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As filed with the Securities and Exchange Commission on April 7, 2014.

Registration No. 333-                    

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Mobile Iron, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   7372   26-0866846

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

415 East Middlefield Road

Mountain View, California 94043

(650) 919-8100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Robert B. Tinker

President and Chief Executive Officer

Mobile Iron, Inc.

415 East Middlefield Road, Suite 100

Mountain View, California 94043

(650) 919-8100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Eric C. Jensen

Mark Medearis

Cooley LLP

3175 Hanover Street

Palo Alto, California 94304

(650) 843-5000

 

Laurel Finch

Vice President, General Counsel and

Secretary

Mobile Iron, Inc.

415 East Middlefield Road, Suite 100

Mountain View, California 94043

(650) 919-8100

 

Jeffrey R. Vetter

William L. Hughes

Fenwick & West LLP

801 California Street

Mountain View, California 94041

(650) 988-8500

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨   Accelerated filer   ¨   Non-accelerated filer   x   Smaller reporting company   ¨
    (Do not check if a

smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered  

Proposed Maximum Aggregate

Offering Price (1)(2)

 

Amount of

Registration Fee

Common Stock, $0.0001 par value per share

  $100,000,000   $12,880

 

 

(1) Estimated solely for the purpose of computing the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the offering price of shares the underwriters have the option to purchase from us and the selling stockholders.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued April 7, 2014

                Shares

 

LOGO

COMMON STOCK

 

 

Mobile Iron, Inc. is offering                  shares of its common stock and the selling stockholders are offering                  shares of common stock. We will not receive any of the proceeds from the sale of shares by the selling stockholders. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $         and $         per share.

 

 

We intend to apply to list our common stock on the                 under the symbol “MOBL.”

 

 

We are an “emerging growth company” as defined under the federal securities laws. Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 15.

 

 

PRICE $             A SHARE

 

 

 

       Price to
Public
       Underwriting
Discounts
and
Commissions (1)
       Proceeds to
Mobile Iron,
Inc.
       Proceeds to
Selling
Stockholders
 

Per Share

       $                    $                    $                    $            

Total

       $                               $                               $                               $                       

 

  (1) See the section titled “Underwriters” for a description of the compensation payable to the underwriters.

We and the selling stockholders have granted the underwriters the right to purchase up to an additional                 shares of common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2014.

 

 

 

MORGAN STANLEY   GOLDMAN, SACHS & CO.   DEUTSCHE BANK SECURITIES   BARCLAYS
RAYMOND JAMES     STIFEL

NOMURA

                    , 2014


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LOGO

one billion mobile devices at work*. Mobilelron® * IDC projects that 1.027 billion business-use smartphones and commercial-use tablets will be shipped in 2014-2016.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     15   

Special Note Regarding Forward-Looking Statements

     39   

Market and Industry Data

     41   

Use of Proceeds

     42   

Dividend Policy

     42   

Capitalization

     43   

Dilution

     45   

Selected Consolidated Financial Data

     48   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     52   

Business

     77   
     Page  

Management

     100   

Executive Compensation

     108   

Certain Relationships and Related Party Transactions

     115   

Principal and Selling Stockholders

     116   

Description of Capital Stock

     118   

Shares Eligible for Future Sale

     123   

Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders

     125   

Underwriters

     129   

Legal Matters

     134   

Experts

     134   

Where You Can Find More Information

     134   

Index to Consolidated Financial Statements

     F-1   
 

 

 

Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the selling stockholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                     , 2014 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

For investors outside of the United States: Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the sections titled ‘‘Risk Factors’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and our consolidated financial statements and related notes included elsewhere in this prospectus. Our fiscal year ends on December 31.

MOBILE IRON, INC.

We invented a purpose-built mobile IT platform for enterprises to secure and manage mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. Customers use our platform as the technology foundation on their journey to become “Mobile First” organizations, embracing mobility as a primary computing platform for their employees. Mobile First organizations transform their businesses by giving their employees secure access to critical business applications and content on devices employees want with a native user experience they love. Our platform is extensible and fosters a growing ecosystem of application developers and technology partners who augment the functionality and add value to our platform, creating positive network effects for our customers, our ecosystem and our company.

The adoption of mobile technology is a disruption of historic proportions and has outpaced earlier transitions such as mainframe to PCs and client/server to the Internet. IT departments are often challenged to provide users the benefits of mobility, while simultaneously satisfying enterprise requirements. Users want to access business applications, or apps, and corporate content on their favorite smartphone and tablet with the same ease of use they experience on those devices in their personal lives. Users also expect their privacy to be preserved when using their personal devices at work. As a result, IT must satisfy new requirements, including enforcing mobile security, defining mobile management and compliance policies, supporting multiple, rapidly evolving mobile operating systems, enabling both corporate-owned and user-owned devices and mobilizing enterprise applications and content, all while ensuring compatibility with existing IT infrastructure.

Our mobile IT platform addresses the requirements of the mobile era by allowing enterprises to protect corporate data, deliver apps and content, and give users choice of popular mobile devices. Our architecture promotes employee productivity, separates personal data from corporate data, provides a native user experience and gives IT the ability to define security and management policies independent of the device. We enable corporate-owned, bring your own device (BYOD) and mixed device ownership environments.

Our business model is based on winning new customers, expanding sales within existing customers, upselling new products and renewing subscriptions and software support agreements. We win customers using a sales force that works closely with our channel partners, including resellers, service providers and system integrators. We have experienced rapid growth in our customer base, having sold our platform to over 6,000 customers since 2009. Our strategy is based on our existing customers expanding the number of mobile device licenses or subscriptions purchased to facilitate their Mobile First journey. The group of our customers that first bought our products in 2010 subsequently purchased through December 31, 2013 over five times the initial number of mobile device licenses. We enhance the value of our platform by introducing additional products and upselling these additional products to our customers. For example, in late 2012, we extended our platform with new application container and content products, including Docs@Work and AppConnect. Our global Customer Success organization creates highly satisfied customers, leading to additional sales and renewals of subscription and software agreements. In 2013, we generated nearly half of our gross billings from recurring sources. Our renewal rate, determined on a device basis, was greater than 90% for software support agreements and subscription licenses for 2013.

 

 

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We offer our customers the flexibility to use our software as a cloud service or to deploy it on-premise. They can also choose from various pricing options including subscription and perpetual licensing. We target customers of all sizes across a broad range of industries including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology and telecommunications. As of December 31, 2013, we have sold our solutions to over 6,000 customers worldwide including over 350 of the Global 2000. No customer accounted for more than 5% of our total revenue in 2013.

We have experienced rapid growth in recent periods. Our gross billings were $27.4 million, $68.0 million and $100.8 million in 2011, 2012 and 2013, respectively, representing growth rates of 148% from 2011 to 2012 and 48% from 2012 to 2013. Our total revenue was $13.9 million, $40.9 million and $105.6 million in 2011, 2012 and 2013, respectively. Revenue from subscription and perpetual licenses in 2013 represented approximately 14% and 66% of total revenue in 2013, respectively. The balance, constituting 20% of total revenue for 2013, was software support and services revenue, including revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses. Excluding $21.1 million of revenue recognized in 2013 from perpetual licenses delivered in prior years, our total revenue was $84.5 million in 2013. We have incurred net losses of $25.7 million, $46.5 million and $32.5 million in 2011, 2012 and 2013, respectively. See “Selected Consolidated Financial Data—Key Metrics” for more information and a reconciliation of gross billings to total revenue.

Industry Background

The proliferation of smartphones and tablets has transformed the way users interact with applications and content in their personal lives. Apps have become an important way that users conduct commerce, manage their lives and access content. Users are also becoming increasingly self-sufficient with mobile technology. Having benefitted from this transformation in their personal lives, users increasingly demand a similar mobile experience at the workplace. This is pressuring global enterprise IT organizations to enable access to apps, content and critical business processes on mobile devices, creating a better user experience.

 

    Mobility is a Transformation of Historic Proportions . Past significant technology transitions including the migrations from mainframe to PCs and client/server to the Internet affected enterprises of all sizes in every industry. We believe we are in the early stages in the emergence of mobility, which is already changing the way people work, impacting IT architectures and altering the technology industry landscape.

 

    Adoption of Mobile is Outpacing Previous IT Transitions. The adoption of mobile technology has significantly outpaced previous technology transitions. In a short period of time, smartphones, tablets and mobile applications have seen broad proliferation. According to IDC, there were 1.2 billion smartphones and tablets shipped in 2013, of which 218 million were business-use smartphones and commercial-use tablets. The rapid penetration of mobile technology in the workplace has challenged IT organizations to keep pace.

 

    We Have Entered the Mobile First Era. The transition to mobile has created an environment in which enterprise users expect access to critical applications and sensitive content anytime and anywhere, creating new challenges for IT. Mobile First organizations can transform their businesses by giving their users secure access to critical business processes on devices that they want with a native user experience. By allowing users to be productive on smartphones and tablets, these organizations can benefit from increased user engagement and optimized business processes.

 

   

Mobile Requires a New Infrastructure and Organization. A mobile IT platform provides users with secure access to the applications and content they need, wherever they are, on devices of their choosing and allows IT to secure and manage corporate data while preserving user privacy and ease of use. This

 

 

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results in the creation of a new IT team that is tasked to drive mobile technology and is unbounded by existing vendor relationships.

Limitations of Legacy Approaches

The mobile transformation is happening at a rapid pace and at massive scale, exposing many issues with traditional approaches to managing and securing enterprise data and computers in the enterprise:

 

    Reliance on Single-OS Architectures. IT has traditionally taken an operating system-specific approach to security. Legacy architectures are challenged to manage the diversity of consumer mobile devices and operating systems and the rapid release of new devices and software.

 

    Inability to Control OS Upgrades. Traditionally, IT unilaterally managed the PC environment and controlled the availability and cadence of upgrades. In a multi-OS world, IT no longer controls the rate of adoption, as users choose when to upgrade to the latest version.

 

    Legacy Security and Management Systems Not Designed For Mobile. Legacy security and management systems are composed of many layers such as patch management tools, virtualization products, and numerous security, compliance and application management technologies, resulting in a complex and costly architecture. Each of these layers is focused on performing a specific task that is either unnecessary or unfeasible to retrofit in the mobile world.

 

    Challenges Managing New Device Ownership Models. In the PC era, IT had control over corporate desktops and laptops, with the ability to “wipe and re-image” to enforce security and compliance policies. This approach is not viable in a BYOD world when a device contains both business and personal data.

 

    Limited Ability to Secure and Manage Applications. Legacy approaches are limited in their ability to provide IT with the infrastructure and controls required to secure and manage the rapid proliferation of mobile apps and content while simultaneously providing an acceptable mobile user experience. Familiar app store approaches for managing and distributing apps in consumer environments are not readily available from legacy vendors for use in the enterprise and across operating systems.

 

    Conflicting Interests of Legacy Vendors. Given the diversity of mobile devices in the enterprise today, most enterprises operate in a multi-OS world. The PC and operating system manufacturers are vested in promoting their own devices and operating systems, and therefore their interests are often not aligned with those of enterprise IT.

Requirements of a Mobile IT Platform

Key Requirements for Users

 

    Choice of Devices and Operating System. Users are demanding the ability to choose their own device, use it for work and change it as often as they wish. A 2013 Gartner study found that 78% of respondents used their personal mobile devices at work.

 

    Availability of Apps and Content for Improved Productivity. Users want to use apps that are familiar to them to improve productivity and easily gain access to corporate content and documents.

 

    Preservation of Privacy. Users want to feel confident that enterprise IT will not access or delete their personal information.

 

    Ease of Use. Users increasingly expect to have access to their corporate apps and content on their device in a way that does not disrupt the native user experience.

 

 

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Key Requirements for IT

 

    Security and Compliance. IT requires a method to secure corporate data while preserving the privacy of personal information and allowing users to use their personal applications.

 

    Multi-OS Support at Scale. IT requires a mobile IT platform capable of supporting users and devices at global enterprise scale across a variety of rapidly evolving mobile operating systems and next-generation laptop operating systems such as Windows 8.1 and OS X.

 

    Access Control and Authentication. IT needs a centralized enforcement mechanism to enable access control and authentication to apps and content for users with devices that are most often located outside of the corporate firewall.

 

    Business Enablement. IT needs to be able to provide users with mobile access to email, mobile applications, web resources and content that enables them to be productive. IT also needs to enable users to securely access enterprise content repositories.

 

    Ease of Integration. IT departments need a mobile IT platform that can quickly, cost-effectively and easily integrate with their existing directory, security, content and management infrastructure. In addition, IT requires the flexibility to use a mobile IT platform either as a cloud service or deployed on-premise.

Our Solution—The MobileIron Platform

We invented a purpose-built mobile IT platform for enterprises to secure and manage mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. Customers use our platform as the technology foundation on their journey to become Mobile First organizations, embracing mobility as a primary computing platform. Mobile First organizations transform their businesses by giving their users secure access to critical business applications and content on devices users want with the native user experience they expect. Our mobile IT platform is architected so that IT can define policies protecting enterprise data in real time both on the device and as it moves between the devices and enterprise systems. Our platform enables application developers to secure their mobile apps in order to make them enterprise-ready. Technology vendors leverage our platform extensibility to integrate their existing products and solutions to augment them with mobile IT functionality. IT organizations use our platform application programming interfaces, or APIs, to integrate our mobile IT platform with their existing IT infrastructure.

To address the unique challenges of mobile, our platform is composed of three integrated and distributed software components: a mobile IT policy server that allows IT to define security and management policies across popular mobile operating systems, software on the device to enforce those policies at the mobile end-point, and an intelligent gateway that secures data as it moves between the device and back-end enterprise systems. Each component is distributed to accommodate corporate IT environments and integrated into a single solution for a simplified management experience. Customers, independent application vendors and technology vendors leverage our extensible interfaces to add value to our platform, and in turn, mobilize and secure their applications and content.

How We Provide Value to Users

 

    Device and OS Choice. We offer broad support for mobile devices, allowing users to choose the device and operating system they want and enabling IT to provide support for those devices. Our platform is focused on providing a native user experience across popular operating systems.

 

   

Platform for App Selection. Our mobile IT platform supports mobile apps securely on mobile devices. We enable users to download and receive automatic configuration settings of customer-developed and

 

 

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third-party apps through our enterprise app storefront that combines the user experiences found in the consumer world with enterprise requirements.

 

    Mobile Access to Enterprise Content from Anywhere. Our platform enables user access to internal websites and web applications, as well as enterprise content and document repositories from anywhere, including outside the enterprise firewall. Users can also utilize popular cloud-based collaboration and storage tools for business use.

 

    Trust and Privacy. Our solution allows users to maintain the privacy of their personal information regardless of their access to enterprise content and apps on the same device.

 

    Native User Experience. Our platform protects corporate data while maintaining the user experience that is native on their device.

How We Provide Value to IT

 

    Effective Data Security and Compliance. Our platform enables IT managers to secure corporate data on mobile devices. Our solution is designed to meet the rigorous and ever-evolving security demands of a wide range of enterprises, while preserving the native device experience for users.

 

    Multi-OS Management at Scale. Using our platform, global enterprises can support user choice of devices and operating systems across both personal and corporate devices.

 

    Enhanced Productivity with App Management and Content Integration. Our platform enables the comprehensive management of mobile apps and content for business users. We create the capability for IT to make apps, web resources and content available. We also securely manage access to enterprise resources and restrict them based on defined policies.

 

    Deployment and Pricing Flexibility . Our customers can choose between using our platform as a cloud service or by deploying it on-premise. We also offer the flexibility to choose between pricing models, which include subscription or perpetual licensing options.

 

    Cost-Effective and Easy Integration. Our platform provides application programming interfaces to allow cost-effective and easy integration with existing IT infrastructure. In addition, our Technology Alliance partnership program allows leading technology vendors to extend our platform with their products.

 

    Comprehensive Platform to Enable the Mobile First Journey . Our platform enables our customers to transition to mobile as a primary computing platform throughout all stages of the Mobile First journey, from device enablement and security to managed content and applications.

 

   

Customer-Defined Privacy Framework . Employee adoption of BYOD 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. Our platform enables customers to customize their privacy policies and support BYOD initiatives. We provide mobile device management (MDM) capabilities to enable customers to selectively wipe business data on a user’s device, including business email, apps, content, settings, and certificates, without wiping personal content contained on the device. Without a mobile IT solution such as ours, if a device is lost or compromised, the IT administrator’s only option would be to wipe the entire device of all personal and corporate content. Our platform, on the other hand, allows customers to apply more granular controls, whether with regard to viewing data or wiping

 

 

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data, than would otherwise be possible. With our granular privacy framework, the IT administrator can both alleviate user privacy concerns and lessen the customer’s burden of complying with a wide range of privacy laws.

Our Market Opportunity

We estimate that the size of the global mobile IT market will be $27 billion for 2014 and will grow to approximately $49 billion in 2017, based on the projected number of smartphones and tablets to be used in enterprises, multiplied by the estimated amount that enterprises will spend annually to secure and manage corporate email, data and applications on those devices. According to IDC, 280 million business-use smartphones and commercial-use tablets will be shipped in 2014 with 480 million of such devices expected to be shipped in 2017. Based on a two-year device replacement cycle, we estimate a global installed base of 498 million smartphones and tablets in 2014 growing to 887 million by 2017, representing a compounded annual growth rate of 21%. Gartner estimated in 2012 that the total cost of mobile IT management software is approximately $55 per device annually. We believe the costs to secure and manage enterprise mobility will grow as enterprises transform their businesses into Mobile First organizations.

