Q3 2019 Earnings Call
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I would now like to turn the conference over to Eric filing. Please go ahead.
Thank you Christine good afternoon, and welcome to mobile our third quarter 2019 financial results Conference call.
Joining us from a company, our Simon Biddiscombe CEO , Scott <unk> CFO .
The format of the Colby remarks by Simon said, Scott will provide details on the financials.
Well that have time for questions.
Not received a copy of today's press release. Please go to Billboards Investor Relations Web site at investors got mobile <unk> Dot com.
Today's conference call contains forward looking statements that involve risks and uncertainties.
Including statements regarding my words revenue operating expenses, GAAP, and non-GAAP financial metrics product releases projections and trends.
All of these forward looking statements are subject to a number of significant risks.
Certainties and assumptions.
Actual results could differ materially from the statements made on this call.
Please see the risk factors section of <unk> SEC filings.
All statements made on the call her made as of today, we assumes no obligation and do not currently intend to update any such forward looking statements.
The call is reviewed after today see information presented during this call may not be current or accurate.
With regard to non-GAAP financial metrics.
Well, we believe them to be helpful. In understanding mobile order its financial performance, they're not meant to be considered I've seen isolation or as a substitute for comparable GAAP.
They should be read only in conjunction with mobile <unk> consolidated <unk> financial statements.
Paired in accordance with Guy.
Reconciliation of non-GAAP financial metrics for the got metrics can be found in our press release, and how many investor relations page or website.
We do not provide a reconciliation of forward looking nongaap financial measures due to our inability to project certain charges in expenses.
Otherwise noted results shirt today will be non-GAAP .
At this time I would now like turn the call over to Simon. Please go ahead.
Thank you Eric and good afternoon.
My remarks today I will provide a brief overview of our third quarter financial performance.
<unk>, how it was zero Trust security architecture is differentiated in the market.
Then share some recent customer successes.
Starting with an overview of our third quarter results revenue in third quarter was $52.2 million, 6% year over year.
Slightly below the midpoint of guidance.
Hey are all growth came in at 14%, which was short of our expectations.
I will U.S. business continues to make study improvements in execution and delivered its highest rate of revenue growth in seven quarters.
Business in Europe , particularly the UK and Germany slowed.
This has resulted in revised they are off guidance for the year, which Scott will cover.
Despite the sat back, which we largely attributed to macro economic factors, we still feel our teams are executing well, including those in the UK and Germany and I remain confident that our competitive differentiation is a strong as ever.
And now I would like to share more detail on the evolving IP security challenges.
The lions approach to addressing them.
As I previously discussed Mcknight environments are being driven by a change in how people work I'm a security architecture must respond.
I T organizations spent the last 30 years building a parameter around corporate owned Lufthansa laptops connected over IP controlled networks to the on site data centers.
No they have to guard against employees using their own phones and tablets.
Over unsecured public networks to access company data in third party cloud services.
Yeah actually environment has evolved into a zero trust state.
We believe mobile I'm delivers the most comprehensive security suite to address this new security Park.
Well I civitas have been searching for new framework to address today security challenges over the last two years Mobileye and has created a unique mobile centric approach to zero Trust Securities.
Well Brian's approach to mobile centric zero trust security significantly reduces risk by giving Archie complete control over business data as it flows across devices.
Apps networks and cloud services.
The mobile I am solution has a unified endpoint management platform and it's cool.
Uhhuh EMM platform delivers the ability to provision any device for use with the appropriate profound apps, while enforcing the policies to protect corporate data.
Enable I cheated put a micro perimeter and corporate data in a way that is not possible without yep.
This enables unmatched protection of the dates run the device, which is fundamental to zero Trust protection.
We like the OEM platform with two critical solutions to rain, but I was zero Trust solutions, those being threat defense and access.
Our threat defense integration with you we aim to live is critical differentiation in the market.
First our integrated solution and chose 100% user adoption.
Business apps and data protected from threats from vulnerability such as device network application and phishing attacks with right relying on uses to keep the security software up to date.
All happened seamlessly and didn't visibly to provide complete protection.
And second the threat defense integration lives I T to remediate the threat, but locking down access to corporate data when a threat is detected for example of Moshe SAP or compromised wife find that book.
That is substantially more potent security the other threat defense installations, where they use it is only a limited to the danger and I T must rely on the user to take corrective action.
Mobile and access Leverages device now posture user identity location and more to ensure that only trusted devices applications and users can have access to enterprise cloud services.
With that was zero trust solution mobile I'm gives employee instant uncompromised access to corporate data, even when it's outside the corporate firewall, while providing I T peace of mind.
