provided by (used in)
operating, financing, or investing activities in our consolidated cash flow statements. In future periods, the new standard will
require us to disclose additional information in the notes to our consolidated financial statements, including disaggregation of our
revenue, remaining performance obligations, and other quantitative and qualitative information about our contracts with
customers.
Adoption of the standard will result in an increase in accounts receivable and other assets of $3.4 million and $2.8
million as of December 31, 2017 and 2016, respectively, driven primarily by unbilled receivables from upfront recognition of
revenue for certain multi-period on-premises software subscriptions that include both distinct software licenses and software
update and support services.
Unearned revenue will be reduced by $36.7 million and $27.5 million as of December 31, 2017 and 2016, respectively,
due to (a) cumulative changes to revenue and (b) a reclassification of approximately $20.8 million and $14.2 million as of
December 31, 2017 and 2016, respectively, for arrangements with customers which contain termination rights. Because of the
termination rights, the arrangements will not meet the definition of a contract under ASC 606 and will not be recorded as
unearned revenue and instead be recorded as “customer arrangements with termination rights” on our consolidated balance sheets.
Total capitalized costs to obtain a contract included in current and non-current prepaid and other current assets on our
consolidated balance sheets will be $18.4 million and $18.7 million as of December 31, 2017 and 2016, respectively.
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The following tables show the expected impact of adoption of the standards related to revenue recognition on our
reported results (in thousands except per share information):
Statement
of
Operations:
Revenue
Total operating expenses
Net loss
Net loss per share, basic and diluted
Statement
of
Operations:
Revenue
Total operating expenses
Net loss
Net loss per share, basic and diluted
Balance
Sheets:
Assets
Accounts receivable, net
Deferred commissions-current
Deferred commissions-noncurrent
Other assets
Liabilities
and
stockholders'
equity
Accrued expenses
Unearned revenue-current
Unearned revenue-noncurrent
Customer arrangements with termination rights
Total stockholders' equity
Balance
Sheets:
Assets
Accounts receivable, net
Deferred commissions-current
Deferred commissions-noncurrent
Other assets
Year
Ended
December
31,
2017
New
Revenue
Standard
Adjustment
$
3,267 $
330
2,937
0.03
As
Reported
176,491
202,099
(56,299)
(0.60)
Year
Ended
December
31,
2016
New
Revenue
Standard
Adjustment
$
2,256 $
570
1,686
0.02
As
Reported
163,926
199,721
(67,180)
(0.78)
As
Adjusted
179,758
202,429
(53,362)
(0.57)
As
Adjusted
166,182
200,291
(65,494)
(0.76)
December
31,
2017
New
Revenue
Standard
As
Reported
Adjustment
As
Adjusted
48,171
—
—
1,899
24,995
84,467
28,034
—
21,851
$
2,458
9,285
9,123
977
75
(30,265)
(6,475)
20,807
37,701
50,629
9,285
9,123
2,876
25,070
54,202
21,559
20,807
59,552
December
31,
2016
New
Revenue
Standard
As
Reported
Adjustment
As
Adjusted
43,755
—
—
1,370
$
2,107
8,067
10,671
704
45,862
8,067
10,671
2,074
$
$
$
$
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Liabilities
and
stockholders'
equity
Accrued expenses
Unearned revenue-current
Unearned revenue-noncurrent
Customer arrangements with termination rights
Total stockholders' equity
2.
Significant
Balance
Sheet
Components
21,674
68,153
19,923
—
40,817
75
(22,736)
(4,752)
14,198
34,764
21,749
45,417
15,171
14,198
75,581
Property
and
Equipment
—Property and equipment at December 31, 2017 and 2016 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,
2017
2016
$
$
13,178 $
4,063
1,734
3,226
22,201
(13,389)
8,812 $
9,754
2,297
1,477
2,985
16,513
(11,010)
5,503
Accrued
Expenses
—Accrued expenses at December 31, 2017 and 2016 consisted of the following (in thousands):
Accrued commissions
Accrued stock-settled bonus
Employee Stock Purchase Plan liability
Other accrued payroll-related expenses
Other accrued liabilities
Total accrued expenses
As
of
December
31,
2017
2016
$
$
3,989 $
7,705
2,047
4,285
6,969
24,995 $
5,908
6,608
1,811
3,696
3,651
21,674
Deferred
Revenue
—Current and noncurrent deferred revenue at December 31, 2017 and 2016 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,
2017
2016
$
$
— $
50,776
58,376
3,349
112,501 $
404
35,495
50,117
2,060
88,076
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
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Measurements ). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for
assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in
which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing
the asset or liability, such as inherent risk, transfer restrictions and credit risk.
ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair
value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that
may be used to measure fair value:
·
·
·
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted
prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for
substantially the full term of the financial instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair
value. The inputs require significant management judgment or estimation.
Our financial assets that are carried at fair value include cash and money market funds. We had no financial liabilities, or
nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at
fair value as of December 31, 2017 or 2016.
Our financial instruments measured at fair market value as of December 31, 2017 and 2016 were as follows:
(in thousands)
Money market funds
Corporate debt securities
Commercial paper
Total
(in thousands)
Money market funds
Corporate debt securities
Commercial paper
Total
4.
Investments
As
of
December
31,
2017
Level
1
Level
2
Level
3
Total
10,583 $
—
—
10,583 $
— $
7,076
51,796
58,872 $
— $
—
—
— $
10,583
7,076
51,796
69,455
Level
1
As
of
December
31,
2016
Level
2
Level
3
15,003 $
—
—
15,003 $
— $
10,738
47,479
58,217 $
— $
—
—
— $
Total
15,003
10,738
47,479
73,220
$
$
$
$
Our portfolio of fixed income securities consists of commercial paper and corporate debt securities. 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, 2017 and 2016 were as follows:
(in thousands)
Corporate debt securities
Commercial paper
Total
Amortized
cost
7,078
51,805
58,883
$
$
$
$
As
of
December
31,
2017
Gains
Losses
—
—
—
$
$
(2)
(9)
(11)
$
$
Fair
Value
7,076
51,796
58,872
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(in thousands)
Corporate debt securities
Commercial paper
Total
Amortized
cost
10,740
47,473
58,213
$
$
$
$
As
of
December
31,
2016
Gains
Losses
—
8
8
$
$
Fair
Value
10,738
47,479
58,217
(2)
(2)
(4)
$
$
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,
2017
2016
$
$
52,086 $
6,797
—
58,883 $
22,029
36,184
—
58,213
The gross amortized cost and estimated fair value of our held-to-maturity investments at December 31, 2017 and 2016
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,
2017
2016
Gross
Amortized
Cost
Fair
Value
Gross
Amortized
Cost
Fair
Value
$ 58,883 $ 58,872 $ 58,213 $ 58,217
—
—
$ 58,883 $ 58,872 $ 58,213 $ 58,217
—
—
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 2017, we had an insignificant amount of unrealized gains or losses, and we did not
recognize any other-than-temporary impairments .
5.
Goodwill
and
Intangibles
The following table reflects intangible assets subject to amortization as of December 31, 2017 and 2016 (in thousands):
Gross
Carrying
Accumulated
December
31,
2017
Technology
Total
$
$
84
Amount
Amortization
(2,980)
(2,980) $
3,080 $
3,080 $
Impairment
Net
Book
Value
100
100
— $
— $
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Gross
Carrying
Accumulated
December
31,
2016
Technology
Total
$
$
Amount
Amortization
(2,435)
(2,435) $
3,080 $
3,080 $
Impairment
Net
Book
Value
— $
— $
645
645
Amortization of the technology intangible assets of $545,000 and $616,000 in 2017 and 2016, respectively, was
recorded in cost of revenue.
The weighted average remaining life of our intangible assets on December 31, 2017 was 3 months.
Estimated remaining intangible assets amortization expense for their remaining lives as follows (in thousands):
Year
2018
Total
$
$
100
100
At December 31, 2017, 2016 and 2015, the carrying value of goodwill was $5.5 million.
6.
Restructuring
Charges
We initiated business restructuring plans in 2015, 2016 and 2017 to reduce our cost structure through workforce reductions
and, in 2017, to exit an office facility.
The following table sets forth a summary of restructuring activities which took place during the years ended December 31,
2017, 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
Provision for restructuring charges
Cash payments
Balance, December 31, 2017
Severance
and
Related
Costs
—
1,049
(1,049)
—
1,052
(1,037)
15
1,349
(867)
497
$
$
$
$
The remaining restructuring balance as of December 31, 2017 relates to employee severance and a liability for the estimated
remaining exit costs of one of our office facilities.
7.
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.
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In May 2015, we issued a letter of credit for $1.5 million as a security deposit for a new Mountain View facility lease
and in November 2017 we issued a bank guarantee to a customer of approximately $3.0 million that can be drawn if we become
insolvent or bankrupt. The issuances of the letter of credit and bank guarantee reduced the borrowing capacity under our line of
credit to approximately $15.5 million.
In June 2017, we amended our revolving line of credit and extended its maturity date to June 2018.
There were no outstanding amounts under the line of credit at December 31, 2017 and 2016 and we were in compliance
with all financial covenants.
8.
Preferred
Stock
We were authorized to issue up to 10,000,000 shares of convertible preferred stock as of December 31, 2017 and 2016.
No shares of convertible preferred stock were issued and outstanding as of December 31, 2017 and 2016.
9.
Common
Stock
We were authorized to issue 300,000,000 shares of common stock with a par value of $0.0001 per share as of December
31, 2017 and 2016. 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, 2017 and 2016, 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
10.
Share
Based
Awards
2008 Plan
As
of
December
31,
2017
7,738,496
12,906,030
—
1,859,997
990,501
2016
9,835,992
10,474,975
2,471
4,199,415
575,974
23,495,024 25,088,827
The 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory
stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan
generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant.
When options are subject to our repurchase right, we may buy back any unvested shares at their original exercise price in the
event of an employee’s termination prior to full vesting.
Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or the 2014 Plan, became effective.
Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable
award agreements.
2014 Equity Incentive Plan
Our board of directors adopted our 2014 Plan on April 17, 2014, and our stockholders subsequently approved the 2014
Plan on May 27, 2014. The 2014 Plan became effective on the date that our registration statement was declared effective by the
SEC. The 2014 Plan is the successor to and continuation of our 2008 Plan. Upon the effective date of the 2014 Plan, no further
grants can be made under our 2008 Plan.
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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, 2017, we increased the number of shares of common stock reserved for
issuance under our 2014 Plan by 4,453,425 shares, which was 5% of the total number of capital stock outstanding at December
31, 2016. On January 1, 2018, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by
4,860,197 shares, which was 5% of the total number of capital stock outstanding at December 31, 2017.
2015 Inducement Plan
On December 20, 2015, our board of directors adopted our 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 Inducement 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 2015 Inducement Plan to 1,970,000 shares of our common stock. As of
December 31, 2017 there were 1,640,417 options and restricted stock units outstanding under the Amended and Restated 2015
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, 2017 and 2016 , 990,501 and 575,974 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 having been exercised in full will not reduce the number of shares
available for issuance under our ESPP. On January 1, 2017, we increased the number of shares available for issuance under the
ESPP by 890,685 shares, which was 1% of the total number of capital stock outstanding at December 31, 2016. On June 14, 2017,
our stockholders approved the amendment and restatement of the ESPP to provide for a one-time increase of 1.2 million shares of
common stock available for issuance under the ESPP. On January 1, 2018, we increased the number of shares available for
issuance under the ESPP by 972,039 shares, which was 1% of the total number of capital stock outstanding at December 31,
2017.
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Restricted Stock Units
In 2014 we began granting restricted stock units under our 2014 Plan. For stock-based compensation expense, we
measure the value of the restricted stock units based on the fair value of our common stock on the date of grant. Our restricted
stock unit grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their
vesting periods.