We believe that as enterprises make the transition to mobile, an increasing number of dollars will be shifted away from the PC ecosystem and invested into technologies that enable enterprise users to work on mobile devices. As the world moves towards Mobile First, we believe our platform enables us to own a strategic position in the enterprise architecture. Our opportunity is to be the core platform inside the enterprise IT architecture for delivering mobility.

Our Competitive Strengths

 

    Comprehensive Solution for the Transition to a Mobile First Organization. Our platform can be adopted in stages to support the Mobile First journey of an organization, which allows our customers to integrate mobile technology at a pace that suits their business requirements and matches the technical ability of their users and corporate IT resources.

 

    Platform Architected for Mobile IT. Our mobile IT platform was purpose-built to address the rapidly-evolving and complex mobile requirements of users, IT and the mobile IT ecosystem. We believe that our distributed platform architecture, based on a mobile IT policy server, in-line security gateway, and mobile device client software is the optimal way of delivering services to enable Mobile First organizations.

 

    Application Platform for Users and IT . Customers use our app storefront as the primary distribution model for mobile applications to employees. Customers also use AppConnect technology to accelerate adoption of mobile apps, easily configuring and increasing security for data at rest and data in motion. AppConnect is our technology that allows mobile applications to be secured and managed by our platform. By combining consumer world sensibilities with enterprise requirements, our mobile IT platform underpins the end to end lifecycle for enterprise mobile applications.

 

    Network Effects of our Platform. Our platform benefits from positive network effects that are the result of the strength of our ecosystem. Our ecosystem includes customer-developed and third-party applications that utilize our application integration technology and leading technology vendors that have integrated with our platform. Platform effects include our ecosystem partners accelerating enterprise adoption of their products that use AppConnect, our application container solution, and customers choosing our platform because of our ecosystem of AppConnect partners. As of February 28, 2014, we had 139 AppConnect partners and 36 Technology Alliance partners who have integrated, or are in the process of integrating, with our platform. In addition, our customers have utilized AppConnect to secure over 1,000 internally developed applications.

 

 

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    World Class Global Customer Success Organization. Our global Customer Success organization provides global technology support, implementation and best practices toolkits, education and online training as well as strategic account management to build trusted customer relationships. Our global Customer Success team has developed the depth and breadth of expertise to provide our customers with the support required on their journey to become Mobile First.

 

    Our Channel-Focused Sales Model with Global Reach. We have a strong global network of channel partners that drive customer and sales growth across all customer segments. We work with diverse channel partners to maximize global sales reach and provide efficient customer service.

 

    Large Installed Base with Deep Customer Relationships. We have sold our products to over 6,000 customers of varying sizes across a broad range of industry verticals. We believe that the deep relationships we enjoy with many of our customers enable us to identify high priority requirements, develop key strategic insights, improve our solution, and share mobile IT best practices with other customers.

 

    Flexible Deployment and Pricing Model. We offer our customers the choice of using our platform either as a cloud service or deployed on-premise. We offer pricing flexibility with subscription or perpetual licensing options, which allows a customer to pay for our platform through either its capital or operating budget.

Our Growth Strategy

 

    Maintain our Mobile IT Technological Leadership. Gartner has identified us as a Leader for three consecutive years in the Magic Quadrant for Mobile Device Management Software. We believe mobile device management, or MDM, represents a subset of our mobile IT platform and business opportunity. We intend to continue to invest in our product development efforts to remain at the forefront of the mobile IT landscape.

 

    Expand our Ecosystem and Network Effects of our Platform. We intend to continue to expand our ecosystem to further extend the value of our platform and offer a more comprehensive solution to our customers.

 

    Win New Customers. We believe that our market is large and untapped with a significant number of enterprises that have yet to deploy a mobile IT platform. We have made and expect to continue to make significant investments in sales, marketing, channels and partnerships to acquire new customers.

 

    Expand within our Existing Customers. We intend to expand within our existing customer base to grow our revenue. We believe that our existing customer base serves as a strong source of incremental revenue as more mobile users require secure access to corporate apps, data and content. As of March 31, 2014, we estimate that we have sold perpetual and subscription licenses for mobile devices representing between 22% and 40% of the total number of mobile devices within our existing U.S. customer base, based upon third-party estimates of the number of employees within each of our customers, our own assumptions regarding the number of those employees who require mobile IT solutions, and the assumption that each of these employees will use one to two devices.

 

   

Build and Upsell New Products. A key aspect of our strategy is to invest in development efforts to add new products to our platform to sell to new and existing customers. Due to the evolving mobile IT landscape, we are continuing to develop new offerings to address expected customer requirements. Additional products include AppConnect, Docs@Work, which provides the user with a secure content container on the device, as well as secure access to back-end data repositories, Web@Work, which is a

 

 

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secure browser for accessing web applications within the corporate intranet, and Help@Work, which enables users to request and get IT help directly from their iOS devices. Most recently, we introduced MobileIron Tunnel, which allows any managed iOS 7 application to securely access enterprise resources without requiring a traditional virtual private network, or VPN, connection.

 

    Maintain Positive Customer References. Beyond customer retention, we believe that the success of our customers is critical to expanding and upselling our customer base. We intend to further expand our global Customer Success organization’s capabilities.

Risks Affecting Us

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

    We have a limited operating history, which makes it difficult to evaluate our prospects and future financial results;

 

    We have a history of operating losses and may not achieve or maintain profitability in the future;

 

    Our operating results may fluctuate significantly and be unpredictable;

 

    Our customers may not place significant follow-on orders, renew with us or purchase additional solutions;

 

    We must successfully develop new solutions and enhancements to our existing solutions to respond promptly to rapidly evolving markets;

 

    We face intense competition;

 

    We have experienced rapid growth in recent periods and may not be able to manage this growth and expansion;

 

    Defects in our solutions could result in data breaches or other disruption, subject us to substantial liability and harm our business;

 

    The prices of our solutions may decrease, or we may change our licensing or subscription renewal programs or bundling arrangements, which may reduce our revenue;

 

    Changes by operating system providers and mobile device manufacturers could impair our product development efforts, product strategy and business;

 

    A failure of our product strategy with regard to mobile apps and content management would harm our business;

 

    We have been sued by third parties for alleged infringement of their proprietary rights and may be sued in the future; and

 

    Our failure to adequately separate and protect personal information could harm our business.

 

 

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Corporate Information

Our principal executive offices are located at 415 East Middlefield Road, Mountain View, CA 94043, and our telephone number is (650) 919-8100. Our website is www.mobileiron.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus. We were incorporated in Delaware in July 2007.

“MobileIron,” the MobileIron logos and other trade names, trademarks or service marks of Mobile Iron, Inc. appearing in this prospectus are the property of Mobile Iron, Inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Emerging Growth Company

The Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “Emerging Growth Companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal 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 fiscal year ending after the fifth anniversary of the completion of our initial public offering.

For certain risks related to our status as an emerging growth company, see “ Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—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.

 

 

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THE OFFERING

 

Common stock offered by us

  

                shares

Common stock offered by selling stockholders

  

                shares

Common stock to be outstanding after this offering

  

                shares (                shares, if the underwriters exercise their over-allotment option in full).

Over-allotment option

  

We may sell up to                 additional shares and the selling stockholders may sell up to                 additional shares if the underwriters exercise their option to purchase additional shares.

Use of proceeds

  

We estimate that our net proceeds from this offering will be approximately $         million at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See “Use of Proceeds.”

Risk factors

  

See the section titled “Risk Factors” beginning on page 15 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed                 symbol

  

“MOBL”

The number of shares of our common stock to be outstanding after this offering is based on 87,973,847 shares of common stock outstanding as of December 31, 2013, including 3,337,497 shares issued pursuant to early exercise of stock options or as restricted stock that are subject to repurchase as of that date, and excludes the following shares:

 

    18,663,700 shares of our common stock issuable upon the exercise of options outstanding under our 2008 Stock Plan as of December 31, 2013, with a weighted average exercise price of $2.07 per share;

 

    4,015,702 shares of common stock issuable upon the exercise of options that were granted after December 31, 2013, with an exercise price of $4.12 per share, and 2,813 shares of restricted stock;

 

                    shares of our common stock to be reserved for future issuance under our 2014 Equity Incentive Plan (which includes              shares of common stock reserved, as of                 , 2014, for future issuance under our 2008 Stock Plan, which shares will be added to the shares reserved under our 2014 Equity Incentive Plan upon the effectiveness of that plan if these shares are not issued or subject to outstanding grants under the 2008 Stock Plan at that time), which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”; and

 

                    shares of our common stock reserved for future issuance under our 2014 Employee Stock Purchase Program, which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans.”

 

 

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Unless otherwise indicated, all information in this prospectus reflects and assumes the following:

 

    the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 69,224,565 shares of our common stock, which will occur immediately prior to the completion of this offering;

 

    no exercise by the underwriters of their over-allotment option; and

 

    the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the summary consolidated financial data in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes, all included elsewhere in this prospectus.

The summary consolidated financial data as of December 31, 2013 and for 2011, 2012 and 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our results of operations for any prior period are not necessarily indicative of results of operations that should be expected in any future periods.

 

     Year Ended December 31,  
     2011     2012     2013  

Consolidated Statement of Operations Data:

     (in thousands, except share and per share data)   

Revenue:

      

Perpetual license

   $ 10,130      $ 26,251      $ 69,810   

Subscription

     1,106        5,617        15,085   

Software support and services

     2,620        9,022        20,679   
  

 

 

   

 

 

   

 

 

 

Total revenue

     13,856        40,890        105,574   

Cost of revenue:

      

Perpetual license

     1,111        1,930        3,327   

Subscription

     871        2,998        3,684   

Software support and services

     3,216        6,742        9,489   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue (1)

     5,198        11,670        16,500   
  

 

 

   

 

 

   

 

 

 

Gross profit

     8,658        29,220        89,074   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development (1)

     8,052        23,773        36,400   

Sales and marketing (1)

     23,092        45,979        68,309   

General and administrative (1)

     3,054        7,223        12,081   

Amortization of intangible assets

            52        208   

Impairment of in-process research and development

                   3,925   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,198        77,027        120,923   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (25,540     (47,807     (31,849

Other expense, net

     131        137        396   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (25,671     (47,944     (32,245

Income tax expense (benefit)

     46        (1,433     252   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (25,717   $ (46,511   $ (32,497
  

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.27   $ (4.32   $ (2.33
  

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share, basic and diluted

     7,874,208        10,774,366        13,933,584   
  

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (2)

       $ (0.42
      

 

 

 

Pro forma weighted average shares used to compute net loss per share, basic and diluted (2)

         77,298,283   
      

 

 

 

 

 

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(1) Includes stock-based compensation expense as follows:

 

     Year Ended December 31,  
     2011      2012      2013  
     (in thousands)  

Cost of revenue

   $ 44       $ 173       $ 327   

Sales and marketing

     375         1,063         1,893   

Research and development

        144         2,565         5,238   

General and administrative

     190         483         931   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 753       $ 4,284       $ 8,389   
  

 

 

    

 

 

    

 

 

 

 

(2) Pro forma basic and diluted net loss per common share have been calculated assuming the conversion of all outstanding shares of convertible preferred stock into 69,224,565 shares of common stock. See Note 12 to our consolidated financial statements for an explanation of the method used to determine the number of shares used in computing historical and pro forma basic and diluted net loss per common share.

 

     As of December 31, 2013
    
     Actual     Pro Forma (1)     Pro Forma
As Adjusted (2)
     (in thousands)

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 73,573      $ 73,573     

Working capital

     49,054        49,054     

Total assets

     111,259        111,259     

Total deferred revenue

     40,751        40,751     

Short-term borrowings

     4,300        4,300     

Convertible preferred stock

     160,259            

Accumulated deficit

     (128,834     (128,834  

Total stockholders’ (deficit) equity

     (109,825     50,434     

 

(1) Pro forma amounts give effect to the conversion of the outstanding shares of our convertible preferred stock into an aggregate of 69,224,565 shares of our common stock, which will occur immediately prior to the completion of this offering.
(2) Pro forma as adjusted amounts give effect to the pro forma adjustments and the issuance and sale of             shares of common stock by us in the offering at an assumed initial public offering price of $             per share, the midpoint of the range set forth on the cover page of this prospectus, and the application of the net proceeds of the offering, after deducting estimated underwriting discounts and commissions and offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $            , or $             if the underwriters exercise their option to purchase additional shares in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered by us would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $            , assuming that the assumed initial public offering price of $             per share remains the same, after deducting the estimated underwriting discounts and commissions payable by us.

 

 

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Key Metrics

We monitor the following key metrics:

 

     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Gross billings

   $ 27,397      $ 68,044      $ 100,825   

Year-over-year percentage increase

       148     48

Recurring billings

   $ 6,985      $ 22,812      $ 45,395   

Percentage of gross billings

     25     34     45

Non-GAAP gross profit

   $ 8,702      $ 29,416      $ 89,677   

Non-GAAP gross margin

     63     72     85

Free cash flow

   $ (15,500   $ (25,420   $ (27,794

Gross billings. We define gross billings as total revenue plus the change in deferred revenue in a period. The gross billings we record in any period reflect sales to new customers plus renewals and additional sales to existing customers. We use gross billings as a performance measurement because we bill our customers at the time of sale of our solutions and recognize revenue either upon delivery or ratably over subsequent periods. In addition, we have monitored gross billings because the establishment of VSOE commencing January 1, 2013 with respect to perpetual license revenue made it difficult to compare periods and understand growth in our business. Accordingly, we believe gross billings provide valuable insight into the sales of our solutions and the performance of our business.

Recurring billings.  We define recurring billings generally as total revenue less perpetual license 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. The portion of our billings to service providers that are transacted on a monthly basis are included in recurring billings. We monitor our recurring billings because they help us understand product mix shifts, the impact those mix shifts may have on cash flows and the predictability of our future revenues. Our recurring billings have increased as a percentage of gross billings from 25% in 2011 to 45% in 2013.

Non-GAAP gross profit and margin. We define non-GAAP gross profit as our total revenue less cost of revenue, adjusted to exclude stock-based compensation and amortization of intangibles assets. We define non-GAAP gross margin as a percentage of total revenue. Non-GAAP gross profit and margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating and compensation plans. In particular, non-GAAP gross profit and margin exclude certain non-cash expenses and can provide useful measures for period-to-period comparisons of our core business. Excluding the impact of $21.1 million of revenue recognized in 2013 with respect to perpetual licenses delivered in prior years, our non-GAAP gross margin was 81% in 2013.

Free cash flow. We define free cash flow as cash used in operating activities less the amount of purchases of property and equipment. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property and equipment, can be used for strategic opportunities.

See “Selected Consolidated Financial Data—Key Metrics” for more information and reconciliations of non-GAAP financial measures to their most directly comparable financial measures calculated in accordance with GAAP.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, as well as general economic and business risks, and all of the other information contained in this prospectus. Any of the following risks could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto.

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.

Although we were incorporated in 2007, we did not commercially release the MobileIron platform until 2009, and we did not release our mobile application containerization and mobile content management solutions until 2012. 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 mobile apps and content management solutions;

 

    continue to invest in research and development;

 

    scale our 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 operating systems and device platforms;

 

    make our service provider partners successful in their deployments of our solutions and technology;

 

    successfully expand our business domestically and internationally;

 

    successfully protect our intellectual property and defend against intellectual property infringement claims; and

 

    hire, integrate and retain professional and technical talent.

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 $25.7 million, $46.5 million and $32.5 million in 2011, 2012 and 2013, respectively. As of December 31, 2013, our accumulated deficit was

 

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$128.8 million. While we have experienced significant revenue growth over recent periods, we may not be able to sustain or increase our growth or achieve or sustain profitability in the future. Revenue growth may slow or revenue may decline for a number of reasons, including increasing competition, changes in pricing model, a decrease in size or growth of the mobile IT market, or any failure to capitalize on growth opportunities. In addition over the past year, we have significantly increased our expenditures to support the development and expansion of our business, which has resulted in increased losses. We plan to continue to invest for future growth, including additional investment in sales and marketing and research and development, and as a result, we do not expect to be profitable for the foreseeable future. In addition, as a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private 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 prospectus. 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 revenues 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, other 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 in customers’ IT budgets and delays in the purchasing cycles of our customers and prospective customers;

 

    variation in sales channels or in mix of solutions sold, including the mix of solutions sold on a perpetual license versus a subscription or 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;

 

    changes in foreign currency exchange rates; and

 

    general economic conditions in our domestic and international markets.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.

If our customers do not place significant follow-on orders to deploy our solutions widely throughout their companies, or if they do not renew with us or if they do not purchase additional solutions, our future revenue and operating results will be harmed.

In order to increase our revenues we must continually grow our customer base and increase the depth and breadth of the deployments of our solutions with our existing customers. While customers may initially purchase a relatively modest number of licenses, it is important 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 and consolidation in the mobile IT market, customers may delay making initial purchase orders or expanding orders as they take into account the evolving mobile IT landscape. Also, if we do not develop new solutions, features and functionality that meet our customers’ needs, they may not place upsell orders or expand orders. The rate at which our customers purchase additional solutions depends on a number of factors, including the perceived need for additional solutions, features or functionality, the perceived 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.