I was zero sign on solution takes I was little trust architecture to another level by providing user authentication.
Well identity providers rely on the username and password for user authentication I was zero sign on solution Authenticates uses with biometrics, which are infinitely more secure and convenient.
I was yes. So solution is in trials with some of our well known customers in the financial manufacturing and pharmaceutical vertical.
So it was eliminated the need for passwords on the managed devices in their lives access to hundreds of cloud services like office 365 sales force concurrent juice.
These customers have no embarked on that passed with less authentication journey using their mobile I am managed device I said identity tracks any service on the device.
I'm thrilled to announce that this week, we were rate to the strong performer in the Forrester wave Zero Trust extended ecosystem platform provides a study.
Brian received the highest possible schools for device security.
People work for security.
Zero Trust roadmap and zero Trust differentiation.
We believe this recognition is further evidence that mobile I am Zero Trust security platform successfully address addresses a wide range of network device data workload and people security requirements as well as identity challenges while meeting the requirements of the zero Trust extended ecosystem.
And with that I'd like to touch on some customer wins from the quota.
I'm extremely pleased to announce that during the quarter, we gain proved out with strength in the highly regulated financial vertical with the deal with NASDAQ.
The world her name stock exchange and global provider financial services NASDAQ is constantly pursuing the latest the most innovative technologies and is dedicated to keeping the security of the 39 worldwide offices up to date against latest mobile threat.
With the full mobile and suite of U.M. access that MTD as a mobile security backbone NASDAQ employees will be able to enjoy seamless and user friendly experience across all the company's devices and im honored that we get to assist with further in Mastecs journey in the transition described.
Mobile and made further progress in the quarter by partnering with but he is a testament to our best in class technology.
As the largest online food delivery platform outside China with more than 330000 restaurant partners little bit each teamed up with us to provide a security solution for partners iOS and Android devices, that's capable of seamless deployment management.
We also secured a win with a BBB eight Mexico, the largest financial institution in the country.
Established in 1930 to BBB, a grew steadily to secure a dominant market position. Thanks to their mission of off from the clients the very best banking solutions.
They are firmly committed to making the most of the opportunities presented in the age of technology. A mobile line is pleased to grow our relationship with MBA. The best in class Mobile security solution in the Zero Trust age.
More and more companies like BBB attuned into mobile and for security peace of mind.
In closing I am also thrilled to share that we've filled out our board of directors with the addition of and Jolly Joshi.
Jolly was most recently, a vice president of product management a Google.
We will bring important technology expertise as we continue to optimize our offerings.
Jolly replaces Frank Marshall, who retired from the board in June .
I want to thank Frank for more than a decade of service to mobile I am as well above guidance and perspective, we shared with me personally over the years.
With that I'll turn it over to Scott.
Thank you Simon and good afternoon today, we will be discussing non-GAAP financial measures unless otherwise noted our press release form 8-K and website investors Don mobile iron Dot Com provide a reconciliation of GAAP to non-GAAP financial results.
Revenue in the third quarter was $52.2 million up 6% year over year and within guidance.
Air our growth came in at 14% year over year as you saw in today's press release, we have lowered our air our growth expectations for the year.
The largest driver this adjustment is softness that we are seeing specifically in Germany in the UK as.
As you know our international revenues are typically more than half of our business and have been a strong contributor to growth in the last year and a half.
Germany, and the you care, our second and third largest markets.
Our recent trends in these markets have been weaker than we expected driven by economic uncertainties. Each are facing which has resulted in deferred buying decisions and lengthening sales cycle.
We believe our execution continues to be solid and this current softness is driven by hesitation on our customers behalf.
That said, we recognize we need to drive strong results. So we are taking actions across our global sales force to bolster performance in all facets of deals execution.
From pipeline generation through cloud close to help accelerate deals across the finish line.
Given the progress we have made with execution in North America, we feel confident we can improve performance across the board and assignment pointed out we remain secure in our value proposition and competitive differentiation as the foundation of our ability to succeed.
We ended the third quarter with air our of $174 million.
Our subscription ARR was $108.6 million up 23% year over year, and our maintenance ARR was $65.7 million up 1% from last year, each of which reflect our focus on subscription revenue our renewal rate came in about 90%.
On the new product front, we continue to increase our cross sell penetration and have sold access and threat defense into a high single digit percentage of our large you we have installed base.
That said the air our contributed by our new product is behind where we expected it to be at this point in the year.
We remain optimistic that our ability to sell access and threat defense into our existing customer base and are convinced zero sign on will be a significant driver of air are in the future.
Gross margin in third quarter was 82% at the high end of our guidance and operating expenses were $42.6 million slightly above the high end of our guidance.