Our restricted stock unit activity for 2015, 2016 and 2017 was as follows:
Restricted
Stock
Units
Unvested, December 31, 2014
Granted
Vested
Cancelled/Forfeited
Unvested, December 31, 2015
Granted
Vested
Cancelled/Forfeitures
Unvested, December 31, 2016
Granted
Vested
Cancelled/Forfeitures
Unvested, December 31, 2017
Bonus Plans
Number
of
Weighted-
Average
Grant
Date
Fair
Value
9.45
6.92
8.36
8.06
6.66
3.36
4.99
5.39
4.45
5.04
4.70
5.01
4.72
Shares
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 $
11,017,278
(5,964,422)
(2,621,801)
12,906,030 $
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.
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, which provided for the issuance of shares of unrestricted
common stock to employees based on meeting certain Company metrics.
We issued 1,010,550 shares of unrestricted common stock in the first quarter of 2017, after withholding 677,547 shares
to cover employee payroll taxes, for amounts earned under the 2016 Bonus Plans.
In 2017, the Compensation Committee of our board of directors approved the 2017 Executive Bonus Plan and 2017 Non-
executive Bonus Plan, or collectively, the 2017 Bonus Plans, each effective as of January 1, 2017, which provided for the
issuance of shares of unrestricted common stock to employees based on meeting certain Company metrics.
Shares issued under the aforementioned Bonus Plans will be issued from our 2014 Plan and reduce the 2014 Plan shares
available for issuance.
We recorded stock-based compensation expense related to the 2015, 2016 and 2017 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.
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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. In 2017, we recorded $7.7 million of stock-based compensation expense under the 2017 Bonus Plans
and $1.7 million under the 2016 Bonus Plans.
Stock Options
Stock option activity under the 2008 Plan, 2014 Plan and the Inducement Plan in 2015, 2016 and 2017 was as follows:
Number
of
Shares
Available
Number
of
Weighted-
Average
Weighted-
Average
Remaining
Contractual
Aggregate
Intrinsic
Value
Options
Outstanding
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 2015 Bonus
Plans
Restricted stock units granted
Exercised
Stock options canceled
Restricted stock units canceled
Balance—December
31,
2016
Authorized
Stock options granted
Issuance of shares under 2016 Bonus
Plans
Shares withheld from net settlement of
restricted stock units
Restricted stock units granted
Exercised
Stock options canceled
Restricted stock units canceled
Balance—December
31,
2017
Vested and exercisable—
December 31, 2017
Vested and expected to vest(1)—
December 31, 2017
Exercise
Price Term
(Years) (In
thousands)
95,791
7.83 $
4.15
for
Issuance
Shares
—
1,089,100
7,392,158 16,435,568 $
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)
—
—
$
(2,817,915)
(3,208,006)
—
1,316,200
11,498,747
(1,653,371)
(9,070,854)
—
1,938,053
3,192,618
4,199,415
4,453,425
(300,000)
—
—
(1,040,902)
(1,938,053)
—
9,835,992
—
300,000
(1,688,097)
—
677,547
(9,329,181)
—
1,225,087
2,621,801
1,859,997
—
—
(1,172,409)
(1,225,087)
—
7,738,496
6,487,209
7,573,659
$
$
$
$
4.39
6.23
$
5,734
6.95
2.12
5.61
4.51
3.36
2.37
5.46
6.86
$
6,256
4.20
2.80
6.24
4.34
4.31
4.34
3.96
$
$
$
4,897
4,550
4,849
(1) Options expected to vest are net of an estimated forfeiture rate.
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Additional information regarding options outstanding at December 31, 2017 is as follows :
Options
Outstanding
Weighted-
Average
Options
Exercisable
Range
of
exercises
$0.04 — $3.08
$3.39 — $3.70
$3.77 — $5.77
$6.20 — $10.80
$12.05 — $12.05
Outstanding
at
December
31,
2017
Remaining Weighted-
Average
Number
of
Term
(Years) Exercise
Price Shares
Weighted-
Average
Exercise
Price
Number
of Contractual
Shares
1,604,778
2,392,977
2,211,667
1,488,249
40,825
7,738,496
2.89 $
2.01
5.39
6.03
6.67
3.96 $
1.35
3.57
4.94
7.67
12.05
4.34
1,514,153 $
1,874,227
1,757,782
1,307,008
34,039
6,487,209 $
1.25
3.62
5.04
7.65
12.05
4.31
The aggregate pretax intrinsic value of vested options exercised in 2017, 2016 and 2015 was $2.3 million, $1.4 million
and $11.8 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 2017, 2016 and 2015 was $1.74, $1.42 and $3.04 per share, respectively.
Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):
Year
Ended
December
31,
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
2017
2016
3,043 $
2015
$
3,772 $
2,774
10,607
9,508
5,902
$ 33,731 $ 34,389 $ 28,791
11,728
10,474
9,144
14,520
8,659
6,780
Determining Fair Value of Stock Options and ESPP
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. For ESPP, the
expected term is based on the offering period and purchase periods within the offering period.
Expected Volatility— When we did not have a sufficient trading history for our common stock, the expected stock price
volatility assumption was determined by examining the historical volatilities of a group of industry peers. As more
historical data for our common stock became available, we began to use our own historical stock price volatility to
determine expected stock price volatility.
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 and ESPP.
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— Since our IPO, the fair value of our common stock has been 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,
2017
—
2.1%
40%
6.1
2016
—
1.4% - 1.5%
42%
6.1
2015
—
1.6% - 1.8%
43% - 45%
5.5 - 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,
2017
—
0.9% - 1.3%
34% - 54%
0.5 - 2.0
2016
—
0.5% - 0.7%
34% - 41%
0.5 - 2.0
2015
—
0.1% - 0.7%
34% - 35%
0.5 - 2.0
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, 2017 net of
estimated forfeitures:
Unrecognized
Stock-based
Compensation
Expense
(in
millions)
$
$
1.1
42.8
1.0
44.9
Remaining
Weighted-Average
Recognition
Period
(in
years)
2.1
2.7
0.6
Stock options
Restricted stock units
ESPP
Total
11.
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.
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12.
Commitments
and
Contingencies
Operating Leases
We lease our office facilities under noncancelable agreements expiring between 2018 and 2023. Rent expense in 2017,
2016 and 2015 was $7.2 million, $6.7 million and $4.7 million, respectively. The aggregate future minimum lease payments
under the agreements as of December 31, 2017 are as follows (in thousands):
Year
2018
2019
2020
2021
2022
Thereafter
Total
Litigation
$
$
7,195
7,102
5,573
4,071
3,085
1,163
28,189
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 sought, 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 named 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.
On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court
granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and
entered final judgment in the case on October 11, 2017 releasing all parties . The settlement called for a payment of $7.5 million
to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company
contributed $1.1 million to the settlement in 2017. This amount represented the remainder of the Company’s retention amount
under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability
insurance.
While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the
Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid
further distractions to management.
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.
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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 and channel partners alleging that our software or the customer’s use thereof
infringes the third party’s intellectual property right, such as a patent right. These indemnification obligations are typically not
subject to limitation; however if we believe such a claim is reasonably likely to occur and 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
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 for software licensed on a perpetual basis). 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, 2017, we have not received any material written claim for indemnification.
13.
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,
2016
2015
2017
$
81,335 $
95,156
74,235
75,063
$ 176,491 $ 163,926 $ 149,298
77,039 $
86,887
We recognized revenue of $22.0 million, or 12% of total revenue, from customers with a billing address in Germany in
2017. 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 2017 or 2016. No country, outside of
the United States, exceeded 10% of the total revenue in the year ended December 31, 2015.
As of December 31, 2017 and 2016, $2.7 million and $1.3 million or 30% and 24%, 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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14.
Net
Loss
per
Share
The following table sets forth the computation of basic and diluted net loss per share for 2017, 2016 and 2015 (in
thousands, except per share data):
Numerator:
Net loss
Denominator:
Year
ended
December
31,
2016
2017
2015
$
(56,299) $
(67,180) $ (84,482)
Weighted–average shares outstanding
Less: weighted average shares subject to repurchase
Weighted–average shares used to compute basic and diluted net loss per share
93,771
(1)
93,770
85,853
(8)
85,845
Basic and diluted net loss per share
$
(0.60) $
(0.78) $
78,867
(112)
78,755
(1.07)
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 2017, 2016 and 2015, 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):
2017
December
31,
2016
2015
Stock options outstanding, net of unvested exercised
stock options
Unvested restricted stock units
ESPP shares
Stock-settled bonus shares
Total potentially dilutive securities
7,738,496
9,838,463
12,906,030 10,474,975
676,196
1,057,093
22,046,727
726,643
1,185,373
22,556,542
11,511,175
7,832,962
584,222
1,305,817
21,234,176
For December 31, 2016 and 2015, we have corrected the previously reported amount to include 1.7 million and 1.9
million, respectively, of additional shares related to our ESPP and stock-settled bonus plans that were excluded from the
computation of the weighted-average diluted shares because such securities have an antidilutive impact due to losses reported. We
do not consider this correction to be material, and there was no impact to our consolidated financial statements.
15.
Income
Taxes
Loss before income taxes consisted of the following (in thousands):
United States
International
Total
2017
Year
ended
December
31,
2016
2015
$
$
(56,852)
1,695
(55,157)
$
$
(67,402)
1,204
(66,198)
$
$
(84,595)
965
(83,630)
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.
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Income tax expense for 2017, 2016 and 2015, was composed of the following (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense
Foreign
Total deferred income tax benefit
Total income tax expense
Year
ended
December
31,
2017
2016
2015
$
$
—
36
1,196
1,232
(90)
(90)
1,142
$
$
— $ —
26
22
826
960
982
852
—
—
—
—
852
982 $
For 2017, 2016 and 2015, 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 our valuation allowance.
Federal tax benefit at statutory rate
State tax benefit net of federal effect
Foreign taxes
Change in valuation allowance
Change in federal tax rate
Credits
Stock-based compensation
Non-deductible expenses and other
Effective tax rate
2017
Year
ended
December
31,
2016
34.0 %
4.4
(0.4)
(33.0)
—
1.8
(8.0)
(0.3)
(1.5)%
34.0 %
8.8
(0.7)
42.8
(86.1)
3.4
(3.9)
(0.4)
(2.1)%
2015
34.0 %
2.2
(0.4)
(33.9)
—
1.5
(4.1)
(0.4)
(1.1) %
Income tax expense for 2017, 2016 and 2015 relates to state minimum income tax, income tax on our earnings in foreign
jurisdictions and 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, 2017 and 2016 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,
2016
2017
$
$
7,440 $
(18)
67,980
3,512
14,560
6,333
(99,716)
91 $
8,862
81
81,623
6,489
10,461
10,272
(117,788)
—
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
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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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant
changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21%
effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax
system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings
as of December 31, 2017.
The Company has calculated its best estimate of the impact of the Tax Act in its year end income tax provision in
accordance with its understanding of the Tax Act and guidance available as of the date of this filing. The provisional amount
related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse
in the future was approximately $44.7 million with a corresponding and fully offsetting adjustment to our valuation allowance for
the year ended December 31, 2017. The Company does not expect a material impact related to the one-time transition tax on the
mandatory deemed repatriation of foreign earnings.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S.
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Because the
Company is still in the process of analyzing certain provisions of the Tax Act including the application of new executive
compensation limitation provisions under Internal Revenue Section 162(m) and also its treatment of potential global intangible
low-taxed income (“GILTI”), in accordance with SAB 118, the Company has determined that the adjustment to its deferred taxes
was a provisional amount and a reasonable estimate at December 31, 2017.
As of December 31, 2017, we had net operating loss carryforwards of approximately $288.6 million and $133.6 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 2028, respectively.
We had federal and California R&D tax credit carryforwards at December 31, 2017 of $11.1 million and $12.0 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 assets before considering the valuation
allowance. Further, a portion of the carryforwards may expire before being applied to reduce future earnings.
On January 1, 2017, the Company adopted ASU 2016-09, which simplified several aspects of 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. The adoption of ASU 2016-09 did not have an impact on our balance sheet,
results of operations, cash flows or statement of stockholders’ equity because we have a full valuation allowance on our deferred
tax assets. Upon adoption, the Company recognized the previously unrecognized excess tax benefits using the modified
retrospective transition method. The previously unrecognized excess tax effects were recorded as a deferred tax asset, which was
fully offset by a valuation allowance. Without the valuation allowance, the Company’s deferred tax assets would have increased
by $5.4 million.