Further, existing customers that purchase our solutions have no contractual obligation to purchase additional solutions after the initial subscription or contract period, and given our limited operating history, we are unable to accurately predict our customer expansion or renewal rates. Our customers’ expansion and renewal rates may decline or fluctuate as a result of a number of factors, including the level of their satisfaction with our solutions or our customer support, customer budgets and the pricing of our solutions compared with the solutions offered by our competitors, any of which may cause our revenue to grow more slowly than expected, if at all.

For smaller or simpler deployments, the switching costs and time are relatively minor compared to traditional enterprise software deployments and a customer may decide not to renew with us and switch to a competitor’s offerings. Accordingly, we must invest significant time and resources in providing ongoing value to our customers. If these efforts fail, or if our customers do not renew for other reasons, or if they renew on terms less favorable to us, our revenue may decline and our business will suffer.

We compete in rapidly evolving markets and must develop new solutions and enhancements to our existing solutions. If we fail to predict and respond rapidly to emerging technological trends and our customers’ changing needs, we may not be able to remain competitive.

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

 

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competitive pressure. We may not have access to or have adequate notice of new operating system developments, and we may experience unanticipated delays in developing new solutions and cloud services or fail to meet customer expectations for such solutions. If we fail to timely develop and introduce new solutions or enhancements that respond adequately to new challenges in the mobile IT market, our business could be adversely affected, especially if our competitors are able to more timely introduce solutions with such increased functionality.

We have a primary back-end technology platform that can be used as a cloud service or deployed on premise and a second back-end platform that is purpose-built as a cloud-only large scale, multi-tenant platform. We must continually invest in both platforms, and the existence of two back-end technology platforms makes engineering more complex and expensive and may introduce compatibility challenges. We have made significant investments in the cloud-only platform and have not yet gained substantial market traction with the cloud-only platform. Should our MobileIron cloud-only platform fail to achieve substantial market traction, we would lose the value of our investment and our business and operating results may be harmed.

Further, we may be required to commit significant resources to developing new solutions before knowing whether our investments will result in solutions that the market will accept. These risks are greater in the mobile IT market because our software is deployed on phones and tablets that run on different operating systems such as iOS, Android and Windows Phone, 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 PCs. We may experience technical design, engineering, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new solutions and enhancements on both of our technology platforms. As a result, we may not be successful in modifying our current solutions or introducing new ones in a timely or appropriately responsive manner, or at all. If we fail to address these changes successfully, our business and operating results could be materially harmed.

Finally, all of our additional solutions require customers to use our MobileIron platform, whether deployed on-premise or through our cloud service. As such, virtually all of our revenue depends on the continued adoption and use of our MobileIron platform. If customers and prospective customers decided to stop using or purchasing the MobileIron platform, our product strategy would fail and our business would be harmed.

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 Citrix, Good Technology, IBM and VMware. A number of our historical competitors have been purchased by large corporations. For example, Zenprise acquired Sparus and was then acquired by Citrix, AirWatch was acquired by VMware and Fiberlink was acquired by IBM. These large corporations have longer operating histories, greater name recognition, larger customer bases, more channel partners, and significantly greater financial, technical, sales, marketing and other resources than we have. Consolidation is expected to continue in our industry. As a result of consolidation, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the promotion and sale of their solutions and services, initiate or withstand substantial price competition, take advantage of acquisitions or other opportunities more readily, and develop and expand their solution and service offerings 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 purchasing our solutions, including through selling at zero or negative margins or through solution bundling. Potential customers may have invested substantial personnel and financial resources

 

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and established deep relationships with these much larger enterprise IT vendors, which may make them reluctant to work with us regardless of solution performance or features. Potential customers may prefer to purchase a broad suite of solutions from a single provider, or may prefer to purchase mobile IT solutions from an existing supplier rather than a new supplier, regardless of performance or features.

We expect competition to intensify in the future as new and existing competitors introduce new solutions into our market. In addition, some of our competitors have entered into partnerships or other strategic relationships to offer a more comprehensive solution than they individually had offered. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. This competition has resulted in the past and could in the future result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure to increase, or the loss of, market share, any of which could harm our business, operating results or financial condition. Competitors’ offerings may in the future have better performance, better features, lower prices and broader acceptance than our solutions, or embody new technologies, which could render our existing solutions obsolete or less attractive to customers. 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.

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 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 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. 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 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.

A failure of our product strategy with regard to mobile application and content management would harm our business.

Our product strategy depends on our existing and potential customers’ continued adoption of our solutions, features and functionality for both mobile application and mobile content management. Potential slow ramp of customer-built mobile business applications for iOS, Android and Windows Phone would slow the need and adoption of our platform for mobile application management and security. Additionally, the value of our AppConnect ecosystem could decrease if competitors’ SDK or app wrapping technologies are perceived to have advantages over our own, resulting in the loss of ecosystem partners. Customers’ preference for mobile applications could also shift to browser-based applications that can run on any mobile device through a web browser, which would reduce the value of our mobile application containerization solution. In addition, operating system providers could act in ways that could harm our mobile content and apps product strategy. For example,

 

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Microsoft recently released an Office suite for iOS and Android and if this application is widely adopted by enterprises for content creation, storage and management, the value of our own mobile content management solution and the value of our ecosystem of collaboration and storage partners may diminish. If our product strategy around mobile apps and content management fails or is not as successful as we hope for these or other reasons, the value of our investment would be lost and our results of operations would be harmed.

We have experienced rapid growth in recent periods. If we are not able to manage this growth and expansion, our operating results may suffer.

We have experienced rapid growth in our customer base and have significantly expanded our operations during the past few years. In particular, we are aggressively investing in additional engineering resources to support and expand both our MobileIron cloud services and on-premise software infrastructure, our associated customer success infrastructure, our global sales and marketing infrastructure and our general and administrative and other operations infrastructure, including both personnel and facilities. Our employee headcount has increased from 417 as of December 31, 2012 to 560 as of December 31, 2013, and we plan to add employees during 2014. In addition, we hired a new Chief Financial Officer in December 2013. Our rapid growth has placed, and will continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other resources. For example, our lease on our headquarters in Mountain View expires in 2014, and we need to relocate and consolidate operations in the Bay Area. Our ability to manage our operations and growth will require significant expenditures and allocation of valuable management resources to improve internal business processes and systems. Further international expansion may also be required for our continued business growth, and managing any international expansion will require additional resources and controls. If we experience increased sales and our operations infrastructure fails to keep pace with increased sales or support requirements, customers may experience disruptions in service or support, 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 facilities at the pace necessary to accommodate our growth, and our failure to do so may have an adverse effect on our business. For example, we are in the process of working with certain of our service provider partners to enable them to develop and sell their own branded mobile IT cloud service solutions based on our MobileIron cloud-only platform, which could strain our existing technology operations infrastructure. If we fail to efficiently expand our engineering, sales and marketing, operations, cloud infrastructure, IT and financial organizations and systems, or if we fail to implement or maintain effective internal business processes, controls and procedures, our costs and expenses may increase more than we plan 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 disruption or security breach of our cloud service could result in liabilities, lost business and reputational harm.

If a customer has deployed our cloud service, we have access to certain data in order to facilitate the operation of the software, such as the employees’ names, registration credentials, business emails, mobile phone numbers, business contact information and the list of applications installed on the mobile devices. Any security breaches and computer hacking attacks, whether through third-party action or employee error or malfeasance, could cause loss of this information, litigation, indemnity obligations and reputational harm. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Because our software is designed to enable IT administrators to secure and manage employees’ mobile devices, if an actual or perceived breach of our security occurs and data is compromised, we would likely suffer particular reputational damage, as well as loss of potential sales and existing customers. In addition, unexpected increases in demand at one customer using our cloud services may affect the overall service in unanticipated ways and may cause a disruption in service for other cloud services customers. 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 infrastructure changes, human or

 

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software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. If we sustain frequent or prolonged disruptions of our cloud services for any reason, our reputation, business and results of operations would be seriously harmed.

Defects in our solutions could result in data breaches or other disruption, subject us to substantial liability and harm our business.

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 from time to time found defects in 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. If that occurs, our customers may stop using or fail to expand use of our solutions, 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 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.

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, Amazon Web Services and Peer 1. 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 technological operations 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.

 

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The prices of our solutions may decrease or we may change our licensing or subscription renewal programs or bundling arrangements, which may reduce our revenue and adversely impact our financial results.

The prices for our solutions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of solutions, bundling of solutions, features and functionality by us or our competitors, potential changes in our pricing, anticipation of the introduction of new solutions, or promotional programs for customers or channel partners. Competition and consolidation continue to increase in the markets in which we participate, and we expect competition to further increase in the future, leading to increased pricing pressures. Larger competitors with more diverse product lines may reduce the price of solutions or services that compete with ours or may bundle their solutions with other solutions and services. Furthermore, we anticipate that the sales prices and gross profits for our solutions will decrease over product life cycles. If we are unable to increase sales to offset any decline in our prices, our business and results of operations would be harmed.

We continually re-evaluate our licensing programs and subscription renewal programs, including specific license models and terms and conditions. We have in the past and could in the future implement new licensing programs and subscription renewal programs or bundling arrangements, including promotional programs or specified enhancements to our current and future solutions. For example, in 2014 we intend to introduce per user pricing as an additional pricing option for our customers, which will be at a higher list price than our per device pricing. Such changes could result in deferring revenue recognition regardless of the date of the initial shipment or licensing of our solutions. Changes to our licensing programs and subscription renewal programs, including the timing of the release of enhancements, upgrades, maintenance releases, the term of the contract, discounts, promotions and other factors, could impact the timing of the recognition of revenue for our solutions, related enhancements and services and could adversely affect our operating results and financial condition.

Our ability to sell our solutions is highly dependent on the quality of our support, which is made complex by the requirements of mobile IT. Our failure to offer 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. If we do not provide effective ongoing support, it would 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 Global 2000 customers, 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 Global 2000 or other customers or with new Global 2000 customers. We face additional challenges in supporting our non-U.S. customers, including the need to rely on channel partners to provide support.

We rely almost entirely 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.

Virtually all 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 virtually all of our revenue. Our international resellers often enter into agreements directly with our mutual customers to host the software and provide other value-added services, such as IT administration. Our service provider partners often provide support to our customers and enter into similar agreements directly with our mutual customers to host the software and/or provide other value-added services. Our agreements and operating relationships with our service provider partners are complex and require a significant commitment of internal time and resources. In addition, our service provider partners are large corporations with multiple strategic businesses and relationships, and thus our business may not be significant to them in the overall context

 

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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 is our largest service provider partner and, as a reseller, was responsible for 20% of our total revenue for the year ended December 31, 2013.

Our agreements with AT&T and our other channel partners are non-exclusive and most of our channel partners have entered, and may continue to enter, into strategic relationships with our competitors. Our channel partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire solutions or services that compete with our solutions. If our channel partners do not effectively market and sell our solutions, if they choose to place greater emphasis on solutions of their own or those offered by our competitors, or if they fail to provide adequate support or otherwise meet the needs of our customers, our ability to grow our business and sell our solutions may be adversely affected. The loss of our channel partners, in particular AT&T, the failure to recruit additional channel partners, or any reduction or delay in sales of our solutions by our channel partners could materially and adversely affect our results of operations.

Additionally, we are in the process of working with certain of our service provider partners to enable them to develop and sell their own branded mobile IT cloud service solutions based on our MobileIron cloud platform. We will need to devote sufficient internal resources to enable these service providers to be successful in deploying and selling these new service provider-branded cloud service offerings, and this may strain our resources.

Our sales cycles for large enterprises can be 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. Many of our large customers have very complex IT systems, mobile environments and data privacy and security requirements. Accordingly, these customers typically undertake a significant evaluation process, which frequently involves not only our solutions, but also those of our competitors, and can result in a lengthy sales cycle. We spend substantial time, money and effort on our sales activities without any assurance that our efforts will produce any sales. In addition, purchases of our solutions are frequently subject to budget constraints, multiple approvals, lengthy contract negotiations, and unplanned administrative, processing and other delays. Moreover, the evolving nature of the mobile IT market may lead prospective customers to postpone their purchasing decisions pending adoption of technology by others or pending potential consolidation in the market. As a result of our lengthy sales cycle, it is difficult to predict whether and when a sale will be completed, and our operating results may vary significantly from quarter to quarter. Even if sales are completed, the revenues we receive from these customers may not be sufficient to offset our upfront investments.

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;

 

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    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;

 

    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.

In recent periods, an increasing portion of our sales has been generated from subscription, including MRC, licenses, which involves certain risks.

In recent periods, an increasing portion of our sales has been generated from subscription, including MRC, licenses. This model presents a number of risks to us. For example, arrangements entered into on a subscription basis generally delay the timing of revenue recognition and often require the incurrence of up-front costs, which can be significant. Subscription revenues are recognized over the subscription period, which is typically 12 months. MRC revenue is recognized monthly on the basis of active users or devices and thus will fluctuate from month to month. 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 contractual terms on terms that are less favorable to us. Because we recognize a substantial portion of our subscription revenues over the term of the subscription agreement, we incur upfront costs, such as sales commissions, related to acquiring such customers. Therefore, as we add customers in a particular year, our immediate costs to acquire customers may increase significantly relative to revenues recognized in that same year, which could result in increased losses or decreased profits in that period. Service providers that operate on an MRC billing model typically report to us in arrears on a monthly basis the number of actual users or devices deployed, and then we generate invoices based on those reports. Therefore, invoicing and collection logistics often result in longer collection cycles, which negatively affects our cash flow. In addition, under an MRC billing model, the service provider typically has the contractual and business relationship with the customer, and thus we typically depend more heavily on the service provider partner for both customer acquisition and support under this billing model.

Our failure to comply with privacy laws and standards could have a material adverse effect on our business.

Personal privacy has become a significant issue in the United States and in many other countries where we offer our solutions. The regulatory framework for privacy issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. 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. In the United States, these include, for example, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Gramm-Leach-Bliley Act and state breach notification laws. Internationally, different jurisdictions have a variety of data security and privacy laws, with which we or our customers must comply, including the Data Protection Directive established in the European Union and the Federal Data Protection Act recently passed in Germany.

 

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In addition to laws and regulations, privacy advocacy and industry groups or other private parties may propose new and different privacy standards. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our solutions. Any inability to adequately address privacy concerns, even if unfounded, 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.

Our failure to adequately protect personal information and to maintain the security of enterprise data could have a material adverse effect on our business.

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. 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. 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. Privacy concerns, whether valid or not, may inhibit market adoption of our solutions, particularly in certain industries and foreign countries. Furthermore, the recent attention garnered by the National Security Agency’s bulk intelligence collection programs may result in further concerns surrounding privacy and technology products.

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 and production personnel, including our senior management, and specifically Robert Tinker, who is our President and Chief Executive Officer. Our employees, including our senior management team, are at-will employees, and therefore may terminate employment with us at any time with no advance notice. The replacement of any members of our senior management team or other key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.

Our future success also depends, in part, on our ability to continue to attract, integrate and retain highly skilled 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. Any failure to successfully attract, integrate, or retain qualified personnel to fulfill our current or future needs may negatively impact our growth.

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

 

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or developing the acquired technologies, the revenue and operating results of the combined company could be adversely affected. For example, during 2013, we recorded a $3.9 million impairment loss in connection with a delayed technology project from an acquisition. 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.

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 nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. Government demand and payment for our solutions and services may be impacted by public sector budgetary cycles and funding authorizations, particularly in light of U.S. budgetary challenges, with funding reductions or delays adversely affecting public sector demand for our solutions. The additional costs associated with providing our solutions to governmental entities and highly regulated customers could harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently provide our solutions to them and to grow or maintain our customer base.

If our solutions do not interoperate with our customers’ IT infrastructure, sales of our solutions could be negatively affected.

Our solutions are designed 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,

 

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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.

Our customers license our solutions on either a per-device or per-user basis. Because we sell virtually all 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 IT infrastructure as an increasingly important computing platform for businesses. Our business plan assumes that the demand for mobile IT solutions will increase. However, the mobile IT market may not develop as quickly as we expect, or at all, and businesses may not continue to elect to utilize mobile IT solutions. 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. 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 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.

The estimates of market opportunity and forecasts of market growth included in this prospectus 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, including the forecasts or projections referenced in this prospectus, 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. Accordingly, the forecasts of our market opportunity and market growth included in this prospectus should not be taken as indicative of our future growth.

 

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Seasonality may cause fluctuations in our revenue.

We believe there are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. We believe this variability is largely due to our customers’ budgetary and spending patterns, as many customers spend the unused portions of their discretionary budgets prior to the end of their fiscal years. For example, we have historically recorded our highest level of total revenue in our fourth quarter, which we believe corresponds to the fourth quarter of a majority of our customers. In addition, the type of budget (operating versus capital) available to a customer may affect its decision to purchase a perpetual license or a subscription license. In addition, our rapid growth rate over the last two years may have made seasonal fluctuations more difficult to detect. If our rate of growth slows over time, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may 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.

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 will be 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 for the first year ending December 31, 2015. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting, provided that our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an “emerging growth company,” as defined in the JOBS Act. 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. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time-consuming, costly and complicated. 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.

 

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If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall below expectations of financial analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock-based compensation and income taxes.

Impairment of goodwill and other intangible assets would result in a decrease in earnings.