We reported positive operating income of $200000 net loss was $200000 or breakeven on a per share basis.
Moving to the balance sheet, we ended the quarter with $96.5 million in cash and short term investment and have no debt in the third quarter cash used by operations was $5.7 million and we spent $2 million repurchasing shares.
Unearned revenue was $106.8 million at the end of September up 15% from $93 million a year ago.
Now I will share our guidance for the fourth quarter of 2019, our guidance is as follows we're projecting a revenue range of $53 million to $56 million for slight growth at the midpoint.
We expect non-GAAP gross margin to be approximately 82%.
We expect non-GAAP operating expenses to be between 41 and $42 million.
We expect air arc and the year between 179 and $182 million for growth of 10% to 12% from the end of the prior year.
And with that we can open up the line for question.
As a reminder to ask a question you'll need to press Star then one on your telephone to withdraw your question. Please press the pound or Heskey. Please standby well, we compile the Q and a roster.
Your first question comes from line of metal Marshall from Morgan Stanley . Your line is open.
Great.
Just to kind of dig into Europe , just when did you start kind of seen some weakness there and you know is it smaller deals is the deals being pushed out and kind of what makes you think that some of that could recover as we head into 2020, and then I'm just kind of attach rate of new products would be helpful. As well thanks, Sean.
Sure Thanks meter.
It was toward the middle and middle to end of the quota that we started seeing the slowing most pronounced and as I said in my prepared remarks, it really was the UK and Germany, and even though we've got extraordinarily strong teams and partner partners in those countries that have been executed extraordinarily well or.
Period of time against the backdrop of that the challenges there seem in their markets at the macro level.
So, especially over the latter part of the quota matter that we started to see those challenges.
If you look at the specific questions associated with deals from deal slippage and so on.
It's fair to say that as I looked at the biggest deals in both of those geographies coming into the quarter those deals didnt close in the quarter and is what we don't actually expectancy close in Q4, I, but it's been deferred to Q1 at this point in time, so we're seeing customers deferring buying decisions at this point in time I will certainly.
We see an extension of.
Buying cycles in each of those geographies at this point impact I think there that are attributable to similar business trends that our customers I happened to deal with a bit with slightly different backdrops thinking in the UK. There is part of this that's attributable to Brexit and its manifested itself very specific new for us in a couple of couple of specific.
The most where for example, one of our large financial services customers is moving its headquarters from the UK, Germany, which resulted in a buying decision being deferred end of Q3 ultimately it will be into Q1, but it's still a deferral for us. If you will should get a whole series of issues, so sort of Brexit better manifest themselves in the UK as point and then in Germany.
So broad economic weakness that resulted in two of our most significant customers, they're having layoffs across their organizations and so on so so the trend manifests itself. Similarly in terms of deferred buying cycles in terms of big deals taking longer to close them, we might otherwise have expected, but in each of the.
John countries, a slightly different reasons for those occur.
Got it and then just the attach rate of new products are in offshore Inc. you won't take a Scott yes, sure our catch rate of the new product did increase in the quarter, but we're still in that.
High single digit range in terms of penetration.
Do you get into that matter. The principal reason is back to the same thing right inspected the fact that a significant part about business is done in those two European countries and those are big countries as it relates to buying the new products as well right. So the new product slowed as those countries slowed for us.
Got it thanks, so much.
I was going to I think the competitive differentiation associated with those products remains very strong and when I look at our ability to be successful based on the solutions. We have in the market at this point in time no part of what we've characterized feed today is because we think we've lost competitive differentiation. In fact, if you look at what Weve said about zero.
Trust amend zero sign on and better specifically around zero Trust Forrester wave and so on.
That's where we participate in some of our biggest competitive a completely absent at this point in time, so by the competitive differentiation remains strong and we believe this is very specifically associated group.
A couple of countries and challenges there.
Thanks.
Your next question comes from a line of Chad Bennett from Craig Hallum. Your line is open.
Great. Thanks for taking my questions. So.
Just kind of digging more into the air our reduction.
So if we look at where you came up short this quarter, which you.
Located a couple of reasons or specified a couple of reasons.
Regions.
In the guide down for the next quarter in a our are I guess you're expecting.
Regionally that weakness to continue into next quarter.
Or are there other parts of the business that that are kind of weakening and then secondly, it's it's the the guy down any our our or in the quarter. The underperformance in the quarter in the guide down.
Is it truly related to net new business, just being specific cross sell up sell and net new or is it related to renewal rates, which I think Scott alluded to around 90% I just want to break.
That's very consistent.
Europe renewal rate very consistent on a.