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, 2017 and 2016, our reserve for unrecognized tax benefits was approximately $6.8 million and $5.3 million,
respectively. Due to the full valuation allowance at December 31, 2017, current adjustments to the unrecognized tax benefit will
have no impact on our effective income tax rate; any adjustments made
96
Table of Contents
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
2015
2017
Year
ended
December
31,
2016
$ 5,306 $ 4,052 $ 2,794
—
1,499 1,211 1,258
$ 6,839 $ 5,306 $ 4,052
34
43
We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2017, 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, 2017 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, 2017. 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 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,
2017, 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.
97
Table of Contents
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, 2017 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, 2017.
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, 2017 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9
B.
Other
Information
98
Table of Contents
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, 2017, 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 2018 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 2018 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 2018 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 2018 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 2018 Proxy Statement under the section titled “Principal Accountant Fees and Services.”
99
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:
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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)
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
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
4.2
10.2
10.4
10.1
10.5
10.2
10.2
S-1/A May 29, 2014
333-195089
S-1
April 7, 2014
333-195089
10-Q
July 29, 2016
001-36471
S-1/A May 29, 2014
333-195089
10-Q
October 31,
2014
001-36471
S-1/A
June 9, 2014
333-195089
10-Q
July 29, 2016
001-36471
8-K
January 6, 2016
001-36471
101
Table of Contents
10.7
(1)
10.8 †
10.9
10.10
10.11
10.12
10.13
10.14
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
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
10.3
8-K
January 6, 2016
001-36471
10.17
S-1/A May 7, 2014
333-195089
10.6
10.7
10-Q
July 29, 2016
001-36471
S-1
April 7, 2014
333-195089
10.8
S-1/A
April 23, 2014
333-195089
10.8
10.1
10.1
10-Q
August 7, 2014
001-36471
8-K
May 20, 2015
001-36471
8-K
November 12,
2015
001-36471
102
Table of Contents
10.15
(1)
10.16
(1)
10.17
( 1)
10.18
(1)
10.19
( 1)
10.20
(1)
10.21
10.22
10.23
10.24
10.25
Form of Indemnity
Agreement entered into
between MobileIron, Inc.
and each of its directors
and its executive officers
Amended and Restated
Severance Benefit Plan
Participation Notice
between MobileIron, Inc.
and Simon Biddiscombe,
dated August 28, 2015
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
MobileIron, Inc.
Severance Benefit Plan
and Participation Notice
MobileIron, Inc. Amended
and Restated Non-
Employee Director
Compensation Policy
Sublease, effective March
1, 2017, between
MobileIron, Inc. and
Vendavo, Inc .
MobileIron, Inc. 2017
Executive Bonus Plan
MobileIron, Inc. 2017
Non-Executive Bonus
Plan
Lease Deed between
MobileIron, Inc. and RMZ
Ecoworld Infrastructure
Private Limited, dated July
27, 2017
Offer Letter between the
Company and Greg
Randolph, dated October
29, 2017
10.6
S-1
April 7, 2014
333-195089
10.18
10.31
10.21
10.4
10.3
10.1
10.1
10.3
10.1
10.2
10-K
February 14,
2017
001-36471
10-K
February 23,
2016
001-36471
10-K
February 14,
2017
001-36471
10-Q
May 4, 2015
001-36471
10-Q
July 29, 2016
001-36471
8-K
March 3, 2017
001-36471
8-K
April 25, 2017
001-36471
10-Q
May 2, 2017
001-36471
10-Q
November 3,
2017
001-36471
10-Q
November 3,
2017
001-36471
103
Table of Contents
10.26
10.27
10.28
10.29
21.1
23.1
24.1
31.1
31.2
32.1
(2)
Offer Letter between the
Company and Simon
Biddiscombe, dated
November 2, 2017
Bonus Retention
Agreement between the
Company and Daniel
Fields, dated October 31,
2017
Separation Agreement
between the Company and
Barry Mainz, dated
October 31, 2017
Attornment Agreement
between Middlefield
Realty Property Holdings
LLC, Vendavo, Inc. and
MobileIron, Inc., dated
December 18, 2017
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
10.3
10.4
10.5
10-Q
November 3,
2017
001-36471
10-Q
November 3,
2017
001-36471
10-Q
November 3,
2017
001-36471
X
X
X
X
X
X
X
104
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,
2017
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
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/ Simon Biddiscombe
Simon Biddiscombe
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Shawn Ayers
Shawn Ayers
Interim Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
Dated: March 12, 2018
The undersigned directors and officers of MobileIron, Inc. (the “Company”), a Delaware corporation, hereby constitute
and appoint Simon Biddiscombe and Shawn Ayers, 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.
106
Table of Contents
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/ Simon Biddiscombe
Simon Biddiscombe
President and Chief Executive Officer (Principal Executive
Officer)
/s/ Shawn Ayers
Shawn Ayers
Interim 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/ Jessica Denecour
Jessica Denecour
Director
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
107
Exhibit
10.29
Exhibit
10.29
ATTORNMENT
AGREEMENT
THIS ATTORNMENT AGREEMENT (this “ Agreement
”) is made and entered into as of
December 18, 2017, by and between MIDDLEFIELD REALTY PROPERTY HOLDINGS
LLC, a California limited liability company (“ Lessor
”), VENDAVO, INC., a Delaware
corporation (“ Vendavo
”) and MOBILEIRON, INC. , a Delaware corporation (“
MobileIron
”).
Recitals
A. Lessor (as successor-in-interest to Middlefield Road Joint Venture Investment) and
Vendavo are parties to that certain Triple Net Lease dated February 10, 2011, as
amended by that certain First Amendment to Lease dated January 21, 2015 (together,
the “ Vendavo
Lease
”), for premises located in that certain building located at 401 E.
Middlefield Road, Mountain View, California (the “ Master
Premises
”).
B. Vendavo and MobileIron are parties to a Sublease dated as of February 16, 2017 (the
“ Sublease
”) for the entire Master Premises.
C. Lessor and Vendavo wish to terminate the Vendavo Lease as of the “Termination
Date”, as determined in accordance with the Lease Termination Agreement and
Assignment and Assumption of Sublease that Lessor and Vendavo are entering into
concurrently with this Agreement (the “ Lease
Termination
Agreement
”). The
Lease Termination Agreement provides that, upon termination of the Vendavo Lease,
Vendavo’s interest in and future obligations under the Sublease will be assigned to
and assumed by Lessor. Lessor, MobileIron and Vendavo intend that, on January 1,
2018 (the “ Effective
Date
”), the Sublease will become a direct lease between Lessor
and MobileIron (the “ Direct
Lease
”) on the terms described hereinbelow.
D. Lessor, Vendavo and MobileIron wish to enter into this Agreement to confirm the
terms of the Direct Lease between Lessor and MobileIron.
Agreement
For good and valuable consideration, Lessor, Vendavo and MobileIron agree as follows:
1. Attornment and Recognition . Upon and subject to the terms and conditions set
forth herein, as of the Effective Date, the Sublease shall be assigned to and assumed by
Lessor and shall become the Direct Lease. The Direct Lease from Lessor to MobileIron shall
be on all of the terms of the Sublease (including incorporation of the
terms of the Vendavo Lease as set forth in the Sublease, which only for purposes of the Direct
Lease and only as incorporated in the Sublease are not terminated vis-a-vis Lessor and
MoblieIron), except as amended herein below. As of the Effective Date, MobileIron shall
attorn to Lessor, as lessor under the Direct Lease, and Lessor shall recognize MobileIron as
lessee under the Direct Lease and shall perform for the benefit of MobileIron all of the
obligations of the Lessor under the Vendavo Lease and of Vendavo under the Sublease
arising on and after the Effective Date; it being understood that all of the rights of MobileIron
under the Sublease that are derivative of Vendavo’s rights as the “Lessee” under the Vendavo
Lease shall from and after the Effective Date accrue to the direct benefit of MobileIron under
the Direct Lease. In connection with the assignment of Vendavo’s interest in the Sublease to
Lessor, Vendavo is transferring to Lessor MobileIron’s security deposit held pursuant to the
Sublease. From and after the Effective Date, except as otherwise set forth herein, Vendavo
shall have no obligation or liability with respect to the Sublease and MobileIron’s security
deposit and Lessor shall hold such security deposit in accordance with the applicable terms of
the Direct Lease (and MoblieIron hereby waives, releases and forever discharges Vendavo for
all liabilities relating to the Sublease from and after the Effective Date, except for the
remaining obligations of Vendavo set forth under this Agreement). From and after the
Effective Date, all Rent (as defined in the Sublease) payable under the Direct Lease shall be
paid to Lessor at 625 Ellis Street, Suite 101, Mountain View, California 94043.
2. Reconciliation of Operating Expense Payments Between Vendavo and
MobileIron . Promptly after the Effective Date, Vendavo and MobileIron shall reconcile the
estimated payments made by MobileIron pursuant to the section 5 of the Sublease and
MobileIron’s share of actual Operating Expenses payable with respect to periods prior to the
Effective Date. Promptly after such reconciliation is completed and agreed by Vendavo and
MobileIron, the party who owes the other money pursuant to such reconciliation shall pay the
sum owed to the other party.
3. Representations Regarding Sublease . MobileIron hereby represents and
warrants to Lessor, as a material inducement to Lessor, as follows: (i) MobileIron is the
owner of the sublessee’s rights under the Sublease; (ii) the Sublease is in full force and effect
and has not been amended or modified, and (iii) MobileIron is not in default under the
Sublease and, to MobileIron’s knowledge, Vendavo is not in default under the
Sublease. Lessor represents and warrants to MobileIron that, without limiting the generality
of MobileIron’s surrender obligations pursuant to Paragraph 7 of the Vendavo Lease, in no
event will MobileIron have any obligation to remove or restore any alterations or
improvements made by Vendavo to the Master Premises upon the expiration or earlier
termination of the Direct Lease.
4. Conditioned Upon Termination Agreement . The effectiveness of this
Agreement is conditioned upon the full execution of the Lease Termination Agreement by
Lessor and Vendavo and will not be effective until the Lease Termination Agreement has
been fully-executed.
5. Entire Agreement . This Agreement, together with the Vendavo Lease and
the Sublease, each as modified by this Agreement, and the Lease Termination Agreement
constitute the entire and complete understanding of parties with respect to the matters
contemplated herein. No promises or agreements made subsequent to the execution of this
Agreement shall be binding unless reduced to writing and signed by parties.
6. Effect on Successors . This Agreement shall be binding upon and inure to the
benefit of the permitted successors and assigns of the parties.
7. Execution . This Agreement may be executed by facsimile signature and in
counterparts, each of which shall be deemed an original, and, subject to Section 4 above, will
become effective and binding upon the parties at such time as both parties have signed and
delivered a counterpart of this Agreement to the other party. All counterparts so executed
shall constitute one Agreement binding on the parties, notwithstanding that all of the parties
may not be signatories on the same counterpart.
8. Governing Law . This Agreement shall be interpreted, enforced and
governed under the laws of California. The language of this Agreement shall be construed as
a whole according to its fair meaning, and not strictly for or against any of the parties.
9. Attorneys’ Fees . In the event of a breach of this Agreement, either party may
file an action to enforce this Agreement. Should any proceeding or action (including any
proceeding or action in a bankruptcy case) be filed to interpret or enforce the terms of this
Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and
costs (including expert witness fees) in addition to any other relief.
10. Recitals . Recitals A-D, inclusive, above are incorporated into this
Agreement by this reference.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, Lessor, Vendavo and MobileIron have executed this
Agreement as of the date first written above.
Vendavo
:
Lessor
:
MIDDLEFIELD
REALTY
PROPERTY HOLDINGS LLC, a
California
liability
limited
company
By: Handley Management
Corporation,
its
Managing General Partner
By:/s/ R. Frederick Caspersen
Name: R. Frederick Caspersen
Title: President and CEO
VENDAVO, INC. , a Delaware corporation
By: /s/ John Oosterhouse
Its: Chief Financial Officer
MobileIron
:
MOBILEIRON, INC.