Current accounting rules require that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and 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. In 2013, we recorded a $3.9 million impairment loss in connection with a delayed technology project from an acquisition, and we may be required to record similar impairment charges in the future. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial 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 2012 and 2013, 40% and 44% of our revenue, respectively, was attributable to our international customers, primarily those located in EMEA. As of December 31, 2013, approximately 24% 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

 

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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;

 

    heightened concerns and legal requirements relating to data and privacy;

 

    burdens of complying with a wide variety of foreign laws;

 

    unfavorable contractual terms or difficulties in negotiating contracts with foreign customers or channel partners as a result of varying and complex laws and contractual norms;

 

    difficulties in providing support and training to channel partners and customers in foreign countries and languages;

 

    heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results or result in fines and penalties;

 

    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;

 

    difficulties and costs of staffing and managing foreign operations;

 

    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. 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.

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

 

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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 be from jurisdictions outside of the United States. As a result, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits U.S. companies and their intermediaries from making corrupt payments to 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. As a result of our focus on managing our rapid growth, 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 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 will in the future claim that we are infringing their intellectual property rights, and we may be found to be infringing such rights. On November 14, 2012, Good Technology filed a lawsuit against us in federal court in the Northern District of California, alleging false and misleading representations concerning their products and infringement of four patents held by them. In the complaint Good Technology sought unspecified damages, attorneys’ fees and a permanent injunction. On March 1, 2013, we counterclaimed against Good Technology for patent infringement of one of our patents, and are seeking the same remedies. On May 17, 2013, the parties served infringement contentions for their respective patents, and on September 3, 2013, the parties served invalidity contentions regarding the opposing party’s patents. We are contesting Good Technology’s claims vigorously. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to Good Technology’s claims, is uncertain. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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.

 

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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.

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 this Offering and Ownership of Our Common Stock

Because the initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our common stock in this offering, you will

 

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experience immediate dilution of $         per share, based upon an assumed initial public offering price of $        , the mid-point of the range listed on the cover page of this prospectus, the difference between the price per share you pay for our common stock and its pro forma net tangible book value per share as of December 31, 2013, after giving effect to the issuance of shares of our common stock in this offering. See “Dilution” for more information.

No public market for our common stock currently exists, and an active public trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market or active private market for our common stock. Although we have applied to list our common stock on             , an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the market price of your shares of common stock. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

The net proceeds from the sale of shares by us in the offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or other assets. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds to us from this offering may be invested with a view towards long-term benefits for our stockholders, and this may not increase our operating results or the market value of our common stock. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

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, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. 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 may be volatile, and you could lose all or part of your investment.

The trading price of our common stock following this offering may fluctuate substantially and may be higher or lower than the initial public offering price. The trading price of our common stock following this offering will depend 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. 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 in this offering. 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 or other key metrics;

 

    price and volume fluctuations in the overall stock market from time to time;

 

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    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;

 

    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, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. 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, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

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. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, or if any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

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Insiders will continue to have substantial control over our company after this offering, 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, will beneficially own approximately     % of the outstanding shares of our common stock after this offering, based on the number of shares outstanding as of December 31, 2013 and after giving effect to the exercise of options and the sale of shares by the selling stockholders in connection with this offering. 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 deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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 will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of and other applicable securities rules and regulations. Compliance with these rules and regulations will 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.

We also expect that being a public company will make 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 factors 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.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

 

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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, in litigation or otherwise, claims that we infringe third-party patents or violate other intellectual property rights;

 

    the cost and timing of establishing additional sales, marketing and distribution capabilities;

 

    the cost and timing of establishing additional technical support capabilities;

 

    the effect of competing technological and market developments; and

 

    the market for different types of funding and overall economic conditions.

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 after this offering, or the perception that these sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the total number of outstanding shares of our common stock as of December 31, 2013, upon completion of this offering, we will have                  shares of common stock outstanding, assuming no exercise of our outstanding options.

All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

Subject to certain exceptions described under the caption “Underwriters,” we and all of our directors and officers and substantially all of our equity holders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. for a period of

 

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180 days from the date of this prospectus. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. See “Shares Eligible for Future Sale” for more information. Sales of a substantial number of such shares upon expiration, or the perception that such sales may occur, or early release of the lock-up, could cause our share price to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

Based on shares outstanding as of December 31, 2013, upon completion of this offering, holders of up to approximately                  shares, or     %, of our common stock will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Certain provisions in our charter documents and under Delaware law could limit attempts by our stockholders to replace or remove our board of directors or current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

 

    our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

    our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;

 

    our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

    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 acquiror from conducting a solicitation of proxies to elect the acquiror’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.

Certain of our executive officers may be 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.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, particularly in the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

 

    our financial performance, including our revenue, cost of revenue, gross profit or gross margin and operating expenses and our ability to achieve, and maintain, future profitability;

 

    our ability to attract and retain customers;

 

    our ability to further penetrate our existing customer base;

 

    our ability to develop new solutions and enhancements to our existing solutions and respond rapidly to emerging technological trends and our customers’ changing needs;

 

    our ability to increase sales to offset any decline in our prices;

 

    our ability to anticipate market trends and execute our product strategy;

 

    the effects of increased competition in our market and our ability to compete effectively;

 

    our ability to manage our growth;

 

    any potential loss of or reductions in orders or renewals from certain significant customers;

 

    our significant reliance on our channel partners;

 

    defects in our solutions, including any undetected errors or bugs in our solutions;

 

    our ability to sell our solutions in certain markets;

 

    our ability to predict our revenue, operating results and gross margin accurately;

 

    the length and unpredictability of our sales cycles;

 

    the challenges of managing international operations;

 

    our ability to attract and retain qualified employees and key personnel;

 

    our ability to protect our intellectual property;

 

    claims that we infringe intellectual property rights of others;

 

    our ability to maintain, protect and enhance our brand;

 

    our ability to maintain proper and effective internal controls; and

 

    other risk factors included under the section titled “Risk Factors” in this prospectus.

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

 

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You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement on Form S-1, of which this prospectus is a part, that we have filed with the SEC with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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MARKET AND INDUSTRY DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including Gartner, Inc. (Gartner) and IDC, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our services. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information and cannot assure you of its accuracy or completeness. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

The Gartner Reports described herein (the Gartner Reports) represent data, research opinion or viewpoints published as part of a syndicated subscription service by 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 prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

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. 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.

Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent industry publications are provided below:

 

  (1)   Gartner, Magic Quadrant for Mobile Device Management Software , May 23, 2013

 

  (2)   Gartner, Total Cost of Ownership of Mobile Devices: 2012 Update , March 20, 2012; August 29, 2013

 

  (3)   Gartner, BYOD Google Survey , December 2013

 

  (4)   IDC, Worldwide Business Use Smartphone 2013–2017 Forecast Update , December 2013

 

  (5)   IDC, Worldwide Quarterly Tablet Tracker - 2013 Q4 , February 21, 2014

 

  (6)   IDC, Worldwide and U.S. Mobile Applications Download and Revenue 2013–2017 Forecast , June 2013

 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from this offering will be approximately $         million, assuming an initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions. We will not receive any of the proceeds from the sale of shares by the selling stockholders, although we will bear the costs, other than underwriting discounts and commissions, associated with those sales.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming that the assumed initial public offering price of $         per share remains the same, after deducting the estimated underwriting discounts and commissions.

The principal purposes of this offering are to create a public market for our common stock and thereby enable access to the public equity markets by our employees and stockholders, obtain additional capital and increase our visibility in the marketplace. We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. Pending these uses, we plan to invest these net proceeds in short-term, interest bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the United States. The goal with respect to the investment of these net proceeds is capital preservation and liquidity so that such funds are readily available to fund our operations.

We will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds of this offering.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. We do not intend to declare or pay cash dividends on our common stock in the foreseeable future. In addition, our ability to declare or pay dividends or make distributions on our common stock is limited under the terms of our existing line of credit. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our stock may be limited by the terms of any future debt or preferred securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, restricted cash and our capitalization as of December 31, 2013 on:

 

    an actual basis;

 

    a pro forma basis after giving effect to (i) the conversion of the outstanding shares of our convertible preferred stock into an aggregate of 69,224,565 shares of our common stock, which will occur immediately prior to the completion of this offering and (ii) the filing of our amended and restated certificate of incorporation;

 

    a pro forma as adjusted basis to give further effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the range listed on the cover page of this prospectus, and our receipt of the estimated net proceeds from that sale after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other final terms of the offering. You should read this table together with the sections of this prospectus titled “Selected Consolidated Financial Data,” “Description of Capital Stock” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of December 31, 2013  
     Actual      Pro Forma      Pro Forma
As
Adjusted (1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 73,573       $ 73,573       $                
  

 

 

    

 

 

    

 

 

 

Short-term borrowings

   $ 4,300       $ 4,300       $     

Convertible preferred stock, $0.0001 par value; 69,505,831 shares authorized, and 69,224,565 shares issued and outstanding, actual;                  shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted

     160,259              

Common stock, $0.0001 par value; 111,390,000 shares authorized and 15,411,785 shares issued and outstanding, actual;                  shares authorized and 87,973,847 shares issued and outstanding, pro forma; and                  shares authorized and                  shares issued and outstanding, pro forma as adjusted

     2         9      

Additional paid-in capital

     19,007         179,259      

Accumulated deficit

     (128,834      (128,834   
  

 

 

    

 

 

    

 

 

 

Total stockholders’ (deficit) equity

     (109,825      50,434      
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 54,734       $ 54,734       $     
  

 

 

    

 

 

    

 

 

 

 

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $        , or $         if the underwriters exercise their option to purchase additional shares in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered by us would increase (decrease) each of pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $        , assuming that the assumed initial public offering price of $         per share remains the same, after deducting the estimated underwriting discounts and commissions.

 

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The outstanding share information in the table above excludes, as of December 31, 2013, the following shares:

 

    3,337,497 shares issued pursuant to early exercise of stock options or as restricted stock that are subject to repurchase as of December 31, 2013, which are not deemed to be outstanding for accounting purposes;

 

    18,663,700 shares of our common stock issuable upon the exercise of options outstanding under our 2008 Stock Plan as of December 31, 2013, with a weighted average exercise price of $2.07 per share;

 

    4,015,702 shares of common stock issuable upon the exercise of options that were granted after December 31, 2013, with an exercise price of $4.12 per share, and 2,813 shares of restricted stock;

 

                    shares of our common stock to be reserved for future issuance under our 2014 Equity Incentive Plan (which includes                  shares of common stock reserved, as of                     , 2014, for future issuance under our 2008 Stock Plan, which shares will be added to the shares reserved under our 2014 Equity Incentive Plan upon the effectiveness of that plan if those shares are not issued or subject to outstanding grants under the 2008 Stock Plan at that time), which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation — Employee Benefit Plans”; and

 

                    shares of our common stock reserved for future issuance under our 2014 Employee Stock Purchase Program, which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation — Employee Benefit Plans.”

 

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.

As of December 31, 2013, our net tangible book value was approximately $44.3 million, or $0.52 per share of common stock. Our net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of December 31, 2013, assuming the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 69,224,565 shares of common stock.

After giving effect to our sale in this offering of                 shares of our common stock, at an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of December 31, 2013 would have been approximately $         million, or $         per share of our common stock. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution of $         per share to investors purchasing shares in this offering.

The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of December 31, 2013, before giving effect to this offering

   $     0.52      

Pro forma increase per share attributable to new investors

     
  

 

 

    

Pro forma as adjusted net tangible book value per share after giving effect to this offering

     
     

 

 

 

Dilution in net tangible book value per share to new investors

      $     
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range listed on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $            , the pro forma as adjusted net tangible book value per share by $         per share and the dilution per share to new investors in this offering by $            , or $         if the underwriters exercise their option to purchase additional shares in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase or decrease of 1,000,000 shares in the number of shares of common stock offered by us would increase or decrease the pro forma as adjusted net tangible book value by approximately $         per share and the dilution to new investors by $         per share, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions.

The following table summarizes, as of December 31, 2013:

 

    the total number of shares of common stock purchased from us by our existing stockholders and by new investors purchasing shares in this offering;

 

    the total consideration paid to us by our existing stockholders and by new investors purchasing shares in this offering, assuming an initial public offering of $         per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus (before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering); and

 

    the average price per share paid by existing stockholders and by new investors purchasing shares in this offering.

 

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     Shares Purchased     Total Consideration     Average
Price
Per
Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     87,973,847                    $ 166,958,372                $ 1.90   

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $                      100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above is based on 87,973,847 shares of common stock outstanding as of December 31, 2013, including 3,337,497 shares issued pursuant to early exercise of stock options or as restricted stock that are subject to repurchase as of that date.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by existing stockholders and total consideration paid by new investors and the average price per share by $         and $        , respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts and commissions.

To the extent that any outstanding options are exercised, investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

Except as provided above, the tables and calculations above are based on 84,636,350 shares of common stock outstanding as of December 31, 2013, and excludes the following shares:

 

    3,337,497 shares issued pursuant to early exercise of stock options or as restricted stock that are subject to repurchase as of December 31, 2013, which are not deemed to be outstanding for accounting purposes;

 

    18,663,700 shares of our common stock issuable upon the exercise of options outstanding under our 2008 Stock Plan as of December 31, 2013, with a weighted average exercise price of $2.07 per share;

 

    4,015,702 shares of common stock issuable upon the exercise of options that were granted after December 31, 2013, with an exercise price of $4.12 per share, and 2,813 shares of restricted stock;

 

                    shares of our common stock to be reserved for future issuance under our 2014 Equity Incentive Plan (which includes              shares of common stock reserved, as of             , 2014, for future issuance under our 2008 Stock Plan, which shares will be added to the shares reserved under our 2014 Equity Incentive Plan upon the effectiveness of that plan if those shares are not issued or subject to outstanding grants under the 2008 Stock Plan at that time), which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”; and

 

                    shares of our common stock reserved for future issuance under our 2014 Employee Stock Purchase Program, which will become effective in connection with this offering and contains provisions that automatically increase its share reserve each year, as more fully described in “Executive Compensation—Employee Benefit Plans”.

The foregoing table does not reflect the sales by existing stockholders in connection with sales made by them in this offering. Sales by the selling stockholders in this offering will reduce the number of shares held by

 

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existing stockholders to                 shares, or     % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to                 shares, or     % of the total number of shares of our common stock outstanding after this offering. In addition, if the underwriters exercise their option to purchase additional shares in full, the number of shares held by the existing stockholders after this offering would be reduced to                 shares, or     % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to                 shares, or     % of the total number of shares of our common stock outstanding after this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes included in this prospectus.

We derived the selected statements of operations data for 2011, 2012 and 2013 and the selected consolidated balance sheet data as of December 31, 2012 and 2013 from our audited financial statements included elsewhere in this prospectus. We have derived the selected consolidated balance sheet data as of December 31, 2011 from our audited financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future. The selected financial data in this section is not intended to replace the financial statements and is qualified in its entirety by the financial statements, related notes and other financial information included elsewhere in this prospectus.

 

     Year Ended December 31,  
     2011     2012     2013  

Consolidated Statement of Operations Data:

     (in thousands, except share and per share data)   

Revenue:

      

Perpetual license

   $ 10,130      $ 26,251      $ 69,810   

Subscription

     1,106        5,617        15,085   

Software support and services

     2,620        9,022        20,679   
  

 

 

   

 

 

   

 

 

 

Total revenue

     13,856        40,890        105,574   

Cost of revenue:

      

Perpetual license

     1,111        1,930        3,327   

Subscription

     871        2,998        3,684   

Software support and services

     3,216        6,742        9,489   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue (1)

     5,198        11,670        16,500   
  

 

 

   

 

 

   

 

 

 

Gross profit

     8,658        29,220        89,074   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development (1)

     8,052        23,773        36,400   

Sales and marketing (1)

     23,092        45,979        68,309   

General and administrative (1)

     3,054        7,223        12,081   

Amortization of intangible assets

            52        208   

Impairment of in-process research and development

                   3,925   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,198        77,027        120,923   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (25,540     (47,807     (31,849

Other expense, net

     131        137        396   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (25,671     (47,944     (32,245

Income tax expense (benefit)

     46        (1,433     252   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (25,717   $ (46,511   $ (32,497
  

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.27   $ (4.32   $ (2.33
  

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute net loss per share, basic and diluted

     7,874,208        10,774,366        13,933,584   
  

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (2)

       $ (0.42
      

 

 

 

Pro forma weighted average shares used to compute net loss per share, basic and diluted (2)

         77,298,283   
      

 

 

 

 

(1) Includes stock-based compensation expense as follows:
    Year Ended December 31,  
        2011              2012              2013      
    (in thousands)  

Cost of revenue

  $ 44       $ 173       $ 327   

Sales and marketing

    375         1,063         1,893   

Research and development

       144         2,565         5,238   

General and administrative

    190         483         931   
 

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

  $ 753       $ 4,284       $ 8,389   
 

 

 

    

 

 

    

 

 

 

 

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(2) Pro forma basic and diluted net loss per common share have been calculated assuming the conversion of all outstanding shares of convertible preferred stock into 69,224,565 shares of common stock. See Note 12 to our consolidated financial statements for an explanation of the method used to determine the number of shares used in computing historical and pro forma basic and diluted net loss per common share.