Sequential basis kind of thing so yes, why don't you touch on they are up yes. So from an air our perspective right. Obviously, that's a comprehensive meant metric and so there's a number of factors that drive it but we think about looking at the backdrop here in the first half we were on track for our objective of 20% growth and actually Europe was performing better than North America.
The second half we were anticipating a significant ramp in air art because were seasonally stronger second half business and so the weakness that we saw in those two countries in Germany in the UK contributed to that shortfall in Q3, and we expect that that weakness will persist into Q4 and that gives us the.
The the air our guide for the year.
The retention rate remained about 90%. So really this is all about not all about but mostly about new business.
Okay, and then if if we.
Can kind of think about next year I I guess have you recalibrated your expectations on that target. Our AR is as we head into next year and digging into that on just cloud growth overall. Thanks.
Yes, it's a good question, but we feel it's really just too early to tell how long this is going to persist and what it's going to mean for the overall they are.
Target.
Okay. Thanks.
Thanks, Jeff.
Your next question comes from wide array.
Raimo Lenschow from Barclays. Your line is open.
Hey.
Given that we had a couple of companies reporting already and I think sep called out money factoring in Germany, as well, yes, and can you talk a little bit about like bounty, but I'm, a guys kind of seem to be okay. Can you talk a little bit about your.
Maybe a vertical industry kind of exposure is that slightly different than maybe that's a factor here as well.
Yes. It is right now and you're right S&P did call at manufacturing specifically, if you think about some of the biggest customers we have in.
Germany at this point in time, there's a tremendous amount, but in that manufacturing space.
We've talked at length over the course of last couple of years about the wins, we've had in the automotive spec sector, specifically right. So yes, so for us.
Manufacturing sector is important to other when his financial services right and so weakness in some of the financial services organization. So we've got us customers in Germany as well so yeah S&P did call. It eight you correct. They called out manufacturing, we certainly sold and manufacturing.
We also saw in financial services as well.
Okay, and then follow up like if you look this quarter, we obviously saw little bit of changing industry with a.
Number kind of getting.
Robin Black and then just talking about layoffs endpoint posts.
They're airwatch solution.
Can you talk a little bit about doesn't change anything, but it doesn't seem like too much because everyone was partnering with endpoint vendors anyway, but just just talk to that a little bit what does it do for you.
Validates market thesis write them and when we introduced our mobile threat solution two years ago. The point, we were trying to make was that.
Wires will become an incrementally more concerned about the protection security of data on the mobile device itself and when we introduced the mobile threat solution had two years ago exactly.
We recognize that we and others would need to have solutions that solve for the security challenge associated with the date or on the device I think if you look at what Vmware has done the acquisition of.
Carbon black and if you look what Blackberry did with the acquisition of silence, it's essentially saying exactly about that the endpoint is that much more critical as you think about the protection of corporate data.
Whether you do it in a kind of mobile E. Our way to whether you do it the way we do the mobile threat solution.
Yes different different ways to solve for the challenge, but at the end of the day the mobile devices become that much more critical as to how employees are performing their work on a day to day basis I T organizations of that much more sensitive to the protection of the corporate data that sits on those devices and haven't threatened type solutions becomes that much more critical so now its a.
It's a validation of the market thesis and the activities we started two years ago.
Okay perfect. Thank you. Good luck. Thanks. Thank you <unk> God, if he would like to ask the question. Please press Star then one on your telephone. Your next question comes from mine Robert Mccarthy from Raymond James Your line is open.
Good afternoon, gentlemen, perhaps like Europe aside from where do you see can you just give us a general update on what you're seeing I T spending trends more more globally.
So when it with the same information that you have at this point in time, Robert as it relates to what we're seeing from an eye to spend perspective.
I think the interesting part for US is just how does that IP budget being spent and to what extent.
The challenges associated with.
Solving for mobile mobile security Zero Trust framework transitioned to cloud services and so on areas that are a priority within the context of mobile within the context of overall IP budgets and if you look at how people to spend that money at this point in time, there's no doubt that the areas that mobileye and is focused on continued to be summit.
Areas at CIO side, having we're choosing to spend the greatest domains of that budgets at this point in time.
Yes, so as a critical thing that everybody's trying to sell for right to think about the zero Trust movement and.
The enthusiasm our customers have for the solution that we have in the market at this point.
Yes, the technologies that we're bringing to bear solve the challenges that I will see I always a having to solve for within the context of their budgets.
I am convinced the but even as.
Even within the context of an overall IP spending budget, what we're focused on continues to be a major priority for all customers.
Thanks, a lot.
There are no further questions at this time I turn the call back over to Simon.
Thanks, very much that concludes our coal for today. Thanks for your participation and we look forward to updating you on a real progress next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.