By: /s/ Shawn Ayers
Its: Interim Chief Financial Officer
MASTER
LEASE
Triple
Net
Lease
PARTIES
This Lease, executed in duplicate at Palo Alto, California, this 10th day of February,
2011 by and between Middlefield Road Joint Venture and Vendavo, Inc., a Delaware corporation, hereinafter
referred to respectively as "Lessor" and "Lessee", without regard to number or gender.
PREMISES
1. WITNESSETH: That Lessor hereby leases to Lessee, and Lessee hires from Lessor,
those certain premises, hereinafter referred to as the "Premises," situated in the City of Mountain
View, County of Santa Clara, State of California, and more particularly described as follows: An
approximate 34,905 square foot building, commonly known as 401 East Middlefield
Road ("Building"), situated on and including Lessee's pro rata share of the 4 acre lot shared with
the adjacent building known as 415 East Middlefield Road (the "Lot" and "Adjacent Building",
respectively). Lessee
shall be entitled to shared use of the driveways, trash enclosure and the
emergency back-up power generator serving both the Building and Adjacent Building. Lessee
shall be entitled to the use of 134 undesignated parking spaces situated on the Lot at no additional
charge during the Lease Term, as may be extended. Lessee shall be entitled to exclusive use of the
outdoor patios shown on Exhibit A hereto. Lessee's proportionate share of the aggregate rentable
space in the Building and the Adjacent Building is
{"Lessee's Share").
USE
2. The Premises shall be used and occupied by Lessee solely for general office,
research & development and other legal related uses and for no other purpose without the
prior written consent of Lessor.
TERM
3. The term shall be for approximately fifty (SO) months, commencing on the date
(the "Commencement Date") which is the earlier of (a) the first day of June, 2011 and (b)
the date on which the Tenant Improvements have been completed such that Lessee is able to
move into the Premises and commence operations therefrom, and ending on the last day of
the fiftieth (50th ) full calendar month after the Commencement Date. If Lessee has not
completed its Tenant Improvements by June 1, 2011, then the
Commencement Date shall nevertheless be June 1, 2011.
Promptly after the Commencement Date, Lessor and Lessee shall execute and deliver a
''Commencement Date Memorandum" in a form proposed by Lessor and reasonably
satisfactory to Lessee to confirm the Commencement Date and expiration date of the Lease;
provided that the Commencement Date shall occur regardless of whether such a
Commencement Date Memorandum is executed.
RENTAL
4. Base Monthly Rent shall be payable to the Lessor without defense, deduction or
offset at the address set forth in paragraph 23 below, or at such other place or places as may
be designated from time to time by the Lessor, in the following amounts:
Base Monthly Rent shalt be paid monthly in advance. In addition, Lessee shall pay to Lessor
with the Base Monthly Rent, as additional rent, a monthly management fee
equal to_______of the Base Monthly Rent. All other costs and charges payable by Lessee in
accordance with the terms of this Lease (including but not limited to property taxes, insurance
premiums and maintenance costs) shall be deemed to be additional rent.
SECURITY DEPOSIT
5. Lessee has deposited with Lessor $_______as security for the full
and faithful performance of each and every term, provision, covenant and condition of this Lease. In
the event Lessee defaults in respect of any of the terms, provisions, covenants or conditions of this
Lease, including, but not limited to the payment of rent, Lessor may use, apply or retain the
whole or any part of such security as necessary for the payment of any rent in default or for any
other sum which Lessor may spend or be required to spend by reason of Lessee's default. If Lessor
uses any portion of the security deposit to cure any default by Lessee hereunder, Lessee shall
replenish the security deposit to the original amount within ten (10) days of written notice from
Lessor. Lessee's failure to do so shall constitute a material breach of this Lease as well as an "Event
of Default". Should no default exist as of the expiration of the term of this Lease, the security or
any balance thereof shall be returned to Lessee or, at the option of Lessor, to the last assignee of
Lessee's interest in this Lease within ten (10) days after the expiration of the term hereof or after
Lessee has vacated the Premises, whichever is later. Lessee shall not be entitled to any interest on
said security deposit. Lessor shall not be required to keep the aforesaid deposit in a separate
account but may commingle said funds with Lessor's other accounts.
POSSESSION
6. If Lessor, for any reason whatsoever, cannot deliver possession of the Premises to Lessee
on the Commencement Date, as hereinbefore specified, this Lease shall not be void or voidable, nor
shall Lessor, or Lessor's agents, be liable to Lessee for any loss or damage
resulting therefrom; but in that event the commencement and termination dates of the Lease and all
other dates affected thereby shall be revised to conform to the date of Lessor's delivery of
possession. Notwithstanding the foregoing, if the period of delay of delivery exceeds thirty (30)
days, Lessee, at its option, may declare this Lease null and void by notice to Lessor at any time prior
to delivery of the Premises. See
paragraph
36.
ACCEPTANCE OF PREMISES AND CONSENT TO SURRENDER
7. By entry hereunder, the Lessee accepts the Premises from Lessor in its "as is", "where is"
condition. Lessor has made no representations or warranties respecting the Premises and Lessee has
investigated and inspected the Premises and has satisfied itself that the Premises are suitable for the
Lessee's intended use thereof and are in compliance with applicable laws and codes; provided.
however, Lessor hereby warrants that it shall repair any material defects in the roof covering,
HVAC, electrical, lighting and plumbing systems existing as of the date of Early Possession,
provided Lessee gives Lessor written notice specifying such defects in reasonable detail within
ninety (90) days following Lessor's delivery of Early Possession as defined in paragraph 36 below.
Except as set forth in paragraph 37 hereof, Lessor shall have no obligation to contribute toward any
improvements to the Premises whatsoever. Lessee agrees on the last day of the term hereof, or on
sooner termination of this Lease, to surrender to Lessor the Premises, which shall, except as
otherwise provided in paragraph 9 below, include all alterations, additions, and improvements
which may have been made in, to, or on the Premises by Lessor or Lessee, in the same condition as
at Lessee's entry into the Premises excepting for such wear and tear as would be normal for the
period of the Lessee's occupancy and excepting damage due to casualty or condemnation. Lessee,
on or before the end of the term or sooner termination of this Lease, shall remove all Lessee's
personal property and trade fixtures from the Premises and all property not so removed shall be
deemed to be abandoned by the Lessee. If the Premises are not surrendered at the end of the term
or sooner termination of this Lease, the Lessee shall indemnify the Lessor against loss or liability
resulting from delay by the Lessee in so surrendering the Premises including, without limitation,
any claims made by any succeeding tenant founded on such delay. See
paragraphs
36 and 37.
USES PROHIBITED
8. Lessee shall not commit, or suffer to be committed, any waste upon the Premises, or any
nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant in or
around the buildings in which the Premises may be located, or allow any sale by auction upon the
Premises, or allow the Premises to be used for any improper, immoral, unlawful or objectionable
purpose, or place any loads upon
the floor, walls, or roof which endanger the structure, or place any harmful liquids in the drainage
system of the Building or the Lot. No waste materials or refuse shall be dumped upon or permitted
to remain upon any part of the Premises outside of the Building proper. No materials, supplies,
equipment, finished products or semi· finished products, raw materials or articles of any nature shall
be stored upon or permitted to remain on any portion of the Premises outside of the Building proper,
and except as otherwise expressly provided herein, Lessee shall conduct all activities
indoors.
ALTERATIONS AND ADDITIONS
9. Lessee shall make no alterations, additions or improvements to the Premises or any part
thereof (collectively "Alterations1 without first obtaining the prior written consent of the Lessor,
which consent shall not be unreasonably withheld; provided, however, Lessee may make non-
structural Alterations to the Premises without Lessor's consent provided that (a) no building permit
is required for such Alteration, (b) such Alteration will not affect the Building's exterior
appearance or building systems, and (c) the cost of such Alterations are not more than ________.
All Alterations shall be in accordance with plans and specifications reasonably approved
by Lessor and shall be carried out by a reputable licensed contractor and in compliance with
all applicable laws, codes, rules and regulations. The Lessor may impose as a condition to the
aforesaid consent additional customary requirements, including without
limitation requirements respecting the manner in which the work is done, Lessor's right of
approval of the contractor by whom the work is to be performed, and the times during which it
is to be accomplished. Upon written request of Lessor prior to the expiration or
earlier termination of the Lease, Lessee will remove any or all Alterations installed by or for
Lessee, except alterations as to which Lessor has waived such removal obligation; and, at Lessee's
request at the time Lessor's consent to an Alteration is requested, Lessor will inform Lessee
whether Lessor will waive the removal obligation as to such Alteration.AU Alterations not
specified to be removed shall at the expiration of earlier termination of the Lease become the
property of the Lessor and remain upon and be surrendered with the Premises. All
movable furniture, business and trade fixtures, and machinery and equipment shall remain the
property of the Lessee and may be removed by the Lessee at any time during the Lease term. Items
which are not to be deemed as movable furniture, business and trade fixtures, or machinery and
equipment shall include heating, lighting, electrical systems, air conditioning, partitioning,
carpeting, or any other installation which has become an integral part of the Premises. The Lessee
will give the Lessor five (5) business days notice prior
to the commencement of any Alterations work and will at all times permit notices of non-
responsibility to be posted and to remain posted until the completion of Alterations.
MAINTENANCE OF PREMISES
10. Lessee shall, at Lessee's sole cost, keep and maintain the Premises and appurtenances
and every part thereof, including but not limited to, glass and glazing, plumbing and electrical
systems, any store front and all components of the
interior of the Premises in good order, condition, and repair. Lessor shall, at Lessor's cost
and expense, maintain the structural integrity of the exterior walls, and structural portions of the
roof, foundations and floors, except that Lessee shall pay, as additional rent, the cost of any repairs
or replacements thereto necessitated by
the negligence or wrongful act of the Lessee or Lessee's agents or employees, Lessor shall
(but subject to reimbursement by Lessee as provided below), maintain, repair and (if
necessary in the judgment of Lessor's experts) replace with like-forlike replacements the roof
covering, HVAC system, fire sprinkler
system, sewer system, emergency power generator, landscaping. sidewalks, parking lot surface
and exterior paint ("Lessor's Maintenance Services") during the term of this Lease, as may be
extended. Lessee shall reimburse Lessor as Additional Rent the cost incurred by Lessor in
performing Lessor's Maintenance Services, within thirty (30) days after receipt of invoice from
Lessor; provided, however, that (except where replacement of the roof covering, HVAC system, fire
sprinkler system, sewer system, emergency
power generator, landscaping, sidewalks, parking lot surface and exterior paint are necessitated
by the negligent or willful acts of the Lessee or Lessee's agents or employees, in which event
Lessee shall pay the costs thereof in a lump sum on demand), costs of replacement (as opposed to
repair) of the foregoing shall be amortized over the useful life thereof, and Lessee shall pay
Lessor as Additional Rent a
monthly payment equal to the monthly amortization, together with interest on the unamortized
amount at an annual rate of interest equal to the sum of the "prime rate" charged on business
loans by Wells Fargo Bank, N.A., plus three percent (3%); and provided further
that, as to Lessor's Maintenance Services that benefit the Building and the Adjacent Building,
the Lessee's share of such costs shall be a portion equitably allocated to the Premises, in Lessor's
reasonable judgment. Lessee expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford the Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good order, condition
or repair.
FIRE AND EXTENDED COVERAGE INSURANCE AND SUBROGATION
11. Lessee shall not use, or permit the Premises, or any part thereof, to be used, for any
purposes other than that for which the Premises are hereby leased and no use
shall be made or permitted to be made on the Premises, nor acts done, which would cause a
cancellation of any insurance policy covering the Premises, or any part thereof, nor shall Lessee sell
or permit to be kept, used or sold, in or about the Premises, any article which may be prohibited by
the standard form of fire
insurance policies. Lessee shall, at its sole cost and expense, comply with any and all requirements,
pertaining to the Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance, covering the Building
and appurtenances.