 

     As of December 31,  
     2011     2012     2013  
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 23,758      $ 38,692      $ 73,573   

Working capital

     11,153        13,132        49,054   

Total assets

     33,884        71,454        111,259   

Total deferred revenue

     18,346        45,500        40,751   

Short-term borrowings

                   4,300   

Convertible preferred stock

     56,956        102,552        160,259   

Accumulated deficit

     (49,826     (96,337     (128,834

Total stockholders’ deficit

     (48,147     (87,421     (109,825

Key Metrics

We monitor the following key metrics.

 

     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Gross billings

   $ 27,397      $ 68,044      $ 100,825   

Year-over-year percentage increase

       148     48

Recurring billings

   $ 6,985      $ 22,812      $ 45,395   

Percentage of gross billings

     25     34     45

Non-GAAP gross profit

   $ 8,702      $ 29,416      $ 89,677   

Non-GAAP gross margin

     63     72     85

Free cash flow

   $ (15,500   $ (25,420   $ (27,794

Gross billings. We define gross billings as total revenue plus the change in deferred revenue in a period. The gross billings we record in any period reflect sales to new customers plus renewals and additional sales to existing customers. We use gross billings as a performance measurement, because we bill our customers at the time of sale of our solutions and recognize revenue either upon delivery or ratably over subsequent periods. In addition, we have monitored gross billings because the establishment of VSOE commencing January 1, 2013, with respect to perpetual license revenue made it difficult to compare periods and understand growth in our business. Accordingly, we believe gross billings provide valuable insight into the sales of our solutions and the performance of our business.

Recurring billings.  We define recurring billings generally as total revenue less perpetual license 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. The portion of our billings to service providers that are transacted on a monthly basis are included in recurring billings. We monitor our recurring billings because they help us understand product mix shifts, the impact those mix shifts may have on cash flows and the predictability of our future revenues.

Non-GAAP gross profit and margin. We define non-GAAP gross profit as our total revenue less cost of revenue, adjusted to exclude stock-based compensation and amortization of intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of total revenue. Non-GAAP gross profit and margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and

 

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long-term operating and compensation plans. In particular, non-GAAP gross profit and margin exclude certain non-cash expenses and can provide useful measures for period-to-period comparisons of our core business. Excluding the impact of $21.1 million of revenue recognized in 2013 with respect to perpetual licenses delivered in prior years, our non-GAAP gross margin was 81% in 2013.

Free cash flow. We define free cash flow as cash used in operating activities less the amount of purchases of property and equipment. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property and equipment, can be used for strategic opportunities.

Reconciliation of Non-GAAP Financial Measures

The non-GAAP measures discussed above under “—Key Metrics” have limitations as analytical tools, and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, gross billings, recurring billings, non-GAAP gross profit and margin, and free cash flow are not substitutes for total revenue, gross profit and margin, and cash used in operating activities, respectively. Second, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge our investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business.

The following tables reconcile the most directly comparable GAAP financial measure to each of the non-GAAP financial measures discussed above.

 

     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Gross billings:

      

Total revenue

   $ 13,856      $ 40,890      $ 105,574   

Total deferred revenue, end of period (1)

     18,346        45,500        40,751   

Less: Total deferred revenue, beginning of period

     (4,805     (18,346     (45,500
  

 

 

   

 

 

   

 

 

 

Total change in deferred revenue

     13,541        27,154        (4,749
  

 

 

   

 

 

   

 

 

 

Gross billings

   $ 27,397      $ 68,044      $ 100,825   
  

 

 

   

 

 

   

 

 

 

Recurring billings:

      

Total revenue

   $ 13,856      $ 40,890      $ 105,574   

Less: Perpetual license revenue

     (10,130     (26,251     (69,810

Less: Professional services revenue

     (522     (1,515     (1,483

Subscription and software support deferred revenue, end of period (1)

     5,024        14,712        30,468   

Less: Subscription and software support deferred revenue, beginning of period

     (1,243     (5,024     (14,712
  

 

 

   

 

 

   

 

 

 

Total change in subscription and software support deferred revenue

     3,781        9,688        15,756   
  

 

 

   

 

 

   

 

 

 
   $ 6,985      $ 22,812      $ 50,037   

Less: Adjustments (2)

                   (4,642
  

 

 

   

 

 

   

 

 

 

Recurring billings

   $ 6,985      $ 22,812      $ 45,395   
  

 

 

   

 

 

   

 

 

 

 

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     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Non-GAAP gross profit:

      

Gross profit

   $ 8,658      $ 29,220      $ 89,074   

Add: Stock-based compensation expense

     44        173        327   

Add: Amortization of intangible assets

            23        276   
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 8,702      $ 29,416      $ 89,677   
  

 

 

   

 

 

   

 

 

 

Free cash flow:

      

Net cash used in operating activities

   $ (13,875   $ (23,481   $ (25,550

Purchase of property and equipment

     (1,625     (1,939     (2,244
  

 

 

   

 

 

   

 

 

 

Free cash flow

   $ (15,500   $ (25,420   $ (27,794
  

 

 

   

 

 

   

 

 

 

 

(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. The decrease in our deferred revenue balance from 2012 to 2013 was largely due to the recognition of $21.1 million of revenue resulting from on-premise licenses entered into prior to January 1, 2013 that was recognized ratably over the contractual term of the related software support and services agreements because we had not established VSOE for software support and services until that date. Our deferred revenue balance in 2013 was also affected by an increase in software support and services and subscription deferred revenue of $16.1 million. As of December 31, 2012 and 2013, $28.4 million and $7.3 million, respectively, of our total deferred revenue consisted of license revenue deferred from on-premise perpetual licenses sold prior to January 1, 2013 because we had not established VSOE until that date.
(2) Includes nonrecurring perpetual license billings of $4.6 million in 2013, that was classified as subscription or software support in revenue or as deferred revenue in accordance with our accounting policies. These nonrecurring perpetual license billings primarily consist of the Deferred Portion arising from undelivered elements of perpetual license arrangements and billings classified under Bundled Arrangements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Revenue Recognition” for a description of Deferred Portion and Bundled Arrangements.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.

Overview

We invented a purpose-built mobile IT platform for enterprises to secure and manage mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. Customers use our platform as the technology foundation on their journey to become “Mobile First” organizations, embracing mobility as a primary computing platform for their employees. Mobile First organizations transform their businesses by giving their employees secure access to critical business applications and content on devices employees want with a native user experience they love. Our platform is extensible and fosters a growing ecosystem of application developers and technology partners who augment the functionality and add value to our platform, creating positive network effects for our customers, our ecosystem and our company.

To address the unique challenges of mobile, our platform is composed of three integrated and distributed software components: a mobile IT policy server (Core) that allows IT to define security and management policies across popular mobile operating systems, software on the device (Client) to enforce those policies at the mobile end-point, and an intelligent gateway (Sentry) that secures data as it moves between the device and back-end enterprise systems. Each component is distributed to accommodate corporate IT environments and integrated into a single solution for a simplified management experience. Customers, independent application vendors and technology vendors leverage our extensible interfaces to add value to our platform, and in turn, mobilize and secure their applications and content.

We were founded in 2007 with the mission of developing a mobile IT platform. We spent our first two years focused on the development of our mobile IT platform. In 2009, we released our mobile IT platform to customers globally. In April 2010, we expanded our network of channel partners by entering into our first service provider agreement. We have continued introducing new products and functionality to address the management and security of mobile applications and content. In the third quarter of 2011, we extended our solution to a cloud offering to enable deployment flexibility for our customers. In the third quarter of 2012, we released Docs@Work, in the fourth quarter of 2012, we launched our AppConnect ecosystem and in the first quarter of 2013, we released Web@Work. These content, application and web modules allow our customers to easily and securely access documents and run third-party and enterprise applications. In the first quarter of 2014, we launched Help@Work, our latest module focused on IT support, and in the second quarter of 2014, we introduced Tunnel, our per-app VPN solution for iOS 7.

Our business model is based on winning new customers, expanding sales within existing customers, upselling new products and renewing subscriptions and software support agreements. We win customers using a sales force that works closely with our channel partners, including resellers, service providers and system integrators. We have experienced rapid growth in our customer base, having sold our platform to over 6,000 customers since 2009. Our strategy is based on our existing customers expanding the number of mobile device licenses or subscriptions purchased to facilitate their Mobile First journey. The group of our customers that first bought our products in 2010 subsequently purchased through December 31, 2013 over five times the initial number of mobile device licenses. We enhance the value of our platform by introducing additional products and upselling these additional products to our customers. For example, in late 2012, we extended our platform with

 

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new application containerization and content products, including Docs@Work and AppConnect. Our global Customer Success organization creates highly satisfied customers, leading to additional sales and renewals of subscription and software agreements. In 2013, we generated nearly half of our gross billings from recurring sources. Our renewal rate, determined on a device basis, was greater than 90% for software support agreements and subscription licenses for 2013.

Core, Cloud and Sentry form the fundamental architecture of our MobileIron platform, and these components are only sold packaged together as Advanced Management. In 2013 we recognized $54 million in revenue from sales of licenses of Advanced Management. This amount excludes software support and services related to Advanced Management and revenue from sales of premium bundles, which include Advanced Management bundled with additional solutions.

We offer our customers the flexibility to use our software as a cloud service or to deploy it on-premise. They can also choose from various pricing options including subscription and perpetual licensing and pricing based on the number of users or devices. We target customers of all sizes across a broad range of industries including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology and telecommunications. As of December 31, 2013, we have sold our solutions to over 6,000 customers worldwide including over 350 of the Global 2000. No customer accounted for more than 5% of our total revenue in 2013.

We derive revenue from sales of our software solutions to customers, which are sold either (i) on a perpetual license basis with annual software support when deployed on-premise or (ii) on a subscription basis as a cloud service or when deployed on-premise. The majority of our revenue to date has been sales of perpetual licenses of our platform and related annual software support, with the subscription revenue being an increasing portion of our revenue. Revenue from subscription and perpetual licenses in 2013 represented approximately 14% and 66% of total revenue in 2013, respectively. The balance, constituting 20% of total revenue for 2013, was software support and services revenue, including revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses. When we sell our solutions on a subscription basis, we generally offer a one-year term and bill customers in advance. A portion of our revenues through service providers is based on active subscriptions on a monthly basis. We include this revenue in subscription revenue and refer to this revenue as monthly recurring charge, or MRC. We have experienced growth of MRC revenue each month since January 2012. Our MRC revenue comprised approximately 6% of our total revenue in 2013.

Because we had not established vendor specific objective evidence, or VSOE, of fair value of software support and services prior to January 1, 2013, we recognized perpetual license revenue ratably over the term of the related software support agreement. Upon establishing VSOE on January 1, 2013, we began to recognize perpetual license revenue upon delivery assuming all other revenue recognition criteria have been met. As a result our total revenue includes amounts related to licenses delivered in previous years. For 2013, $21.1 million was recognized as revenue from perpetual licenses that were delivered in prior years. Excluding such amounts, our total revenue was $84.5 million in 2013. We expect the amount of revenue attributable to perpetual licenses delivered prior to 2013 to decline over time. As of December 31, 2013, the amount of unrecognized deferred revenue associated with perpetual licenses delivered prior to January 1, 2013 was approximately $7.3 million, of which $5.2 million is expected to be recognized in 2014 and $2.1 million is expected to be recognized after 2014.

We sell our products almost entirely 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 Global 2000 organizations, inside sales teams focused on mid-sized enterprises and sales teams that work in conjunction with service providers that focus on smaller businesses. We prioritize our internal sales and marketing efforts on potential customers that are members of the Global 2000 because we believe that they represent the largest potential opportunity. As of December 31, 2013, our channel partners included over 300 resellers, 35 service providers and a small number of systems integrators.

 

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We believe that our market opportunity is large and global and sales to customers outside of the United States will remain a significant opportunity for future growth. In 2011, 2012 and 2013, 29%, 40% and 44% of our total revenue, respectively, was generated from customers located outside of the United States, primarily those located in EMEA. International market trends that may affect sales of our products and services include heightened concerns and legal requirements relating to data and privacy, the importance of execution on our international channel partners strategy, and the importance of recruiting and retaining sufficient international personnel.

Over the past year, we have significantly increased our expenditures to support the development and expansion of our business, which has resulted in continuing losses. We plan to continue to invest for future growth, including additional investment in sales and marketing and research and development, and as a result, we do not expect to be profitable for the foreseeable future. Under our current operating plan, future profitability is dependent upon continued revenue growth.

We have experienced rapid growth in recent periods. Our gross billings were $27.4 million, $68.0 million and $100.8 million in 2011, 2012 and 2013, respectively, representing growth rates of 148% from 2011 to 2012 and 48% from 2012 to 2013. Our total revenue was $13.9 million, $40.9 million and $105.6 million in 2011, 2012 and 2013, respectively. Excluding $21.1 million of revenue recognized in 2013 from perpetual licenses delivered in prior years, our total revenue was $84.5 million in 2013. We have incurred net losses of $25.7 million, $46.5 million and $32.5 million in 2011, 2012 and 2013, respectively. See “Selected Consolidated Financial Data—Key Metrics” for more information and a reconciliation of gross billings to total revenue.

Key Factors Affecting our Performance

Market Adoption of Mobile IT Platforms

We are affected by the pace at which enterprises adopt mobility into their business processes and purchase a mobile IT platform. Because our prospective customers often do not have a separate budget for mobile IT 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 IT solutions will determine the rate at which we sell solutions to new and existing customers.

Investment in our Mobile IT Platform Ecosystem

We have invested, and intend to continue to invest, in expanding the breadth and depth of our mobile IT ecosystem. We expect to invest in research and development to enhance the application and technology integration capabilities of our platform by developing new and enhancing existing SDKs and APIs to further enable third parties to integrate their applications and solutions with our platform. The degree to which we expand our base of AppConnect and Technology Alliance 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 Grow Worldwide Sales Capacity

We have invested, and intend to continue to invest, in expanding our sales organization, increasing our sales headcount and 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. Newly-hired sales personnel typically require several months to become productive. All of these factors will influence timing and overall levels of sales productivity, impacting the rate at which we will be able to acquire customers to drive revenue growth.

Expansion and Upsell within Existing Customer Base

After the initial sale to a new customer, we focus on expanding our relationship with such customer to sell additional device licenses, subscriptions and products. To increase our revenue, it is important that our customers

 

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expand device license count and purchase additional products. Historically, we have often realized sales of additional device licenses that are multiples of initial sales of device licenses. Our opportunity to expand our customer relationships through additional sales is expected to increase as we add new customers, broaden our product portfolio to meet additional mobile IT requirements, increase the benefits provided to both users and IT and enhance platform functionality. Additional sales lead to increased revenue over the lifecycle of a customer relationship and can significantly increase the return on our sales and marketing investments. Accordingly, our revenue growth will depend in part on the degree to which our expansion and upsell sales strategy is successful.

Mix of Subscription and Perpetual Revenue

We offer our solutions on both a subscription and perpetual pricing model. We believe investments in our cloud services have facilitated further adoption of our solutions and have contributed to the growth in our subscription revenue. We are seeing broader market acceptance of our subscription licensing model from new customers. The utilization of our service provider channel partners has led to increasing subscription revenue from MRC arrangements. We expect the proportion of subscription revenue to our total revenue to increase over time. However, since subscription revenue is recognized ratably over the duration of the related contracts, increases in total revenue will lag any increase in subscription arrangements.

Key Metrics

We monitor the following key metrics:

 

     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Gross billings

   $ 27,397      $ 68,044      $ 100,825   

Year-over-year percentage increase

       148     48

Recurring billings

   $ 6,985      $ 22,812      $ 45,395   

Percentage of gross billings

     25     34     45

Non-GAAP gross profit

   $ 8,702      $ 29,416      $ 89,677   

Non-GAAP gross margin

     63     72     85

Free cash flow

     (15,500     (25,420     (27,794

Gross billings. We define gross billings as total revenue plus the change in deferred revenue in a period. The gross billings we record in any period reflect sales to new customers plus renewals and additional sales to existing customers. We use gross billings as a performance measurement because we bill our customers at the time of sale of our solutions and recognize revenue either upon delivery or ratably over subsequent periods. In addition, we have monitored gross billings because the establishment of VSOE commencing January 1, 2013 with respect to perpetual license revenue made it difficult to compare periods and understand growth in our business. Accordingly, we believe gross billings provide valuable insight into the sales of our solutions and the performance of our business. Our gross billings were $27.4 million, $68.0 million and $100.8 million in 2011, 2012 and 2013, and have grown 148% and 48% year over year in 2012 and 2013, respectively, due to the same factors that caused our revenue to increase over the same periods.

Recurring billings. We define recurring billings generally as total revenue less perpetual license and professional services revenue plus the change in deferred revenue for subscription and software support arrangements in a period. The portion of our billings to service providers that are transacted on a monthly basis are included in recurring billings, adjusted for nonrecurring perpetual billings. We monitor our recurring billings because they help us understand product mix shifts, the impact those mix shifts may have on cash flows and the predictability of our future revenues. Our recurring billings have increased as a percentage of gross billings from 25% in 2011 to 45% in 2013 due to the same factors that caused our subscription revenue and software support and services revenue to increase over the same periods.