11.1 Lessee shall, at its expense, obtain and keep in force during the term of this Lease (i) a
policy of commercial general liability insurance (including cross liability). with minimum coverages
of One Million and No/lOOths Dollars ($1,000,000.00) per occurrence combined single limit for
bodily injury and for property damage, with a Two Million and No/lOOths Dollars ($2,000,000.00)
general aggregate limit, and umbrella liability insurance in an amount not less than One Million and
No/lOOths Dollars ($1,000,000.00), with the Premises as the "location" under a per location
aggregate endorsement, insuring Lessee, Lessor, Lessor's Officers, Lessor's property manager and
Lessor's lender, against any liability arising out of the condition, use, occupancy or maintenance of
the Premises, (ii) worker's compensation in statutory limits, and (iii) if Lessee operates owned,
leased or non-owned vehicles at the Premises, comprehensive automobile liability insurance with a
minimum coverage of $1,000,000 per occurrence, combined single limit.
Evidence of coverage must be in the form of a certificate of insurance accompanied by the
appropriate additional insured endorsements. The limits of said insurance shall not limit the
liability of Lessee hereunder.
11.2 Lessee shall at its expense, keep in force during the term of this Lease, a policy of fire
and property damage insurance in a "special" form with a sprinkler leakage endorsement, insuring
Lessee's inventory, fixtures, equipment and personal property within the Premises for the full
replacement value thereof. Upon execution of this Lease and annually thereafter upon renewal of
such policies, Lessee shall provide Lessor with certificates of insurance, together with such
endorsements as Lessor may require in its reasonable discretion, evidencing coverages the Lessee is
required to carry pursuant to 11.l and 11.2. The policies shall provide for thirty (30) days
advance written notice of cancellation to Lessor and Lessor's lender. The policies shall otherwise be
in a form reasonably acceptable to Lessor and be issued by an insurance company licensed in the
State of California and reasonably acceptable to Lessor.
11.3 Lessor shall maintain a policy of commercial general liability insurance and a policy or
policies of fire and property damage insurance in a "special" form including rental interruption
coverage, with sprinkler leakage and, at the option of Lessor, earthquake endorsements, covering
loss or damage to the Building, including Lessee's leasehold improvements installed with the
written consent of Lessor, for the full replacement cost thereof.
11.4 Lessee shall pay to Lessor as additional rent, during the term hereof, upon receipt of an
invoice therefore, the premiums and deductibles (provided, the deductible amount shall be
amortized over the useful life or the improvement for which such insurance deductible is applicable
and Lessee shall only be obligated to reimburse Lessor for the amortized portion of the deductible
amount that occurs during the term of this Lease as may be extended) for any insurance obtained by
Lessor pursuant to 11.3 above. Lessor may obtain such insurance for the Premises separately, or
together with other property which Lessor elects to insure together under blanket policies of
insurance. In such case Lessee shall be liable for only such portion of the premiums for such blanket
policies as are allocable to the Premises (it being agreed that, if Lessor obtains insurance for the
Premises and the Adjacent Building together, the portion of the premiums allocable to the Premises
shall be Lessee's Share thereof). It is understood and agreed that Lessee's obligation under this
paragraph shall be prorated to reflect the commencement and termination dates of the Lease.
11.5 Lessee and Lessor each hereby waive any and all rights of recovery
against the other, or against the officers, directors, employees, partners, agents and representatives
of the other, for loss of or damage to the property of the waiving
party or the property of others under its control, to the extent such loss or damage
is insured against under any insurance policy carried or required to be carried by Lessor or Lessee
hereunder. Each party shall notify their respective insurance carriers of this waiver.
ABANDONMENT
12. Lessee shall not abandon the Premises at any time during the term; and if Lessee
shall abandon or surrender the Premises, or be dispossessed by process of law, or otherwise,
any personal property belonging to Lessee and left on the Premises
shall be deemed to be abandoned, at the option of Lessor, except such property as may be
mortgaged to Lessor.
FREE FROM LIENS
13. Lessee shall keep the Premises and the property in which the Premises are situated, free
from any liens arising out of any work performed, materials furnished, or obligations incurred
by Lessee.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
14. Lessee shall, at his sole cost and expense, comply with all statutes, codes, ordinances,
rules, regulations and other requirements of all Municipal, State and
Federal authorities (collectively, “Laws") now in force, or which may hereafter be in force.
pertaining to the Premises, and shall faithfully observe in the use of the Premises all Municipal
ordinances and State and Federal statutes now in force or which may hereafter be in force. The
judgment of any court of competent jurisdiction, or the admission of Lessee in any action or
proceeding against Lessee, whether Lessor be a party thereto or not, that Lessee has violated, or that
the Premises are not in compliance with, any Laws in the use of the Premises, shall be
conclusive of that fact as between Lessor and Lessee. Lessee's obligations under this paragraph 14
shall include the obligation to make, at Lessee's sole cost, any alterations or improvements to the
Premises which are required by applicable Laws, provided that (a) as to such alterations or
improvements which are not required by reason of Lessee's particular use of the Premises or by
reason of other alterations or improvements being undertaken by Lessee, Lessee shall only be
required to pay an allocable portion of the costs of such required alterations or improvements based
on the ratio of the remaining Lease term to the useful life of such alterations or improvements, and
(b) Lessee shall not be required to pay any portion of the cost of alterations or improvements which
are legally required to be made as of the date of this Lease and as to which Lessor receives notice of
such requirement prior to the date thirty (30) days after the date Lessor delivers
possession of the Premises to Lessee.
INDEMNIFICATION OF LESSOR
15. Neither Lessor nor Lessor's agents, nor any shareholder, constituent partner or other
owner of Lessor or any agent of Lessor nor any contractor, officer, director or employee of any
thereof shall be liable to Lessee and Lessee waives all claims against Lessor and such other persons
for any injury to or death of any person or for loss of use of or damage to or destruction of property
in or about the Premises by or from any cause whatsoever, unless caused solely by the gross
negligence or willful misconduct of Lessor, its agents or employees. Except to the extent waived
pursuant to paragraph 11.5 above, Lessee agrees to indemnify and hold Lessor, Lessor's agents, the
shareholders, constituent partners and/or other owners of Lessor or any agent of Lessor. and all
contractors, officers, directors and employees of any thereof (collectively, "Indemnitees"), and each
of them, harmless from and to protect and defend each Indemnitee against any and all claims,
demands, suits, liability, damage or loss and against all costs and expenses, including reasonable
attorney's fees
incurred in connection therewith, (a) arising out of any injury or death of any person or
damage to or destruction of property occurring in, on or about the Premises during Lessee's
occupancy of the Premises. from any cause whatsoever, unless caused solely by the gross
negligence or willful misconduct of such Indemnitee, or (b) occurring in, on or about the Premises,
when such claim, injury or damage is caused or
allegedly caused in whole or in part by the act, neglect, default, or omission of any duty by Lessee,
its former or current agents, contractors, employees, invitees, or subtenants, or (c) arising from any
failure of Lessee to observe or perform any of its obligations hereunder, The provisions of
this paragraph shall survive the termination of this Lease with respect to any claims or liability
occurring prior to such termination.
ADVERTISMENTS AND SIGNS
16. Lessee shall not place or permit to be placed, in, upon or about the Premises any unusual
or extraordinary signs, or any signs not approved by the city or other governing authority. The
Lessee shall not place, or permit to be placed, upon the Premises, any signs. advertisements or
notices without the written consent of the Lessor first had and obtained, which consent shall not be
unreasonably withheld; provided, however, Lessee shall have the right, subject to the approval of
the city or other governing authority, to the extent required, to install a sign on the Building either at
or near the Premises entrance, and/or on the side of the Building facing the street, and erect a
monument sign on that portion of the Lot near the street. Any sign so placed on the Premises shall
be so placed upon the understanding and agreement that Lessee shall remove same at the
termination of the tenancy herein created and repair any damage or injury to the Premises caused
thereby, and if not so removed by Lessee then Lessor may have same so removed at Lessee's
expense. Any sign placed without the express written consent of Lessor may be removed by
Lessor at Lessee's sole expense.
UTILITIES
17. Lessee shall pay for all water, gas, heat, light, power, telephone service and all other
service supplied to the Premises. If the Premises are not served by separate water, gas and/or
electrical meters, Lessee shall pay to Lessor its share of the costs of such utilities for the entire
property of which the Premises are a part, as determined by Lessor based on square footage or other
equitable method.
ATTORNEY'S FEES
18. In case suit should be brought for the possession of the Premises, for the recovery of any
sum due hereunder, or because of the breach of any other covenant herein, the losing party shall pay
to prevailing party a reasonable attorney's fee, which shall be deemed to have accrued on the
commencement of such action and shall be enforceable whether or not such action is prosecuted
to judgment.
DEFAULT AND REMEDIES
19. The occurrence of any one or more of the following events (each an "Event of Default")
shall constitute a breach of this Lease by Lessee:
(a) Lessee fails to pay any Base Monthly Rent or additional rent under this Lease as and when it
becomes due and payable and such failure continues for more than ten (10) days after receipt of
notice of non-payment from Lessor; provided that Lessor shall not be required to provide such
notice of non-payment to Lessee more than once during any twelve (12) month period and
thereafter during any such twelve (12) month period, no such notice shall be required for non-
payment of Base Monthly Rent to constitute and Event of Default; or
(b) Lessee fails to perform or breaches any other covenant of this Lease to be performed or
observed by Lessee as and when performance or observance is due and such failure or
breach continues for more than ten (10) days after Lessor gives written notice thereof to
Lessee; provided, however, that if such failure or breach cannot reasonably be cured within
such period of ten (10) days, an Event of Default shall not exist as long as Lessee commences
with due diligence and dispatch the curing of such failure or breach within such period of
ten (10) days and, having so commenced, thereafter prosecutes with diligence and dispatch
and completes the curing of such failure or breach within a reasonable time; or
(c) Lessee files, or consents by answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction; makes an
assignment for the benefit of its creditors; or consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers of Lessee or of any substantial part of Lessee's
property; or
(d) A court or government authority enters an order, and such order is not vacated within thirty (30)
days, appointing a custodian, receiver, trustee or other officer with similar powers with respect to
Lessee or with respect to any substantial part of Lessee's property: or constituting an order for relief
or approving a petition for relief or reorganization or arrangement or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors'
relief law of any jurisdiction; or ordering the dissolution, winding-up or liquidation of Lessee; or
(e) Lessee abandons the Premises.
19.1 If an Event of Default occurs, Lessor shall have the right at any time to give a written
termination notice to Lessee and, on the date specified in such notice, Lessee's right to possession
shall terminate and this Lease shall terminate. Upon
such termination, Lessor shall have the right to recover from Lessee:
(i) The worth at the time of award of all unpaid rent which had been earned at the time
of termination;
(ii) The worth at the time of award of the amount by which all unpaid rent which would have
been earned after termination until the time of award exceeds the
amount of such rental loss that Lessee proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which all unpaid rent for the balance of
the term of this Lease after the time of award exceeds the amount of such
rental loss that Lessee proves could be reasonably avoided; and
(iv) All other amounts necessary to compensate Lessor for all the detriment proximately caused by
Lessee's failure to perform all of Lessee's obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) above shall be
computed by allowing interest at the maximum annual rate allowed by law for business loans (not
primarily for personal, family or household purposes) not exempt from the usury law at the time of
termination or, if there is no such maximum annual interest rate, at the rate of eighteen percent
(18%) per annum. The "worth at the time of award" of the amount referred to in clause (iii) above
shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid
rent under clauses (i), (ii) and (iii) above, the rent reserved in this Lease shall be deemed to be the
total rent payable by Lessee under this Lease, including Base Monthly Rent, additional rent and all
other sums payable by Lessee under this Lease.
19.2 Even though Lessee has breached this Lease, this Lease shall continue in effect for so long as
Lessor does not terminate Lessee's right to possession, and Lessor shall have all of its rights and
remedies, including the right, pursuant to California Civil Code section
1951.4, to recover all rent as it becomes due under this Lease. Acts of maintenance or preservation
or efforts to relet the Premises or the appointment of a receiver upon initiative of Lessor to protect
Lessor's interest under this Lease shall not constitute a termination of Lessee's right to possession
unless written notice of termination is given by Lessor to Lessee.
19.3 The remedies provided for in this Lease are in addition to all other remedies available to Lessor
at law or in equity by statute or otherwise.
19.4 If Lessee shall fail to perform any obligation or covenant pursuant to this Lease within a
reasonable period of time (not to exceed 15 days) following notice from Lessor to do so, then
Lessor may, at its election and without waiving any other remedy it may otherwise have under
this Lease or at law, perform such obligation or covenant and Lessee shall pay to Lessor, as
Additional Rent, the costs incurred by Lessor in performing such obligation or covenant.
LATE CHARGES AND INTEREST
20. Lessee hereby acknowledges that late paym ent by Lessee to Lessor of rent and other
sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on Lessor by the terms
or any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any
other sum due from lessee shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, Lessee shall pay to Lessor a late charge equal to________
such overdue amount; provided that, unless
days late with any payment in the previous twelve-month period, Lessor shall give Lessee ten (10)
days prior notice that a payment is due before charging a late charge. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of
late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. If any rent or other sums due and payable
under the Lease remains delinquent for a period in excess of ten (10) calendar days, then, in
addition to any late charge payable, Lessee shall pay to Lessor interest on any rent that is not so
paid from the date due until paid at the then maximum rate of interest not prohibited or made
usurious by Law.
Lessee
has been more than ten (10)
SURRENDER OF LEASE
21. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall
not work a merger, and shall, at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to Lessor of any or all such
subleases or subtenancies.
TAXES
22. The Lessee shall be liable for all taxes levied against personal property and trade or
business fixtures. The Lessee also agrees to pay, as additional rent, during the term of this
Lease and any extensions thereof, all real estate taxes plus the yearly installments of any
special assessments which are of record or which may become of record during the term of
this Lease. Within thirty (30) days after delivery to Lessee of a tax bill or Lessor's invoice for
taxes. Lessee shall pay such taxes to the taxing authority or to Lessor, as instructed by
Lessor. If Lessee fails to pay such taxes within such 30-day period, then Lessee shall pay, as
additional rent, any late fees, penalties or interest assessed by the taxing authorities, plus
interest on such amounts at the rate set forth in paragraph 20 above. If the Premises are a
portion of a tax parcel or parcels and this Lease does not cover an entire tax parcel or parcels,
the taxes and assessment installments allocated to the Premises shall be pro-rated on a square
footage or other equitable basis, as calculated by the Lessor. It is understood and agreed that
the Lessee's obligation under this paragraph will be pro-rated to reflect the commencement
and termination dates of this Lease.
NOTICES
23. All notices to be given to Lessee may be given in writing personally, by commercial overnight
courier or by depositing the same in the United States mail, postage prepaid, and addressed to
Lessee at the said Premises, Attention: Legal, whether or not Lessee has departed from, abandoned
or vacated the Premises, and
any other address of Lessee set forth below, with a copy concurrently to: Hopkins & Carley, ALC,
70 South First Street, San Jose, California 93115, Attention: David Brown, Esq. Notices given in
accordance with this paragraph shall be deemed received one business day after sent by commercial
overnight courier, three business days after being deposited in the United States mail, or when
delivered if delivered personally. All notices to be given to Lessor may be given in writing
personally or by depositing the same in the United States mail, postage prepaid, and addressed to
Lessor at the following address or such other address as Lessor may, from time to
time designate:
c/o Renault & Handley
2500 El Camino Real, Suite 100 Palo Alto, CA 94306
ENTRY BY LESSOR
24. Lessee shall permit Lessor and its agents to enter into and upon the Premises at all
reasonable times, upon not less than 24 hours' prior verbal notice (except in cases of
emergency, in which case no notice shall be required), for the purpose of inspecting the same or for
the purpose of maintaining the Building, or for the purpose of making repairs, alterations or
additions to any other portion of the Building, including the erection and maintenance
of such scaffolding, canopies, fences and props as may be required without any rebate of rent
and without any liability to Lessee for any loss of occupation or quiet enjoyment of the Premises
thereby occasioned; and shall permit Lessor and his agents to place upon the Premises any usual
or ordinary "For Sale" sign or, at any time within one hundred twenty (120) days prior to the
expiration of this Lease, to place upon the Premises any "For Lease" sign and exhibit the
Premises to prospective tenants at reasonable hours. Lessor shall use commercially reasonable
efforts to minimize interference to Lessee during such entry.
DESTRUCTION OF PREMISES
25. In the event of a partial destruction of the Premises during the term of this Lease from any
cause covered by insurance carried, or required to be carried, by Lessor under this Lease, Lessor
shall forthwith repair the same, provided such repairs can be made within two hundred seventy
(270) days following such partial destruction under the laws and regulations of State, Federal,
County or Municipal authorities, but such partial destruction shall in no way annul or void this
Lease, except that Lessee shall be entitled to a proportionate reduction of rent while such repairs are
being made, such proportionate reduction to be based upon the extent to which the making of such
repairs shall interfere with the business carried on by
Lessee in the Premises. If the cause of such repairs is not so covered by insurance or cannot be
made in two hundred seventy (270) days, Lessor may, at his option, make same within a reasonable
time, this Lease continuing in full force and effect and the rent to be proportionately reduced as
aforesaid in this paragraph provided. In the event that Lessor does not so elect to make such repairs
the cause of which is not so covered by insurance or such repairs cannot be made in two hundred
seventy (270) days under such laws and regulations, this Lease may be terminated at the option of
either party. In respect to any partial destruction which Lessor is obligated to repair or may elect to
repair under the terms of this paragraph, the provision of Section
1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil Code of the State of
California are waived by Lessee. In the event that the Building be destroyed to the extent of not less
than 33 1/3% the replacement cost thereof, Lessor may elect to terminate this Lease, whether the
Premises be injured or not. A total destruction of the Building shall terminate this Lease. In the
event of any dispute between Lessor and Lessee relative to the provisions of this paragraph, they
shall each select an arbitrator, the two arbitrators so selected shall select a third arbitrator and the
three arbitrators so selected shall hear and determine the controversy and their decision thereon
shall be final and binding upon both Lessor and Lessee, who shall bear the cost of such arbitration
equally between them.
ASSIGNMENT AND SUBLETTING
26. The Lessee shall not assign, transfer, or hypothecate the leasehold estate under this Lease, or
any interest therein, and shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the Premises, or any
portion thereof, without, in each case, the prior written consent of the Lessor. Lessor shall not
unreasonably withhold its consent to a subletting or assignment. The Lessee shall, by thirty (30)
days written notice, advise the Lessor of its intent to assign this Lease or sublet the Premises or any
portion thereof for any part of the term hereof, which notice shall include a description of all of the
material terms of such assignment or subletting, and a reasonably detailed description of the
proposed assignee or sublessee and its business and financial condition. Within fifteen (15) days
after receipt of Lessee's notice, Lessor shall either give approval to Lessee to assign the Lease or
sublease the portion of the Premises described in Lessee's notice, or notify Lessee of Lessor's
disapproval. In addition, is Lessee proposes to assign this Lease or sublet more than fifty
percent (50%) of the Premises, then Lessor shall have the right to terminate this Lease
(or, in the case of a sublet, partially terminate this Lease as to the portion of the Premises
described in Lessee's notice) on the date specified in Lessee's notice. If Lessee intends to assign this
Lease or sublet the entire Premises and Lessor elects to terminate this Lease, this Lease shall be
terminated on the date specified in Lessee's notice. If, however, this Lease shall terminate pursuant
to the foregoing with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square feet retained by Lessee,
and this Lease as so amended shall continue in full force and effect. If the Lessor approves an
assignment or subletting, the Lessee may assign or sublet immediately after receipt of the Lessor's
written approval pursuant to this Paragraph 26. In the event Lessee is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent of Lessor, then no
assignee, transferee or sublessee shall assign or transfer this Lease, either in whole or in part, or
sublet the whole or any part of the Premises, without also having obtained the prior written consent
of the Lessor. In the event of any approved assignment or subletting, Lessee shall pay to the Lessor,
as additional rent, fifty percent (50%) of all assignment proceeds and rents received by the Lessee
from its assignee or sublessee which are in excess of the amount payable by the Lessee to the
Lessor hereunder, after deducting brokers' commissions, reasonable attorneys' fees and tenant
improvement costs incurred by Lessee associated with the assignment or subletting. Any sublessee
must provide liability insurance as required under the Lease, naming Lessor and its property
manager as additional insureds. A consent of Lessor to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Lessee from any of the Lessee's
obligations hereunder or be deemed to be a consent to any subsequent similar or dissimilar
assignment, transfer, hypothecation, subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, subletting, occupation or use without such consent shall be
void and shall constitute a breach of this Lease by Lessee and shall, at the option of Lessor
exercised by written notice to Lessee, terminate this Lease. The leasehold estate under this Lease
shall not, nor shall any interest therein, be assignable for any purpose by operation of law without
the written consent of Lessor. As a condition to its consent, Lessor may require Lessee to pay all
expenses in connection with the assignment, and Lessor may require Lessee's assignee or transferee
(or other assignees or transferees) to assume in writing all of the obligations under this Lease.
Any dissolution, merger, consolidation, recapitalization or other reorganization of Lessee, or the
sale or other transfer in the Aggregate over the term of the Lease of a controlling percentage of the
capital stock of Lessee (excluding transfers over a national securities exchange), or the sale or
transfer of all or a substantial portion of the assets of Lessee (collectively, a "Change in Control"),
shall be deemed a voluntary assignment of Lessee's interest in this Lease; provided that, a merger,
consolidation, recapitalization, reorganization or sale of assets shall not require Lessor's consent
hereunder unless Lessee's tangible net worth (determined in accordance with generally accepted
accounting
such
transaction is less than Lessee's tangible net worth immediately prior to such transaction. The
phrase "controlling percentage" means the ownership of and the right to vote stock possessing more
than fifty percent of the total combined voting power of all classes of Lessee's capital stock issued,
outstanding and entitled to vote for the election of directors. If Lessee is a partnership, a withdrawal
or change, voluntary, involuntary or by operation of Law, of any general partner, or the dissolution
of the partnership, shall be deemed a voluntary assignment of Lessee's interest in this Lease. Prior
to any Change of Control, whether or not Lessor's consent is required, Lessee shall provide
Lessor with proforma financial statements of Lessee as of the time immediately prior to the
immediately
principles)
after
pro forma financial statements of Lessee as
effectiveness of such Change of Control,
of the effectiveness of, and giving effect to, such Change of Control, and such other financial
information regarding Lessee as Lessor may reasonably request. If Lessor determines based on
such information that (a) Lessee's tangible net worth as of the effectiveness of such Change of
Control
worth
immediately prior to the effectiveness of such Change of Control, or (2) Lessee's
tangible net worth as of the date of this Lease, and (b) a larger security deposit is required in
Lessor's reasonable judgment to be consistent with current market terms regarding security
deposits, then Lessee shall deliver such additional security deposit to Lessor within ten (10) days
after Lessor's notice requiring same.
Lessee's
tangible
greater
than
less
net
the
(1)
of
is
CONDEMNATJON
27. If any part of the Premises shall be taken for any public or quasi-public use, under any statue or
by right of eminent domain or private purchase in lieu thereof, and a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so taken, terminate as of the date
title shall vest
in the condemner or purchaser, and the rent payable hereunder shall be adjusted so
that the Lessee shall be required to pay for the remainder of the term only such portion of such rent
as the value of the part remaining after such taking bears to the value of the entire Premises prior to
such taking; but in such event Lessor shall have the option to terminate this Lease as of the date
when title to the part so taken vests in the condemner or purchaser. If the entire Premises or such
part thereof be taken so that there does not remain a portion susceptible for occupation hereunder,
this Lease shall thereupon terminate. If a part or all of the Premises be taken, all compensation
awarded upon such taking shall go to the Lessor and the Lessee shall have no claim thereto. Lessee
may pursue a separate claim with the condemning
authority for loss of goodwill and moving expenses only.