 

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Non-GAAP gross profit and margin. We define non-GAAP gross profit as our total revenue less cost of revenue, adjusted to exclude stock-based compensation and amortization of intangible assets. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of total revenue. Non-GAAP gross profit and margin are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating and compensation plans. In particular, non-GAAP gross profit and margin exclude certain non-cash expenses and can provide useful measures for period-to-period comparisons of our core business. Our non-GAAP gross profit was $8.7 million, $29.4 million and $89.7 million in 2011, 2012 and 2013, and has grown 238% and 205% year over year in 2012 and 2013, respectively. The increase in non-GAAP gross profit in 2013 was largely as a result of increased total revenue and economies of scale. Total non-GAAP gross margin increased from 63% to 72% to 85% from 2011 to 2012 to 2013, as a result of increased leverage due to an increase in total revenues. Excluding the impact of $21.1 million of revenue recognized in 2013 with respect to perpetual licenses delivered in prior years, our non-GAAP gross margin was 81% in 2013.

Free cash flow . We define free cash flow as cash used in operating activities less the amount of purchases of property and equipment. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the purchases of property and equipment, can be used for strategic opportunities. Our purchases of property and equipment in 2011, 2012 and 2013 were $1.6 million, $1.9 million and $2.2 million, respectively, and were primarily to support our employee growth and expand our data centers. Free cash flow was $(15.5) million, $(25.4) million, and $(27.8) million, respectively, in 2011, 2012 and 2013, as we continued to invest in the growth of our business, which was partially offset by an increase in cash collections from customers as our gross billings increased 148% and 48%, respectively, in 2012 and 2013.

See “Selected Consolidated Financial Data—Key Metrics” for more information and reconciliations of non-GAAP financial measures to their most directly comparable financial measures calculated in accordance with GAAP.

Components of Results of Operations

Revenue

Perpetual license revenue . Perpetual license revenue primarily relates to revenue from on-premise perpetual licenses. Upon establishing VSOE of fair value for software support and services on January 1, 2013, we began to recognize perpetual license revenue upon delivery assuming all other revenue recognition criteria have been met. Prior to that date, we recognized perpetual license revenue ratably over the contractual term of the related software support agreement. 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 arrangements pricing within a narrow pricing band. In our VSOE analysis, we generally include stand-alone sales transactions entered into during a rolling 12 month period unless a shorter period is appropriate due to changes in our pricing structure. From time to time, we enter into multiple element arrangements with customers in which a customer purchases our software with an appliance. These sales of appliances are also included in perpetual license revenue and constituted less than 10% of total revenue in 2011 and 2012 and less than 5% of total revenue in 2013.

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. Except for MRC, we typically bill subscriptions annually in advance.

 

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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. Revenue related to professional services is generally recognized upon delivery for arrangements on or after January 1, 2013, and recognized ratably over the contractual term for arrangements prior to January 1, 2013.

Cost of Revenue

Perpetual license . Our cost of perpetual license revenue consists of cost of third-party software royalties and appliances.

Subscription . Our cost of subscription revenue primarily consists of costs associated with our data center operations for our cloud service, our global Customer Success organization and third-party software royalties. Cloud service data center costs primarily consist of third-party hosting facilities and information technology costs. Global Customer Success organization costs primarily consist of salaries, benefits, bonuses, stock-based compensation, depreciation, recruiting and facilities.

Software support and services. 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, bonuses, stock-based compensation, depreciation, recruiting, facilities and information technology costs.

Gross Margin

Gross margin, or gross profit as a percentage of total revenue, has been and will continue to be affected by various factors, including mix between large and small customers, mix of products sold, mix between perpetual and subscription licenses, timing of revenue recognition and the extent to which we expand our global Customer Success organization and data center operations, including costs associated with third-party hosting facilities. We expect our gross margins to fluctuate over time depending on the factors described above.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, general and administrative expense and amortization and impairment of intangible assets. 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. We expect operating expenses to increase in absolute dollars, as we continue to invest to grow our business. While operating expenses 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.

Research and Development. 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 departments, facilities and information technology. We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services. While our research and development as a percentage of total revenue may fluctuate, we expect it to decrease over the long term as a percentage of total revenue.

Sales and Marketing. 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

 

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includes third-party event, lead generation campaigns, promotional and other marketing activities, as well as travel, equipment and software, depreciation, consulting, information technology and facilities. In the last 12 months, we significantly increased the size of our sales force, substantially increased our local sales presence internationally and increased marketing spending to generate sales opportunities. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to develop and assist our channel partners and to expand our international presence. While our sales and marketing as a percentage of total revenue may fluctuate, we expect it to decrease over the long term, as a percentage of total revenue as we continue to rely on our indirect sales channel.

General and Administrative. 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. We expect general and administrative expense to increase in absolute dollars due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company. While our general and administrative expense as a percentage of total revenue may fluctuate, we expect it to decrease over the long term as a percentage of total revenue.

Other Expense—Net

Other 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. All translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations. To date, we have had minimal interest income.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of income taxes in foreign jurisdictions in which we conduct business. The benefit for income taxes in 2012 related primarily to the release of a valuation allowance of $1.6 million associated with nondeductible intangible assets recorded as part of previous acquisitions, partially offset by state minimum income tax and income tax on our foreign jurisdictions. We maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits.

 

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Consolidated Results of Operations

The following tables summarize our consolidated 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,  
     2011     2012     2013  
     (in thousands)  

Revenue:

      

Perpetual license

   $ 10,130      $ 26,251      $ 69,810   

Subscription

     1,106        5,617        15,085   

Software support and services

     2,620        9,022        20,679   
  

 

 

   

 

 

   

 

 

 

Total revenue

     13,856        40,890        105,574   

Cost of revenue:

      

Perpetual license

     1,111        1,930        3,327   

Subscription

     871        2,998        3,684   

Software support and services

     3,216        6,742        9,489   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue (1)

     5,198        11,670        16,500   
  

 

 

   

 

 

   

 

 

 

Gross profit

     8,658        29,220        89,074   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development (1)

     8,052        23,773        36,400   

Sales and marketing (1)

     23,092        45,979        68,309   

General and administrative (1)

     3,054        7,223        12,081   

Amortization of intangible assets

            52        208   

Impairment of in-process research and development

                   3,925   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,198        77,027        120,923   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (25,540     (47,807     (31,849

Other expense—net

     131        137        396   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (25,671     (47,944     (32,245

Income tax expense (benefit)

     46        (1,433     252   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (25,717   $ (46,511   $ (32,497
  

 

 

   

 

 

   

 

 

 

 

(1) Includes stock-based compensation expense as follows:
     Year Ended December 31,  
       2011          2012          2013    
     (in thousands)  

Cost of revenue

   $ 44       $ 173       $ 327   

Sales and marketing

     375         1,063         1,893   

Research and development

     144         2,565         5,238   

General and administrative

     190         483         931   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $    753       $ 4,284       $ 8,389   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Year Ended December 31,  
       2011         2012         2013    

Revenue:

      

Perpetual license

     73     64         66

Subscription

     8        14        14   

Software support and services

     19        22        20   
  

 

 

   

 

 

   

 

 

 

Total revenue

     100        100        100   

Cost of revenue:

      

Perpetual license

     8        5        3   

Subscription

     6        7        4   

Software support and services

     23        17        9   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     38        29        16   
  

 

 

   

 

 

   

 

 

 

Gross profit

     62        71        84   
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     58        58        34   

Sales and marketing

     167        112        65   

General and administrative

     22        18        11   

Amortization of intangible assets

            0        0   

Impairment of in-process research and development

                   4   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     247        188        115   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (184     (117     (30
  

 

 

   

 

 

   

 

 

 

Other expense—net

     1        0        0   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (185     (117     (31
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

     0        (4     0   
  

 

 

   

 

 

   

 

 

 

Net loss

     (186 )%      (114 )%      (31 )% 
  

 

 

   

 

 

   

 

 

 

Comparison of 2012 and 2013

Revenue

 

     Year Ended December 31,     Change  
     2012     2013    
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Revenue:

               

Perpetual license

   $ 26,251         64   $ 69,810         66   $ 43,559         166

Subscription

     5,617         14        15,085         14        9,468         169

Software support and services

     9,022         22        20,679         20        11,657         129
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 40,890         100   $ 105,574         100   $ 64,684         158
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

     Year Ended December 31,     Change  
     2012     2013    
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

United States

   $ 24,473         60   $ 58,656         56   $ 34,183         140

International

     16,417         40        46,918         44        30,501         186
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 40,890         100   $ 105,574         100   $ 64,684         158
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

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Our total revenue increased $64.7 million, or 158%, in 2013 compared to 2012. The increase reflected continuing expansion of the mobile IT market and was attributable to an increase in sales to both new and existing customers, including sales of new premium products with additional functionality for application containerization and content management that were released in late 2012 and early 2013. The increase was also due to the recognition of $21.1 million for perpetual license revenue relating to licenses that were delivered prior to 2013, but for which the revenue was being recognized ratably over the contractual terms of the related software support agreements due to lack of VSOE for support prior to January 1, 2013. Revenue from international sales increased from $16.4 million in 2012 to $46.9 million in 2013, primarily due to increased sales to customers in EMEA. Revenue from AT&T, Inc. as a reseller increased to 20% of total revenue in 2013, as compared to 14% of total revenue in 2012. No customer accounted for more than 5% of total revenue for 2013.

Perpetual license revenue increased $43.6 million or 166%, in 2013 compared to 2012, due to an increase in sales of perpetual licenses resulting from an increase in market adoption of our solutions. The increase was also due to the recognition of revenue from licenses that were delivered prior to 2013 as described above.

Subscription revenue increased $9.5 million, or 169%, in 2013 compared to 2012, primarily 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.

Software support and services revenue increased $11.7 million, or 129%, in 2013 compared to 2012, as a result of increased perpetual license sales in 2013 and the increase in our cumulative installed base of customers that pay recurring software support.

Cost of Revenue and Gross Margin

 

     Year Ended December 31,               
     2012     2013     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Cost of revenue:

               

Perpetual license

   $ 1,930         5   $ 3,327         3   $ 1,397         72

Subscription

     2,998         7        3,684         4        686         23

Software support and services

     6,742         16        9,489         9        2,747         41
  

 

 

      

 

 

      

 

 

    

Total cost of revenue

     11,670         29        16,500         16        4,830         41
  

 

 

      

 

 

      

 

 

    

Gross profit

   $ 29,220         $ 89,074         $ 59,854         205
  

 

 

      

 

 

      

 

 

    

Gross margin

        71        84     

Total cost of revenue increased $4.8 million, or 41%, in 2013 compared to 2012. Perpetual license cost of revenue increased $1.4 million, or 72%, primarily due to an increase in appliance and royalty costs due to increased perpetual license sales. Subscription cost of revenue increased $686,000, or 23%, as we increased our global Customer Success and data center operations expense to support our growing customer base. Software support and services cost of revenue increased $2.7 million, or 41%, as we increased our global Customer Success organization to support our growing customer base. The increase in gross margin in 2013 compared to 2012 was largely due to economies of scale and the favorable impact of perpetual license revenue that was recognized ratably and attributable to licenses for software that were delivered prior to 2013.

 

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Operating Expenses

 

     Year Ended December 31,        
     2012     2013     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Operating expenses:

               

Research and development

   $ 23,773         58   $ 36,400         34   $ 12,627         53

Sales and marketing

     45,979         112        68,309         65        22,330         49

General and administrative

     7,223         18        12,081         11        4,858         67

Amortization of intangible assets

     52         0        208         0        156         300

Impairment of in-process research and development

                    3,925         4        3,925         NM   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total operating expenses

   $ 77,027         188   $ 120,923         115   $ 43,896         57
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Research and development expense increased $12.6 million, or 53%, in 2013 compared to 2012, primarily due to an increase in personnel costs of $11.3 million as we increased our development headcount to support continued investment in our future product and service offerings and an increase in facilities and infrastructure costs of $1.1 million to support the growing organization. Personnel costs included an increase of $2.7 million for stock-based compensation expense, of which $1.9 million was associated with compensatory restricted stock grants made as part of acquisitions, and the balance of which was due to stock option grants to employees.

Sales and marketing expense increased $22.3 million, or 49%, in 2013 compared to 2012, primarily due to an increase in personnel costs of $17.5 million as we increased sales headcount to support growth and recognized $7.8 million higher commission expense. Travel-related expense increased $2.1 million as a result of travel requirements of our larger sales team and expansion into foreign markets. In addition, third-party marketing-related expense increased $2.2 million as we expanded customer and partner programs and lead generation activities. Stock-based compensation expense increased $830,000 in 2013 compared to 2012 due to stock option grants to employees.

General and administrative expense increased $4.9 million, or 67%, in 2013 compared to 2012, primarily due to an increase in litigation expense and personnel costs. Professional services fees increased $3.1 million, primarily to supplement our legal, finance and human resources organizations to support our growth, of which $1.7 million was associated with litigation matters for which we began to incur costs in 2013. Personnel costs increased $1.8 million as we grew headcount. Stock-based compensation expense increased $448,000 in 2013 compared to 2012 due to stock option grants to employees.

Amortization of intangible assets was $52,000 and $208,000 in 2012 and 2013, respectively, and was associated with intangible assets recorded as part of acquisitions completed in 2012.

During 2013, we abandoned an in-process research and development, or IPR&D, project and recorded a $3.9 million impairment loss.

Other Expense—Net

 

     Year Ended
December 31,
     Change  
     2012      2013      Amount      %  
     (in thousands)  

Other expense—net

   $ 137       $ 396       $ 259         189

Other expense—net was primarily composed of foreign currency transaction losses and the losses from the translation of foreign-denominated balances to the U.S. dollar.

 

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Income Tax Expense (Benefit)

 

     Year Ended
December 31,
     Change  
     2012     2013      Amount      %  
    

(in thousands)

 

Income tax expense (benefit)

   $ (1,433   $ 252       $ 1,685         NM         

Income tax expense was $252,000 in 2013, compared to an income tax benefit of $1.4 million in 2012. We incur income tax expense primarily due to foreign and state taxes. We have a full valuation allowance for our deferred tax assets. Such foreign and state income tax was $209,000 and $252,000 in 2012 and 2013, respectively, and was primarily due to an increase in foreign income taxes on profits realized by our foreign subsidiaries as we expanded internationally. The tax benefit in 2012 included a $1.6 million one-time benefit from the release of a valuation allowance on a net deferred tax liability associated with non-deductible intangible assets recorded as part of acquisitions.

Comparison of 2011 and 2012

Revenue

 

     Year Ended December 31,               
     2011     2012     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Revenue:

               

Perpetual license

   $ 10,130         73   $ 26,251         64   $ 16,121         159

Subscription

     1,106         8        5,617         14        4,511         408

Software support and services

     2,620         19        9,022         22        6,402         244
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 13,856         100   $ 40,890         100   $ 27,034         195
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

     Year Ended December 31,               
     2011     2012     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

United States

   $ 9,774         71   $ 24,473         60   $ 14,699         150

International

     4,082         29        16,417         40        12,335         302
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total revenue

   $ 13,856         100   $ 40,890         100   $ 27,034         195
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Our total revenue increased $27.0 million, or 195%, in 2012 compared to 2011. The increase reflected significant expansion in the mobile IT market and was attributable to an increase in sales to both new and existing customers to secure and manage mobile devices. Total revenue from AT&T, Inc. as a reseller increased to 14% of total revenue in 2012, as compared to 11% of total revenue in 2011. No customer accounted for more than 5% of total revenue for 2012, and no customer accounted for more than 10% of total revenue in 2011.

Perpetual license revenue increased $16.1 million, or 159%, in 2012 compared to 2011, primarily due to an increase in sales of perpetual licenses resulting from an increase in market adoption of our products, the revenue from which was recognized ratably over the terms of the support agreements in the periods presented.

Subscription revenue increased $4.5 million, or 408%, in 2012 compared to 2011, primarily due to increased sales of products sold under either a cloud-based delivery model or a subscription term license for our on-premise software products.

 

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Software support and services revenue increased $6.4 million, or 244%, in 2012 compared to 2011, as a result of increased perpetual license sales in 2012 and the increase in our cumulative installed base of customers.

Cost of Revenue and Gross Margin

 

     Year Ended December 31,               
     2011     2012     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Cost of revenue:

               

Perpetual license

   $ 1,111         8   $ 1,930         5   $ 819         74

Subscription

     871         6        2,998         7        2,127         244

Software support and services

     3,216         23        6,742         17        3,526         110
  

 

 

      

 

 

      

 

 

    

Total cost of revenue

     5,198         38        11,670         29        6,472         125
  

 

 

      

 

 

      

 

 

    

Gross profit

   $ 8,658         $ 29,220         $ 20,562         237
  

 

 

      

 

 

      

 

 

    

Gross margin

        62        71     

Total cost of revenue increased $6.5 million, or 125%, in 2012 compared to 2011. Perpetual license cost of revenue increased $819,000, or 74% due to an increase in appliance and royalty costs as a result of increased perpetual license sales. Subscription cost of revenue increased $2.1 million, or 244%, primarily due to an increase in data center costs of $1.7 million as we increased our headcount and infrastructure, including third party data center facilities, to support our growing customer base and, to a lesser extent, to increased headcount in our global Customer Success organization. Support and services cost of revenue increased $3.5 million, or 110%, as we increased headcount in our global Customer Success organization to support our growing customer base. The increase in gross margin in 2012 compared to 2011 was largely due to economies of scale and recognition in 2012 of perpetual license revenue that was recognized ratably, that were delivered prior to 2012. The increase in gross margin was offset in part by recognition in later periods of perpetual license revenue relating to licenses that were delivered in 2012.