EFFECT OF CONVEYANCE
28. The term "Lessor" as used in this Lease, means only the owner for the time being of the Lot
and Building, so that, in the event of any sale of the Lot or Building. the Lessor shall be and hereby
is entirely freed and relieved of all covenants and obligations of the Lessor hereunder, and it shall
be deemed and construed, without further agreement between the parties and the purchaser at any
such sale, that the purchaser of the Building has assumed and agreed to carry out any and all
covenants and obligations of the Lessor hereunder. If any security be given by the Lessee to secure
the faithful performance of all or any of the covenants of this Lease on the part of the Lessee,
the Lessor shall transfer and deliver the security, as such, to the purchaser at
any such sale, and thereupon the Lessor shall be discharged from any further liability in
reference thereto. Upon the written request of Lessor, Lessee shall execute an estoppel certificate as
may be required in connection with any such sale.
SUBORDINATION
29. Lessee agrees that this Lease shall be subject and subordinate to any
mortgage, deed of trust or other instrument of security which has been or shall be placed on the Lot
or the Building, and this subordination is hereby made effective without any further act of Lessee.
The Lessee shall, at any time hereinafter, on demand, execute any instruments, releases, estoppel
certificates, or other documents that may be required by any mortgagee, mortgagor, or trustor or
beneficiary under any deed of trust for the purpose of subjecting and subordinating this Lease to the
lien of any such mortgage, deed of trust or other instrument of security, and the failure of the Lessee
to execute any such instruments, releases or documents, shall constitute a default hereunder.
Notwithstanding Lessee's obligations, and the subordination of the Lease, under this paragraph 29,
no mortgagee, trustee or beneficiary' under any deed of trust or other instrument of security which
may be placed on the Premises shall have the right to terminate the Lease or disturb Lessee's
occupancy thereunder so long as no Event of Default has occurred and is continuing under this
Lease, and the subordination of this Lease to any such mortgage, deed of trust or other instrument
of security shall be conditioned upon the holder of such instrument executing and delivering to
Lessee an agreement which provides for such non· disturbance. Lessor shall use commercially
reasonable efforts to obtain from the holder of any existing mortgage, deed of trust or other
instrument of security a nondisturbance agreement which provides the foregoing. If requested
by Lessor, Lessee shall promptly provide Lessor with the most recent annual financial statements of
Lessee or, if financial statements of Lessee are not available, then financial statements of Lessee's
parent corporation or other parent entity.
WAIVER
30. The waiver by either party of any breach of any term, covenant or condition herein contained
shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of
the same or any other term, covenant or condition therein contained. The subsequent acceptance of
rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant
or condition of this Lease, other than the failure of Lessee to pay the particular rental so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent.
HOLDING OVER
31. Any holding over after the expiration or other termination of the term of this Lease with the
written consent of Lessor, shall be construed to be a tenancy from month-to-month, at a rental to be
negotiated by Lessor and Lessee prior to the expiration of said term, and shall otherwise be on the
terms and conditions herein specified, so far as applicable. Any holding over after the
expiration or other termination of the term of this Lease without the written consent of Lessor shall
be construed to be a tenancy at sufferance on all the terms set forth herein, except that the Base
Monthly Rent shall be an amount equal to of the Base Monthly Rent payable by Lessee
immediately prior to such holding over, or the fair market rent for the Premises as of such date
(determined by arbitration in accordance with Paragraph below 38), whichever is greater.
SUCCESSORS AND ASSIGNS
32. The covenants and conditions herein contained shall, subject to the provisions as to assignment,
apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties
hereto; and all of the parties hereto shall be jointly and severally liable hereunder.
TIME
33. Time is of the essence of this Lease.
MARGINAL CAPTIONS; COMPLETE AGREEMENT; AMENDMENT
34. The marginal headings or titles to the paragraphs of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any part thereof. This instrument is
the complete and integrated agreement between the parties hereto and may not be modified orally or
in any other manner than by an agreement in writing signed by all of the parties hereto or their
respective successors in interest.
ENVIRONMENTAL OBLIGATIONS
35. Lessee's obligations under this paragraph 35 shall survive the expiration or termination of
this Lease.
35.1 As used herein, the term "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or infectious or radioactive material. including
but not limited to those substances, materials or wastes regulated now or in the future under
any of the following statutes or regulations and any and all of those substances included
within the definitions of "hazardous substances, " "hazardous materials,'' "hazardous waste,"
"hazardous chemical substance or mixture," "imminently hazardous chemical substance or
mixture," "toxic substances," "hazardous air pollutant," "toxic pollutant," or "solid waste" in
the (a) Comprehensive Environmental Response, Compensation and Liability Act of 1990
("CERCLA" or "Superfund"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. § 9601 et seq., (b) Resource Conservation
and Recovery Act of 1976 (''RCRA"), 42 U.S.C. § 6901 et seq., (c) Federal
Water Pollution Control Act ("FSPCA"), 33 U.S.C. § 1251 et seq., (d) Clean Air Act
("CAA"), 42 U.S.C. § 7401 et seq., (e) Toxic Substances Control Act ("TSCA'1,14 U.S.C. §
2601 et seq., (f) Hazardous Materials Transportation Act, 49
U.S.C. § 1801, et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act ("California Superfund"), Cal.
Health & Safety Code§ 25300 et seq., (h) California Hazardous Waste Control Act, Cal.
Health & Safety code § 25100 et seq., (i) Porter Cologne Water Quality Control Act ("Porter-
Cologne Act"), Cal. Water Code§ 13000 et seq., U) Hazardous Waste Disposal Land Use
Law, Cal. Health &
Safety codes § 25220 et seq., (k) Safe Drinking Water and Toxic Enforcement Act of 1986
("Proposition 65"), Cal. Health & Safety code § 25249.5 et seq., (I) Hazardous Substances
Underground Storage Tank Law, Cal. Health & Safety code § 25280 et seq., (m) Air
Resources Law, Cal. Health & Safety Code § 39000 et seq., and (n) regulations promulgated
pursuant to said laws or any replacement thereof, or as similar terms are defined in the
federal, state and local Jaws, statutes, regulations, orders or rules. The term "Hazardous
Materials" shall also mean any and alt other biohazardous wastes and substances,
materials and wastes which are, or in the future become, regulated under applicable Laws
for the protection of health or the environment, or which are classified as hazardous or toxic
substances, materials or wastes, pollutants or contaminants, as defined,
listed or regulated by any federal, state or local law, regulation or order or by common law
decision. The term "Hazardous Materials" shall include, without limitations, (i)
trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated solvents,
(ii) any petroleum products or fractions thereof, (iii) asbestos, (Iv) polychlorinated biphenyls,
(v) flammable explosives, (vi) urea formaldehyde, (vii) radioactive materials and waste, and
(viii) materials and wastes that are harmful to or may threaten human health, ecology
or the environment.
35.2 Notwithstanding anything to the contrary in this Lease, Lessee, at its sole cost, shall comply
with all Laws relating to the storage, use and disposal of Hazardous Materials; provided, however,
that Lessee shall not be responsible for contamination of the Premises by Hazardous Materials
existing as of the date the Premises are delivered to Lessee unless caused by Lessee or any
contamination of the Premises which is the result of a migration of Hazardous Materials from
offsite. Lessee shall not store, use or dispose of any Hazardous Materials except for those
Hazardous Materials ("Permitted Materials") which are (a) listed in a Hazardous
Materials management plan ("HMMP") which Lessee shall submit to appropriate government
authorities as and when required under applicable Laws, and (b) are either normal quantities of
ordinary office supplies or are approved in writing by Lessor. Lessee may use, store and dispose of
Permitted Materials provided that (i) such Permitted Materials are used, stored, transported, and
disposed of in strict compliance with applicable Laws,
and (ii) such Permitted Materials shall be limited to the materials listed on and may
be used only in the quantities specified in the HMMP. In no event shall Lessee cause or permit to be
discharged into the plumbing or sewage system of the Premises or onto the land underlying or
adjacent to the Premises any Hazardous Materials. If the presence of Hazardous Materials on the
Premises caused or permitted by Lessee results in contamination or deterioration of water or soil,
then Lessee shall promptly take any and all action necessary to clean up such contamination, but the
foregoing shall
be deemed to constitute permission by Lessor to allow
the presence of such Hazardous Materials.
In no event
35.3 Lessee shall immediately notify Lessor in writing of:
(a) Any enforcement, cleanup, removal, or other governmental or regulatory action instituted,
completed or threatened against Lessee related to any Hazardous Materials;
(b) Any claim made or threatened by any person against Lessee or the Premises relating to damage,
contribution, cost recovery compensation, loss or injury resulting from or claimed
to result from any Hazardous Materials; and,
(c) Any reports made to any environmental agency arising out of or in connection with any
Hazardous Materials in, discharged at, or removed from the Premises, including any complaints,
notices, warnings or asserted violations in connection therewith.
Lessee shall also supply to Lessor as promptly as possible,
and in any event within
five (5) business days after Lessee first receives or sends the same, with copies of all claims,
reports, complaints, notices, warnings or asserted violations related in any way to the existence of
Hazardous Materials at, in, under or about the Premises or Lessee's use thereof. Lessee shall, upon
Lessor's request, promptly deliver to Lessor copies of any documents or information relating to the
use, storage or disposal of Hazardous Material on or from the Premises.
35.4 Upon termination or expiration of the Lease, Lessee at its sole expense shall cause all
Hazardous Materials placed in or about the Premises, by Lessee, its agents, contractors, or invitees,
and all installations (whether interior or exterior) made by or on behalf of Lessee relating to the
storage, use, disposal or transportation of Hazardous Materials to be removed from the property and
transported for use, storage or disposal in accordance and compliance with all Laws and other
requirements respecting Hazardous Materials used or permitted to be used by Lessee. Lessee shall
apply for and shall obtain from all appropriate regulatory authorities (including any applicable fire
department or regional water quality control board) all permits approvals and clearances necessary
for the closure of the Premises and shall take all other actions as may be required to complete the
closure of the Premises. ln addition, in the event Lessee has use Hazardous Materials on the
Premises which are not normal quantities of ordinary office supplies, prior to vacating the Premises,
Lessee shall undertake and submit to Lessor an environmental site assessment from an
environmental consulting company reasonably acceptable to Lessor which site assessment shall
evidence Lessee's compliance with this paragraph 35.
35.5 At any time prior to expiration of the Lease term, subject to reasonable prior notice {not
less than forty-eight {48) hours) and Lessee's reasonable security requirements and provided
such activities do not unreasonably interfere with the conduct of Lessee's business at the
leased Premises, Lessor shall have the right to enter in and upon the Premises in order
to conduct appropriate tests of water and soil to determine whether levels of any Hazardous
Materials in excess of legally permissible levels has occurred as a result of Lessee's use
thereof. Lessor shall furnish copies of all such test results and reports to Lessee and, at
Lessee's option and cost, shall permit split sampling for testing and analysis by Lessee. Such
testing shall be at Lessee's expense if Lessor has a reasonable basis for suspecting and
confirms the presence of Hazardous Materials in the soil or surface or ground water in, on,
under, or about the Premises, which has been caused by or resulted from the
activities of Lessee, its agents, contractors, or invitees.
35.6 Lessor may voluntarily cooperate in a reasonable manner with the efforts of all
governmental agencies in reducing actual or potential environmental damage. Lessee shall
not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of
such compliance or cooperation. Lessee agrees at all times to cooperate fully with the
requirements and recommendations of governmental agencies regulating or otherwise
involved in, the protection of the environment.
35.7 Lessee shall indemnify, defend by counsel reasonably acceptable to Lessor, protect and hold
Lessor and each of Lessor's partners, employees, agents, attorney's, successors, and assignees, free
and harmless from and against any and all claims, damages, liabilities, penalties, forfeitures, losses
or expenses {including reasonable attorney's fees) or death of or injury to any person or damage to
any property whatsoever arising from or caused in whole or in part, directly or indirectly by (A)
the presence in, or under or about the Premises or discharge in or from the Premises of any
Hazardous Materials caused by Lessee, its agents, employees, invitees, contractors, assignees, or
Lessee's use, analysis, storage, transportation, disposal, release, threatened release, discharge or
generation of Hazardous Materials to, in, on, under, about or from the leased Premises, or (B)
Lessee's failure to comply with any Hazardous Materials Law. Lessee's obligations hereunder shall
include, without limitation, whether foreseeable or unforeseeable, all costs, of any required or
necessary repair, cleanup or detoxification or decontamination of the Premises, and the preparation
and implementation of any closure, remedial action or other required plans in connection therewith,
and shall survive the expiration or earlier termination of the term of this Lease. For purposes of
indemnity provision hereof, any actions or omissions of Lessee or by employees, agents, assignees,
contractors or subcontractors of Lessee or others acting for or on behalf of Lessee (whether or not
they are negligent, intentional, willful or unlawful) shall be strictly attributable to Lessee. See
paragraph
40.
EARLY POSSESSION
36. Upon full execution of this Lease and Lessor's receipt of the first month's Base Monthly
Rent and security deposit due under the Lease, and Lessee's certificate of
insurance and applicable endorsements as set forth in paragraphs 11.1 and 11.2 of this
Lease, Lessor shall grant Lessee early possession of the Premises for the purpose
of construction of tenant improvements and installation of furniture, fixtures and
equipment and other fit-up ("Early Possession"). Lessee shall not be responsible to pay Base
Monthly Rent or additional rent prior to the Commencement Date, however Lessee
shall be responsible for all utility costs from the date of Early Possession and
Early Possession shall otherwise be on all terms and conditions of this Lease.
TENANT IMPROVEMENT ALLOWANCE
OPTION TO EXTEND
HAZARDOUS MATERIALS DISCLOSURE
37. The Premises and adjacent properties in the larger Middlefield-Ellis-Whisman area of
Mountain View have been the subject of ongoing groundwater remediation efforts by Intel.
Raytheon, NEC and other former tenants in the area under the direction of the EPA and the
Regional Water Quality Control Board. In addition to their remediation efforts, the responsible
parties have been conducting indoor and outdoor air and groundwater sampling in the area to assess
the effectiveness of the remediation efforts and to assure the health and safety of occupants of
properties in the area. All correspondence and information pertaining to the environmental
status of the subject property and adjacent properties is available for review by Lessee
and its consultants.
Lessor shall indemnify, defend and hold Lessee harmless from and against all claims, suits,
judgments, losses, costs, personal injuries, damages and expenses of every
type and nature ("Claims"), directly or indirectly arising out of or in connection with any Hazardous
Material present at any time on or about the Premises, or the violation of any environmental law
relating to any such Hazardous Material except to the extent that any of the foregoing
results from Hazardous Materials which come to exist on or about the Premises either (a) during the
term of this Lease as may be extended, or (b) due to the acts or omissions of Lessee or Lessee's
officers, employees, agents, contractors or invitees.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY WHO
WILL REVIEW THE DOCUMENT AND ASSIST YOU TO DETERMINE WHETHER YOUR
LEGAL RIGHTS ARE ADEQUATELY PROTECTED. RENAULT & HANDLEY IS NOT
AUTHORIZED TO GIVE LEGAL AND TAX ADVICE. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY RENAULT & HANDLEY OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS DOCUMENT OR ANY TRANSACTION RELATING THERETO.
THESE ARE QUESTIONS FOR YOUR ATIORNEY WITH WHOM YOU SHOULD CONSULT
BEFORE SIGNING THIS DOCUMENT.
IN WITNESS WHEREOF, Lessor and Lessee have executed these presents, the day and year first
above written.
LESSOR
Middlefield Road Joint Venture
By: Handley Management
Corporation
Its: Managing General Partner
/s/George O. McKee
George O. McKee, President
LESSEE
Vendavo, Inc., a Delaware corporation
By: /s/
Its: President
By: /s/Andrew Stern
Andrew Stern Chief Financial Officer
Its: Secretary
±60,335
sq
ft
flex space
401-415
East
Middlefield
Road,
Mountain
View
EXHIBIT A
FIRST
AMENDMENT
TO
LEASE
This First Amendment to Lease ("First Amendment"), dated as of
January 21, 2015 (the "Effective Date"), by and between
Middlefield Road Joint Venture Investment, a California general
partnership ("Lessor"), and Vendavo, Inc., a Delaware corporation
("Lessee"), amends that certain Lease, dated February 10, 2011, by and between Lessor
and Lessee (the "Lease"), for the Premises located at 401 East
Middlefield Road,
Mountain View, California with reference to the following facts:
RECITALS
A. WHEREAS, the term of the Lease is currently scheduled to expire on July 31, 2015.
B. WHEREAS, Lessee exercised its Option to Extend, and Lessor
and Lessee negotiated the Base Monthly Rent for the three-year
Option Period in accordance with the terms of Paragraph 38 of the
Lease; Lessee requested that the term of the Lease be extended for
an additional two years beyond the Option Period, and Lessor and
Lessee negotiated the Base Monthly Rent for that additional two-
year period, all as reflected in this First Amendment.
C. WHEREAS, Lessor and Lessee desire to amend the Lease to (i)
extend the Lease term for a period of five (5) years, (ii) provide for Base
Monthly Rent payable under the Lease for the extended term, and (iii)
amend certain other provisions of the Lease, all as more particularly set
forth herein.
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, Lessor and Lessee agree as
follows:
1.
RECITALS:
DEFINED
TERMS
: The recitals set forth above are
incorporated by reference into this First Amendment as though set forth
at length. Capitalized terms used but not defined herein shall have the
meanings given them in the Lease.
2.
TERM
:
The Lease is hereby extended for a period of five (5) years,
commencing on August 1, 2015 and expiring on July 31, 2020 (the
"Extended Term"). During the Extended Term, all of the terms,
covenants and conditions of the Lease shall be applicable except as set
forth
herein.
3.
RENTAL
: Base Monthly Rent for the Extended Term shall be
payable lo Lessor without defense, deduction or offset at such place or
places as may be designated from time to time by Lessor in the
following amounts:
4.
SECURITY
DEPOSIT
: Lessor currently holds a security deposit
pursuant to Paragraph 5 of the Lease in the amount of $______ Effective
as of August 1, 2015, the required security deposit amount shall increase
to $_____ __ No later than August 1, 2015, Lessee shall
deposit with Lessor the sum of $________to bring the security deposit
total to the required amount, which Lessor shall continue to hold as a
security deposit, and may utilize during the Extended Term, in accordance
with Paragraph 5 of the Lease.
5.
CONDITION
OF
PREMISES
AND
ALTERATIONS
: Lessee
has accepted possession of the Premises, and Lessor shall have no
obligation to alter or improve the Premises, or to pay any costs of any
such alterations or improvements. For purposes of Section 1938 of the
California Civil Code, Lessor hereby discloses to Lessee, and Lessee
hereby acknowledges, that the Premises have not undergone inspection
by a Certified Access Specialist (CASp). Lessee further assumes all
risk of, and agrees that Lessor shall not be liable for, any and all loss,
cost, damage, expense and liability (including without limitation, court
costs and reasonable attorneys' fees) sustained as a result of the
Premises not having been inspected by a Certified Access
Specialist (CASp).
6.
AMENDMENT
REGARDING
OPTION
TO
EXTEND
:
Paragraph 38 of the Lease, respecting the Option to Extend, is hereby
deleted in its entirety.
7.
NOTICES
: The address for notices to Lessor in Section 23 of the
Lease is hereby deleted and replaced with the following:
Middlefield Road Joint
Venture Investment c/o
Renault & Handley
625 Ellis
Street, Suite
101 Mountain
View, CA
94043
8.
FULL
FORCE
&
EFFECT
: As of the date hereof, the Lease is in full
force and effect. From and after the date hereof, the term "Lease" shall
mean the Lease as amended by this First Amendment.
9.
ENTIRETY
: The Lease, as amended by this First Amendment, is
the entire agreement between the parties and there are no agreements or
representations between the parties except as expressed herein.
Moreover, no subsequent change or modification of the Lease, as
amended, shall be binding unless in writing and fully executed by
Lessor and Lessee.
10.
BROKERS
: Lessor and Lessee each represent and warrant
to the other that it has had no dealings with any broker, finder or other
person who has a right to a fee or commission in connection with this
First Amendment, except Lessor's broker, Renault & Handley, and
Lessee's broker, CBRE, Inc. Lessor and Lessee shall indemnify, defend
and hold the other harmless against any loss or liability arising from a
breach of the foregoing representation and warranty by Lessor or
Lessee, as the case may be. Lessor shall pay Renault & Handley's fees
in connection with this First Amendment pursuant to a
separate agreement.
11.
MISCELLANEOUS
: Any inconsistencies or conflicts between the
terms
and provisions of the Lease and the terms and provisions of this First Amendment shall be
resolved in favor of the terms and provisions
of this First Amendment. This First
Amendment may be executed
and delivered in any number of counterparts, including delivery by
facsimile transmission, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
12.
AUTHORITY
: Lessor and Lessee each represent and warrant to
the other that it has full authority to enter into
and perform this First Amendment without the consent or approval of
any other person or entity including, without limitation, any mortgagees,
partners, ground lessors, or other superior interest holders or interested
parties. Each person signing this First Amendment on behalf of Lessor
or Lessee represents and warrants that he or she has the full and
complete authority, corporate, partnership or otherwise, to bind Lessor
or Lessee, as the case may be, to this First Amendment.
[Remainder of Page Intentionally Left Blank]
IN WITNESS THEREOF, Lessor and Lessee have executed
this First Amendment to Lease as of the Effective Date.
Lessee:
Lessor:
Vendavo, Inc., a Delaware
corporation
Middlefield Road Joint Venture
Investment, a California general partnership
By:/s/Christine Russell
Name: Christine Russell
Its: CFO
Date: January 21, 2015
By Handley Management
Corporation, Its Managing General Partner
By:/s/R. Frederick Caspersen
Name: R. Frederick Caspersen
Its: President and CEO
Date: January 28, 2015
32.
EXHIBIT B
FLOOR PLAN OF THE
SUBLEASE PREMISES
33.
EXHIBIT C
CONFIRMATION
OF
COMMENCEMENT
DATE
,
This Confirmation is made as of______________, 2017, between Vendavo, Inc., a
Delaware corporation (“Sublandlord”), and MobileIron, Inc., a
Delaware corporation ("Subtenant").
Sublandlord and Subtenant have entered into that certain Sublease dated January_, 2017,
in which Sublandlord leased to Subtenant and Subtenant leased from Sublandlord certain
Sublease Premises located at 401 E. Middlefield Road, Mountain View, California, as such
Sublease Premises are more particularly defined in the Sublease.
Pursuant to Section 2.1 of the Sublease, Sublandlord and Subtenant hereby confirm the
Commencement Date of the term of the Sublease as follows:
1.The Commencement Date of the term of the Sublease is
2.The Rent Commencement Date is _____________________
3.Base Rent and Operating Expenses for the month of _______ 2017, are abated pursuant to
Section 4 of the Sublease.
Sublandlord: Vendavo, Inc., a Delaware corporation
By:
Name:
Its:
Subtenant: MobileIron, Inc., a Delaware corporation
By:
Name:
Its:
34.
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,
2017:
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, 333-211057,
333-216057, 333-219616 and 333-222727 on Form S-8 of our report dated January 26, 2018, 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, 2017 .
Exhibit
23.1
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 12, 2018
Exhibit
31.1
Exhibit
31.1
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
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: March 12, 2018
/s/ Simon Biddiscombe
Simon Biddiscombe
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit
31.2
Exhibit
31.2
I, Shawn Ayers, 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 March 12, 2018
/s/ Shawn Ayers
Shawn Ayers
Interim 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), Simon Biddiscombe, President and
Chief Executive Officer (Principal Executive Officer) of MobileIron, Inc. (the “Company”), and Shawn Ayers, Interim 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, 2017 (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 12th day of March, 2018.
Arry
/s/ Simon Biddiscombe
Simon Biddiscombe
President and Chief Executive
(Principal Executive Officer)
/s/ Shawn Ayers
Shawn Ayers
Interim 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.”