Operating Expenses

 

     Year Ended December 31,               
     2011     2012     Change  
     Amount      % of Total
Revenue
    Amount      % of Total
Revenue
    Amount      %  
     (in thousands)  

Operating expenses:

               

Research and development

   $ 8,052         58   $ 23,773         58   $ 15,721         195

Sales and marketing

     23,092         167        45,979         112        22,887         99

General and administrative

     3,054         22        7,223         18        4,169         137

Amortization of intangible assets

                    52                52         NM   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total operating expenses

   $ 34,198         247   $ 77,027         188   $ 42,829         125
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Research and development expense increased $15.7 million, or 195%, in 2012 compared to 2011, primarily due to an increase in personnel costs of $12.1 million as we increased our headcount to support investment in our future product and service offerings, an increase in outside service expense of $1.5 million as we increased the use of consultants and third parties to supplement our product development efforts, and an increase in facilities and infrastructure costs of $1.9 million to support the growing organization. Personnel costs in 2012 included an increase of $2.4 million for stock-based compensation expense due to stock option grants to employees, as well as compensatory restricted stock grants made as part of our acquisitions.

 

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Sales and marketing expense increased $22.9 million, or 99%, in 2012 compared to 2011, primarily due to an increase in personnel costs of $15.8 million, including $2.3 million of higher commission expense, as we increased headcount. Travel-related expense increased $2.2 million as a result of travel requirements of our expanded sales team and expansion into foreign markets. In addition, third-party marketing-related expense increased $2.6 million as we added or expanded trade shows and other events, partner programs, collateral and other market development activities. The remaining increase was due to increased facilities and IT-related spending. Stock-based compensation expense increased $688,000 due to stock option grants to new and existing employees.

General and administrative expense increased $4.2 million, or 137%, in 2012 compared to 2011, primarily due to an increase in personnel costs of $2.5 million and an increase in professional services costs of $1.0 million to support company growth. Stock-based compensation expense increased $293,000 due to stock option grants to new and existing employees.

Amortization of intangible assets was $52,000 in 2012 compared to zero in 2011, and was associated with intangible assets recorded as part of acquisitions completed in 2012.

Other Expense—Net

 

     Year Ended
December 31,
     Change  
     2011      2012      Amount      %  
     (in thousands)  

Other expense—net

   $ 131       $ 137       $ 6         5

Other expense—net was essentially unchanged in 2012 compared to 2011 and was primarily composed of foreign currency transaction losses and losses from the translation of foreign-denominated balance sheets to the U.S. dollar.

Income Tax Expense (Benefit)

 

     Year Ended
December 31,
    Change  
     2011      2012     Amount     %  
    

(in thousands)

 

Income tax expense (benefit)

   $ 46       $ (1,433   $ (1,479     NM         

Income tax benefit was $1.4 million in 2012, compared to an income tax expense of $46,000 in 2011. We incur income tax expense primarily due to foreign and state taxes. We have a full valuation allowance for our deferred tax assets. The foreign and state income tax was $209,000 and $46,000 in 2012 and 2011, respectively, and was primarily due to an increase in foreign income taxes on profits realized by our foreign subsidiaries as we expanded internationally. The tax benefit in 2012 included a $1.6 million one-time benefit from the release of a valuation allowance on a net deferred tax liability associated with non-deductible intangible assets recorded as part of acquisitions.

 

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Table of Contents

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2013, as well as the percentage that each line item represents of total revenue for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the United States. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.

 

     Three Months Ended,  
     Mar. 31,
2012
    Jun. 30,
2012
    Sept. 30,
2012
    Dec. 31,
2012
    Mar. 31,
2013
    Jun. 30,
2013
    Sept. 30,
2013
    Dec. 31,
2013
 

Revenue:

                

Perpetual license

   $ 4,973      $ 6,215      $ 7,102      $ 7,961      $ 19,194      $ 17,243      $ 16,932      $ 16,441   

Subscription

     826        1,213        1,565        2,013        2,737        3,236        4,095        5,017   

Software support and services

     1,444        1,962        2,572        3,044        3,890        4,676        5,447        6,666   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     7,243        9,390        11,239        13,018        25,821        25,155        26,474        28,124   

Cost of revenue:

                

Perpetual license

     376        455        463        636        765        816        816        930   

Subscription

     574        744        829        851        861        884        899        1,040   

Software support and services

     1,379        1,559        1,866        1,938        2,089        2,187        2,469        2,744   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     2,329        2,758        3,158        3,425        3,715        3,887        4,184        4,714   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     4,914        6,632        8,081        9,593        22,106        21,268        22,290        23,410   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

                

Research and development

     3,869        4,565        5,779        9,560        8,850        8,565        9,210        9,775   

Sales and marketing

     8,889        10,655        11,746        14,689        13,760        15,442        17,771        21,336   

General and administrative

     1,398        1,655        2,199        1,971        2,450        3,287        3,177        3,167   

Amortization of intangible assets

                          52        52        52        52        52   

Impairment of in-process research and development

                                               3,925          
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,156        16,875        19,724        26,272        25,112        27,346        34,135        34,330   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (9,242     (10,243     (11,643     (16,679     (3,006     (6,078     (11,845     (10,920

Other expense (income)—net

     (24     117        (79     123        85        83        132        96   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (9,218     (10,360     (11,564     (16,802     (3,091     (6,161     (11,977     (11,016

Income tax expense (benefit)

     49        (299     49        (1,232     51        39        80        82   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (9,267   $ (10,061   $ (11,613   $ (15,570   $ (3,142   $ (6,200   $ (12,057   $ (11,098
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Three Months Ended,  
     Mar. 31,
2012
    Jun. 30,
2012
    Sept. 30,
2012
    Dec. 31,
2012
    Mar. 31,
2013
    Jun. 30,
2013
    Sept. 30,
2013
    Dec. 31,
2013
 

Revenue:

                

Perpetual license

     69     66     63     61     74     68     64     58

Subscription

     11        13        14        16        11        13        15        18   

Software support and services

     20        21        23        23        15        19        21        24   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100        100        100        100        100        100        100        100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue:

                

Perpetual license

     5        5        4        5        3        3        3        3   

Subscription

     8        8        7        6        3        4        4        4   

Software support and services

     19        16        17        15        8        9        9        10   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     32        29        28        26        14        16        16        17   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     68        71        72        74        86        84        84        83   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

                

Research and development

     53        49        51        74        34        34        35        35   

Sales and marketing

     123        113        105        113        54        62        67        76   

General and administrative

     19        18        20        15        10        13        12        11   

Amortization of intangible assets

     0        0        0        0        0        0        0        0   

Impairment of in-process research and development

     0        0        0        0        0        0        15        0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     195        180        176        202        98        109        129        122   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (127     (109     (104     (128     (12     (25     (45     (39

Other expense (income)—net

     0        1        (1     1        0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (127     (110     (103     (129     (12     (25     (45     (39

Income tax expense (benefit)

     1        (3     0        (9     0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (128 )%      (107 )%      (103 )%      (120 )%      (12 )%      (25 )%      (46 )%      (39 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Our total revenue increased, on a quarterly basis, over the eight quarters ended December 31, 2013, reflecting increasing customer adoption of our mobile IT solutions. The increase in total revenue from 2012 to 2013 was in part due to the recognition of revenue from licenses upon delivery rather than ratably over the contractual term of the related software support agreements. The quarterly revenue in the quarters ended March 31, June 30, September 30 and December 31, 2013 included $7.5 million, $6.0 million, $4.5 million, and $3.1 million, respectively, of perpetual license revenue relating to licenses that were delivered prior to 2013, but for which the revenue was being recognized ratably over the contractual term of the related software support agreements due to lack of VSOE for software support and services prior to January 1, 2013.

Perpetual license revenue increased over the quarterly periods of 2012 due to an increase in sales of perpetual licenses resulting from an increase in market adoption of our products. The increase in 2013 was also due to the recognition of revenue from licenses that were delivered prior to 2013 as described above. The successive quarterly decreases in perpetual license revenue over 2013 were primarily due to the decreases in quarterly perpetual license revenue relating to licenses that were delivered prior to 2013.

Subscription revenue increased over the quarterly periods primarily due to sales of solutions sold under either a cloud-based delivery model or as a subscription term license for our on-premise software products.

 

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Software support and services revenue increased over the quarterly periods as a result of increased perpetual license sales and the increase in our cumulative installed base of customers that purchased recurring software support.

Given our limited sales history, quarterly revenue trends over recent quarters may not be reliable indicators of our future revenue mix. Moreover, because we recognize revenue from perpetual licenses when delivered, assuming all other revenue recognition criteria have been met, and we recognize subscription and software support and services revenue ratably over the contractual term of the related software support agreements, quarterly changes in our mix of perpetual license revenue versus subscription and software support and services revenue may produce substantial variation in our revenue even if our sales activity remains consistent. We believe 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.

Quarterly Gross Profit and Margin Trends

Quarterly gross profit and gross margin generally increased in the quarters of 2013 compared to the quarters of 2012 due primarily to economies of scale and the recognition of perpetual license revenue upon delivery rather than ratably over the contractual term of the related software support agreements. In addition, the ratable revenue recognized in 2013 from sales of perpetual licenses delivered prior to 2013 had no corresponding cost of revenue. Gross margins decreased somewhat in the second, third and fourth quarters of 2013 as the amount of revenue we recognized from sales of perpetual licenses delivered prior to 2013 decreased each quarter. In the future, gross margin may fluctuate on a quarterly basis due to shifts in the mix of sales between perpetual and subscription licenses, the mix of products sold, the mix between large and small customers, the 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.

Quarterly Operating Expense Trends

Total operating expenses generally increased for all periods presented primarily due to the addition of personnel in connection with the expansion of our business. The increase in research and development expense from the quarter ended December 31, 2012 compared to the quarter ended September 30, 2012 was due to an increase in hiring and an increase of $1.9 million in stock-based compensation expense associated with compensatory restricted stock grants made as part of our acquisitions. Sales and marketing expense increased in the quarters ended December 31, 2012 and 2013 compared to the quarters ended September 30, 2012 and 2013, primarily due to increased commission expense and third-party marketing spending as we held a number of events in the fourth quarter. We generally would expect significant increases in commission expense in the fourth quarter of our fiscal year due to seasonally strong sales during that quarter. General and administrative expense increased in the quarter ended September 30, 2012 compared to the quarter ended June 30, 2012 due primarily to hiring and outside legal costs to support the growth of our business. General and administrative expense increased in the quarter ended June 30, 2013 compared to the quarter ended March 31, 2013 due to hiring and legal expenses to support our business growth, and litigation-related legal costs. In the quarter ended September 30, 2013, we abandoned an in-process research and development project and recorded a $3.9 million impairment loss. We generally expect our operating expenses to increase in absolute dollars as we continue to invest in future products and anticipated growth.

The benefits to income tax expense of $299,000 and $1.2 million in the quarters ended June 30, 2012 and December 31, 2012, respectively, were due to one-time benefits from the release of valuation allowances on net deferred tax liabilities associated with non-deductible intangible assets recorded as part of acquisitions.

 

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Liquidity and Capital Resources

 

     December 31,  
     2011     2012     2013  
     (in thousands)  

Cash and cash equivalents

   $ 23,758      $ 38,692      $ 73,573   
     Year Ended December 31,  
     2011     2012     2013  
     (in thousands)  

Cash used in operating activities

   $ (13,875   $ (23,481   $ (25,550

Cash used in investing activities

     (1,625     (5,386     (2,607

Cash provided by financing activities

     20,925        43,801        63,038   
  

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 5,425      $ 14,934      $ 34,881   
  

 

 

   

 

 

   

 

 

 

At December 31, 2013, we had cash and cash equivalents of $73.6 million. Substantially all of our cash and cash equivalents is held in the United States.

In August 2012, we entered into a $10.0 million revolving line of credit with a financial institution. The revolving line of credit can be used to borrow for working capital and general business requirements, issue letters of credit, and enter into foreign exchange contracts. Revolving loans may be borrowed, repaid, and re-borrowed until August 2014. Amounts borrowed accrue interest at a floating per annum rate equal to the greater of the prime rate plus 1% or 4.25%. 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, other than our intellectual property, and requires us to comply with working capital, net worth and other nonfinancial covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, and our borrowing capacity is limited to our eligible accounts receivable. In December 2013, we amended our revolving line of credit with the same financial institution to increase the potential borrowing capacity to $20.0 million and extend the maturity date to August 2015. All other material terms and conditions remained the same with the exception of the added requirement that we maintain an adjusted quick ratio (defined as the ratio of current assets to current liabilities minus deferred revenue) of at least 1.15. As of December 31, 2013, we had borrowings of $4.3 million outstanding under this resolving loan facility, which were repaid in January 2014 and we were in compliance with each of the financial and non-financial covenants described above.

To date we have financed our operations primarily through private sales of equity securities. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, the continuing market acceptance of our products, any future acquisition and similar transactions and the proportion of our perpetual versus subscription sales. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

Cash Used in Operating Activities

Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by increases in sales and 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 sales and increases in personnel costs as we grow our business. Cash used in operating activities was $13.9 million, $23.5 million and $25.6 million in 2011, 2012 and 2013, respectively.

 

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In 2013, we used $25.6 million of cash for operating activities primarily as a result of the expansion of our sales organization and investment in marketing programs, and the addition of headcount in research and development, customer success and data center operations, partially offset by cash received from customers. We believe this investment is necessary to drive the long-term success of our company. We incurred a net loss of $32.5 million in 2013 as we increased our operating expenses 57% to $120.9 million and increased cost of revenue 41% to $16.5 million. The net loss included non-cash charges of $14.4 million, primarily due to stock-based compensation depreciation expense and impairment of in-process R&D. Unfavorable changes in operating assets and liabilities, net of acquisitions, of $7.4 million increased our use of cash from operations, as growth in accounts receivable and decreases in deferred revenue was only partially offset by increases in accrued liabilities, especially payroll-related accrued expense.

In 2012, we used $23.5 million of cash for operating activities primarily as a result of our investment in product development, the expansion of our marketing and sales activities, and the related increased support infrastructure required, partially offset by cash received from customers. We incurred a net loss of $46.5 million in 2012 as we more than doubled our operating expenses to $77.0 million and increased cost of revenue 125% to $11.7 million. The net loss was partially offset by favorable changes in operating assets and liabilities, net of acquisitions, of $17.4 million, mainly due to increased deferred revenue, and non-cash charges of $5.6 million, primarily for stock-based compensation and depreciation expense.

In 2011, we used $13.9 million of cash for operating activities primarily as a result of our net loss of $25.7 million in our first full year of selling product. The net loss was partially offset by favorable changes in operating assets and liabilities, net of acquisitions, of $10.6 million, mainly due to increased deferred revenue, and non-cash charges of $1.2 million, primarily for stock-based compensation and depreciation expense.

Cash Used in Investing Activities

Our investing activities have consisted of purchases of property and equipment, a business and technology and other assets. We expect to continue to make such purchases to support continued growth of our business.

Cash used in investing activities was $1.6 million, $5.4 million and $2.6 million in 2011, 2012 and 2013, respectively. In 2013, $2.2 million of the cash used in investing activities was attributable to the purchase of equipment for the expansion of our data centers and increase in infrastructure to support our increasing headcount. In 2012, we used $3.1 million for the purchase of Push Computing, Inc., or Push, $1.9 million for the purchase of equipment and $396,000 for the purchase of intellectual property. We purchased Push and the intellectual property to provide enhanced security features in our software applications and services. Property and equipment purchases were primarily to support our employee growth and expand our data centers. In 2011, all $1.6 million of our cash used in investing activities was for the purchase of property and equipment.

Cash Provided by Financing Activities

Our financing activities have primarily consisted of proceeds from the issuance of convertible preferred stock and from the exercise of stock options.

In 2013, our financing activities provided $63.0 million, which included $57.7 million of net proceeds from the issuance of convertible preferred stock, $4.3 million from borrowings under our revolving line of credit and $1.0 million from the exercise of stock options. We repaid the $4.3 million of borrowings under our revolving line of credit in January 2014. In 2012, our financing activities provided $43.8 million, which included $42.3 million of net proceeds from the issuance of convertible preferred stock and $1.5 million from the exercise of stock options. In 2011, our financing activities provided $20.9 million, which included $19.9 million of net proceeds from the issuance of convertible preferred stock and $1.0 million from the exercise of stock options.

 

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Contractual Obligations and Commitments

The following summarizes our contractual obligations and commitments as of December 31, 2013:

 

     Payments due by period  
     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
 
     (in thousands)  

Operating lease obligations

   $ 3,552       $ 1,406       $ 1,805       $ 341       $   

Purchase obligations

     1,000         1,000                           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,552       $ 2,406       $ 1,805       $ 341       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The contractual obligations table excludes tax liabilities of $1.7 million related to uncertain tax positions because we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.

Off-Balance Sheet Arrangements

Through December 31, 2013, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Segment Information

We have one primary business activity and operate in one reportable segment.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

The critical accounting policies requiring estimates, assumption and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

We derive revenue principally from software-related arrangements consisting of perpetual software licenses, post-contract customer support for such licenses (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 and 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 the customer a license key to download the software. Delivery of a hardware appliance, or 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 occur when performed.

 

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Prior to January 1, 2013, we had not established vendor specific objective evidence, 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 and if evidence of the fair value of one or more undelivered elements does not exist, the revenue is deferred and recognized when delivery of those elements occurs, when fair value can be established, or ratably over the PCS period if the only undelivered element is PCS—we refer to these deferred revenue elements as the “Deferred Portion.”

Revenue from subscriptions to our on-premise term licenses, arrangements where perpetual and subscriptions to our on-premise term licenses are sold together, and subscriptions to our cloud service are recognized ratably over the contractual term for all periods presented and are included as a component of subscription revenue within our consolidated statement 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. Appliance revenue was less than 10% of total revenue for all periods presented and is included as a component of perpetual license revenue within our consolidated statement of operations.

Sales made through resellers are recognized as revenue upon sell-through to end customers.

Shipping charges and sales tax billed to partners are excluded from revenue.

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 statement of operations.

 

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Revenue related to professional services is recognized upon delivery and is included as a component of software support and services revenue within the consolidated statement 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. Approximately $21.1 million of perpetual license revenue in 2013 related to sales made prior to January 1, 2013. As of December 31, 2013, the amount of unrecognized deferred revenue associated with licenses delivered prior to January 1, 2013, was approximately $7.3 million, of which $5.2 million is expected to be recognized in 2014 and $2.1 million is expected to be recognized after 2014.

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.

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 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.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards.

The assumptions used in our option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, so that they are inherently subjective. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

 

    Fair Value of Common Stock . Because our stock is not publicly traded, we must estimate its fair value, as discussed in “Common Stock Valuations” below.

 

    Risk-Free Interest Rate . We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options for each option group.

 

    Expected Term . The expected term represents the period that our stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer or our common stock as a privately held company, we do not believe our historical exercise pattern is indicative of the pattern we will experience as a publicly traded company. We have consequently used the Staff Accounting Bulletin, or “SAB” 110, simplified method to calculate the expected term, which is the average of the contractual term and vesting period. We plan to continue to use the SAB 110 simplified method until we have sufficient trading history as a publicly traded company.

 

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    Volatility . We determine the price volatility factor based on the historical volatilities of our peer group as we did not have a sufficient trading history for our common stock. Industry peers consist of several public companies in the technology industry that provide similar services with comparable characteristics including enterprise value, risk profiles and position within the industry. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

    Dividend Yield . The expected dividend assumption is based on our current expectations about our anticipated dividend policy. We currently do not expect to issue any dividends.

In addition to assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation for our awards. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

The fair value of the employee stock options was estimated using the following assumptions for the periods presented:

 

     Year Ended December 31,
     2011    2012    2013

Expected dividend yield

        

Risk-free interest rate

   1.1%–3.3%    1.1%–1.9%    1.0%–1.9%

Expected volatility

   55%–67%    51%–57%    52%–53%

Expected life (in years)

   5.4–6.2    5.0–6.5    5.9–6.3

For 2011, 2012 and 2013, stock-based compensation expense was $753,000, $4.3 million and $8.5 million, respectively. As of December 31, 2013, we had approximately $17.4 million of total unrecognized compensation expense, net of related forfeiture estimates, which we expect to recognize over a weighted-average period of approximately three years.

The intrinsic value of all outstanding options as of December 31, 2013 was $         million based on the estimated fair value of our common stock of $         per share, the midpoint of the price range set forth on the cover of this prospectus.

Common Stock Valuations

Our board of directors intends all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The estimated fair value of our common stock was determined at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our board of directors, with the assistance of management, developed these valuations using significant judgment and taking into account numerous factors, including developments at our company, market conditions and contemporaneous independent third-party valuations.

Depending on whether stock options were granted near periods in which we also had a preferred stock issuance, the valuations of our common stock were back-solved for the common stock equity value using the Option Pricing Method, or OPM backsolve method, the multi-period discounting method, probability-weighted expected return method, or PWERM, or a combination thereof.

 

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The OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. The OPM backsolve method derives the implied equity value of a company from a recent transaction involving the company’s own securities issued on an arms-length basis.

The multi-period discounting approach values the business based on the future benefits that will accrue to it, with the value of future benefits discounted back to a present value at an appropriate discount rate. The discounted cash flow analysis forecasts future revenue and free cash flow, or net operating profit after tax from continuing operations, associated with those revenues.

The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each stock class.

From January 1, 2014 to March 10, 2014, we issued stock options to purchase 4,015,702 shares of common stock and 2,813 shares of restricted stock with an aggregate fair value of $10.1 million that we generally expect to recognize as stock-based compensation expense over approximately four years. Some of the stock options contain performance conditions. The fair value of our company has risen over the past year; because the fair value of the underlying stock is an important factor in valuing stock options, the compensation expense associated with option grants will rise in 2014 as we continue to grant additional options to our employees.

Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of our common stock on the                      .

Valuation of Intangible Assets

All intangible assets with finite lives are amortized on a straight-line basis over their estimated remaining economic lives, ranging from three to five years. We test for impairment of our goodwill annually, or more frequently if indicators of potential impairment arise. We operate in a single reporting unit and the estimated fair value of the reporting unit is substantially in excess of its carrying value.

Recent Accounting Pronouncements

In February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December 15, 2012 for public companies. This new guidance impacts how we report comprehensive income only, and had no effect on our results of operations, financial position or liquidity upon its required adoption on January 1, 2013.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles Goodwill and Other (ASC Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment . ASU No. 2012-02 amends prior indefinite-lived intangible asset impairment testing guidance. Under ASU No. 2012-02, the Company has the option to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired. If, after considering the totality of events and circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is not impaired, then calculating the fair value of such asset is unnecessary. ASU No. 2012-02 is effective for the year ending December 31, 2014.

 

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Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our sales contracts are 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 Sterling and Euro. 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, and we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates.

Interest Rate Risk

We had cash and cash equivalents of $38.7 million and $73.6 million as of December 31, 2012 and 2013, respectively, consisting of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding debt of $4.3 million under our revolving line of credit as of December 31, 2013, which we repaid in January 2014.

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. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The interest rate on a significant majority of our outstanding debt is variable, which also reduces our exposure to these interest rate risks. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

 

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BUSINESS

Overview

We invented a purpose-built mobile IT platform for enterprises to secure and manage mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. Customers use our platform as the technology foundation on their journey to become “Mobile First” organizations, embracing mobility as a primary computing platform for their employees. Mobile First organizations transform their businesses by giving their employees secure access to critical business applications and content on devices employees want with a native user experience they love. Our platform is extensible and fosters a growing ecosystem of application developers and technology partners who augment the functionality and add value to our platform, creating positive network effects for our customers, our ecosystem and our company.

The adoption of mobile technology is a disruption of historic proportions and has outpaced earlier transitions such as mainframe to PCs and client/server to the Internet. IT departments are often challenged to provide users the benefits of mobility, while simultaneously satisfying enterprise requirements. Users want to access business applications, or apps, and corporate content on their favorite smartphone and tablet with the same ease of use they experience on those devices in their personal lives. Users also expect their privacy to be preserved when using their personal devices at work. As a result, IT must satisfy new requirements, including enforcing mobile security, defining mobile management and compliance policies, supporting multiple, rapidly evolving mobile operating systems, enabling both corporate-owned and user-owned devices and mobilizing enterprise applications and content, all while ensuring compatibility with existing IT infrastructure.

Our mobile IT platform addresses the requirements of the mobile era by allowing enterprises to protect corporate data, deliver apps and content, and give users choice of popular mobile devices. Our architecture promotes employee productivity, separates personal data from corporate data, provides a native user experience and gives IT the ability to define security and management policies independent of the device. We enable corporate-owned, bring your own device (BYOD) and mixed device ownership environments.

Our business model is based on winning new customers, expanding sales within existing customers, upselling new products and renewing subscriptions and software support agreements. We win customers using a sales force that works closely with our channel partners, including resellers, service providers and system integrators. We have experienced rapid growth in our customer base, having sold our platform to over 6,000 customers since 2009. Our strategy is based on our existing customers expanding the number of mobile device licenses or subscriptions purchased to facilitate their Mobile First journey. The group of our customers that first bought our products in 2010 subsequently purchased through December 31, 2013 over five times the initial number of mobile device licenses. We enhance the value of our platform by introducing additional products and upselling these additional products to our customers. For example, in late 2012, we extended our platform with new application containerization and content products, including Docs@Work and AppConnect. Our global Customer Success organization creates highly satisfied customers, leading to additional sales and renewals of subscription and software agreements. In 2013, we generated nearly half of our gross billings from recurring sources. Our renewal rate, determined on a device basis, was greater than 90% for software support agreements and subscription licenses for 2013.

We offer our customers the flexibility to use our software as a cloud service or to deploy it on-premise. They can also choose from various pricing options including subscription and perpetual licensing and pricing based on the number of users or devices. We target customers of all sizes across a broad range of industries including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology and telecommunications, and none of these industry verticals accounted for more than 20% of our gross billings in the two year period ended 2013. As of December 31, 2013, we have sold our solutions to over 6,000 customers worldwide including over 350 of the Global 2000. No customer accounted for more than 5% of our total revenue in 2013.

 

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We have experienced rapid growth in recent periods. Our gross billings were $27.4 million, $68.0 million and $100.8 million in 2011, 2012 and 2013, respectively, representing growth rates of 148% from 2011 to 2012 and 48% from 2012 to 2013. Our total revenue was $13.9 million, $40.9 million and $105.6 million in 2011, 2012 and 2013, respectively. Excluding $21.1 million of revenue recognized in 2013 from perpetual licenses delivered in prior years, our total revenue was $84.5 million in 2013. We have incurred net losses of $25.7 million, $46.5 million and $32.5 million in 2011, 2012 and 2013, respectively. See “Selected Consolidated Financial Data — Key Metrics” for more information and a reconciliation of gross billings to total revenue.

Industry Background

The proliferation of smartphones and tablets has transformed the way users interact with applications and content in their personal lives. Apps have become an important way that users conduct commerce, manage their lives and access content. Users are also becoming increasingly self-sufficient with mobile technology. Having benefitted from this transformation in their personal lives, users increasingly demand a similar mobile experience at the workplace. This is pressuring global enterprise IT organizations to enable access to apps, content and critical business processes on mobile devices, creating a better user experience.

 

    Mobility is a Transformation of Historic Proportions. Past significant technology transitions including the migrations from mainframe to PCs and client/server to the Internet affected enterprises of all sizes in every industry. We believe we are in the early stages in the emergence of mobility, which is already changing the way people work, impacting IT architectures and altering the technology industry landscape.

 

    Adoption of Mobile is Outpacing Previous IT Transitions . The adoption of mobile technology has significantly outpaced previous technology transitions. In a short period of time, smartphones, tablets and mobile applications have seen broad proliferation. According to IDC, there were 1.2 billion smartphones and tablets shipped in 2013, of which 218 million were business-use smartphones and commercial-use tablets. IDC also estimated that 88 billion mobile applications were downloaded worldwide in 2013, representing a 102% compounded annual growth rate from 11 billion mobile applications downloaded worldwide in 2010. The rapid penetration of mobile technology in the workplace has challenged IT organizations to keep pace.

 

    We Have Entered the Mobile First Era. The transition to mobile has created an environment in which enterprise users expect access to critical applications and sensitive content anytime and anywhere, creating new challenges for IT. Companies are responding to this challenge by increasingly embracing mobility as a primary computing platform. Mobile First organizations can transform their businesses by giving their users secure access to critical business processes on devices that they want with a native user experience. By allowing users to be productive on smartphones and tablets, these organizations can benefit from increased user engagement and optimized business processes.

 

    Mobile Requires a New Infrastructure and Organization. Similar to the disruption of the mainframe market by PCs, we believe that the rapid adoption of mobile IT is ushering in a new enterprise IT platform purpose-built for the mobile era. A mobile IT platform provides users with secure access to the applications and content they need, wherever they are, on devices of their choosing and allows IT to secure and manage corporate data while preserving ease of use. This results in the creation of a new IT team that is tasked to drive mobile technology and is unbounded by existing vendor relationships.

We believe that organizations that want to undertake the Mobile First journey will adopt a mobile IT platform.

Limitations of Legacy Approaches

The mobile transformation is happening at a rapid pace and at massive scale, exposing many issues with traditional approaches to managing and securing enterprise data and computers in the enterprise:

 

   

Reliance on Single-OS Architectures. IT has traditionally taken an operating system-specific approach to security. Legacy device-centric, single-OS architectures are challenged to manage at scale the heterogeneous environment created by the diversity and rapid release of consumer mobile devices and

 

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operating systems. These limitations require that mobile IT architecture move away from securing and managing single-OS PCs and instead secure the corporate data, apps and content independent of the device and operating system.

 

    Inability to Control OS Upgrades. Traditionally, IT unilaterally managed the PC environment and controlled the availability and cadence of upgrades, which were often at a pace measured in years. In a multi-OS world, IT no longer controls the rate of adoption, as new mobile operating systems are released faster than other enterprise technologies and users choose when to upgrade to the latest version. Since 2007, there have been 13 major releases for iOS and eight major releases for Android operating systems, while the Windows desktop operating system has had three major releases in the same period. Legacy approaches were not designed for the rate of these changes.

 

    Legacy Security and Management Systems Not Designed For Mobile. Legacy security and management systems are composed of many layers such as patch management tools, virtualization products, and numerous security, compliance and application management technologies, resulting in a complex and costly architecture. Each of these layers is focused on performing a specific task that is either unnecessary or unfeasible to retrofit in the mobile world.

 

    Challenges Managing New Device Ownership Models. In the PC era, IT had control over corporate desktops and laptops, with the ability to “wipe and re-image” to enforce security and compliance policies. This approach is not viable when a device contains both business and personal data. Legacy systems were not designed to support both corporate-owned and BYOD approaches.

 

    Limited Ability to Secure and Manage Applications. Legacy approaches are limited in their ability to provide IT with the infrastructure and controls required to secure and manage the rapid proliferation of mobile apps and content while simultaneously providing an acceptable mobile user experience. Familiar app store approaches for managing and distributing apps in consumer environments are not readily available from legacy vendors for use in the enterprise and across operating systems.

 

    Conflicting Interests of Legacy Vendors. Given the diversity of mobile devices in the enterprise today, most enterprises operate in a multi-OS world. The PC and operating system manufacturers would have to provide support for competing devices or operating systems in addition to their own. Since most vendors are vested in promoting their own devices and operating systems, their interests are often not aligned with those of enterprise IT.

Requirements of a Mobile IT Platform

IT and user requirements are often at odds with each other. A new generation of mobile IT platforms must simultaneously address the requirements of users and IT departments in an integrated fashion.

Key Requirements for Users

Today’s users are vastly more knowledgeable about devices and applications than they were in the past. Enterprise users are demanding a mobile experience that is relevant to their business needs and is comparable to the consumer experience they are accustomed to in their everyday lives. We believe a mobile IT platform must address the following user requirements:

 

    Choice of Devices and Operating System. Users are demanding the ability to choose their own devices, use them for work and change them as often as they wish. The ongoing and rapid innovation in mobile technology results in new devices in different form factors with increased functionality and power being introduced to the market each year. A 2013 Gartner study found that 78% of respondents used their personal mobile devices at work.

 

    Availability of Apps and Content for Improved Productivity. Users want to use apps that are familiar to them, such as their favorite cloud-based collaboration and storage tools. They also want to use public and company-built applications that improve productivity and easily gain access to corporate content and documents.

 

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    Preservation of Privacy. Users want to ensure that enterprise IT cannot access or delete their personal information. In addition, relevant global privacy and data protection rules and regulations relating to access to and other processing of personal data continue to evolve. In the United States, these rules and regulations include requirements governing employers’ access to employee personal communications (such as the federal Electronic Communications Privacy Act and state laws governing employees’ expectation of privacy in their communications), as well as requirements that govern the safeguarding of the privacy and security of certain personal data (such as the Health Insurance Accountability and Portability Act governing health data, the Gramm-Leach-Bliley Act governing financial data, federal regulations and guidance implementing these laws, and state laws governing the security of personal information and breach notification requirements). Foreign data security and privacy requirements include the EU Data Protection Directive 95/46/EC established in the European Economic Area and Switzerland and local laws implementing the Directive, such as Germany’s Federal Data Protection Act. As a result, addressing privacy concerns is one of the most important factors in user adoption of corporate BYOD programs.

 

    Ease of Use. Users increasingly expect to have access to their corporate apps and content on their device in a way that does not disrupt the native user experience.

Key Requirements for IT

IT departments are responsible for providing technology that enables users to be more productive and safeguards enterprise data. IT departments have often prioritized security over usability. We believe a mobile IT platform must address the following requirements to satisfy the needs of IT departments:

 

    Security and Compliance. In a world where people use their personal devices for work, IT requires a method to secure corporate data while preserving the privacy of personal information and allowing users to use their personal applications. Traditional enterprise IT solutions have enforced security policies and attempted to protect enterprise data by severely limiting functionality and application usage.

 

    Multi-OS Support at Scale. IT requires a mobile IT platform capable of supporting users and devices at global enterprise scale across a variety of rapidly evolving mobile operating systems and next-generation laptop operating systems such as Windows 8.1 and OS X. In the past, IT controlled the desktop and was able to migrate, patch and upgrade PCs that typically ran a single operating system according to a set schedule. In a mobile world, mobile devices are running various, constantly evolving operating systems including iOS, Android and Windows Phone, and consumers adopt new versions of operating systems immediately and outside of IT control.