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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 20172020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 001-36471


MobileIron, Inc.

(Exact name of Registrant as specified in its charter)


Delaware

26-0866846

Delaware

26-0866846

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

401490 East Middlefield Road

Mountain View, California

94043

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(650) (650) 919-8100


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.0001 per share

MOBL

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

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

Large accelerated filer  

Accelerated filer  

Large acceleratedNonaccelerated filer  

Accelerated filer   ☒Smaller reporting company  

Nonaccelerated filer    ◻ (Do not check if a smaller reporting company)   Emerging growth company  

Smaller reporting company   ◻

Emerging growth company   ☒ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

At October 31, 2017, there were 96,056,561The number of outstanding shares of the registrant’s common stock $0.0001 par value, issued and outstanding.was 118,584,315 as of October 23, 2020.


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INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 20172020

Page

PART I FINANCIAL INFORMATION

6

PART I FINANCIAL INFORMATION

5

Item 1. Financial Statements:

5

6

Condensed Consolidated Balance Sheets as of September 30, 20172020 and December 31, 20162019

5

6

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20172020 and 20162019

6

7

Condensed Consolidated StatementStatements of Stockholders’ Equity for the three and nine months ended September 30, 20172020 and 2019

7

8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 20162019

8

9

Notes to Condensed Consolidated Financial Statements

9

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

33

Item 3. Quantitative and Qualitative Disclosure About Market Risk

44

33

Item 4. Controls and Procedures

45

53

PART II OTHER INFORMATION

45

54

Item 1. Legal Proceedings

45

54

Item 1A. Risk Factors

46

54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

71

82

Item 3. Defaults Upon Senior Securities

71

83

Item 4. Mine Safety Disclosures

71

83

Item 5. Other Information

71

84

Item 6. Exhibits

73

84

Signatures

76

86

“MobileIron,” the MobileIron logos and other trademark or service marks of MobileIron, Inc. appearing in this Quarterly Report on Form 10-Q are the property of MobileIron, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

2


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WHERE YOU CAN FIND MORE INFORMATION

Investors and others should note that we announce material financial information to our investors using our investor relations website address, press releases, reports and other information that we file from time to time with the Securities and Exchange Commission, or the SEC, filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our services and other matters and for complying with our disclosure obligations under Regulation FD:

MobileIron Company Blog (https://www.mobileiron.com/en/smartwork-blog)

MobileIron Facebook Page (https://www.facebook.com/mobileiron)

MobileIron Twitter Account (https:(https://twitter.com/mobileiron)mobileiron); @mobileiron

MobileIron LinkedIn Page (https://www.linkedin.com/company/mobileiron)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on MobileIron’s investor relations website.

3


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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potentially,” “predict,” “plan,” “outlook,” “target,” “expect,” “future” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

our expectations regarding the Agreement and Plan of Merger, dated September 26, 2020, with Ivanti, Inc. (“Parent”), and Oahu Merger Sub, Inc., a wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Parent;

the potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations, including the effect of governmental lockdowns, restrictions and new regulations on our operations and processes;

beliefs and objectives for future operations, results and growth;

our business plan and our ability to effectively manage our expenses;

our ability to timely and effectively scale and adapt our existing technology;

our ability to innovate new products and bring them to market in a timely manner;

our ability to expand internationally;

our ability to attract new customers and further penetrate our existing customer base;

our expectations concerning renewal rates for subscriptions and services by existing customers;

our expectations concerning the mix of our sales of subscriptions and perpetual licenses;

cost of revenue, including changes in costs associated with hardware, royalties, customer support and data center operations;

operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses;

our expectations concerning relationships with third parties, including channel and other partners;

economic and industry trends or trend analysis; and

the sufficiency of our existing cash and investments to meet our cash needs for at least the next 12 months.

In addition, statements such as "we believe" and similar statements reflect our beliefs and opinions on the relevant subject.  These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive

4

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inquiry into, or review of, all potentially available relevant information.  These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These risks are not exhaustive. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Quarterly Report on Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

45


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MOBILEIRON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

 

2017

    

2016

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,605

 

$

54,043

 

Short-term investments

 

 

2,600

 

 

36,184

 

Accounts receivable, net of allowance for doubtful accounts of $431 and $433 at September 30, 2017 and December 31, 2016, respectively

 

 

47,732

 

 

43,755

 

Prepaid expenses and other current assets

 

 

5,440

 

 

6,131

 

TOTAL CURRENT ASSETS

 

 

135,377

 

 

140,113

 

Property and equipment—net

 

 

8,781

 

 

5,503

 

Intangible assets—net

 

 

200

 

 

645

 

Goodwill

 

 

5,475

 

 

5,475

 

Other assets

 

 

1,809

 

 

1,370

 

TOTAL ASSETS

 

$

151,642

 

$

153,106

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,609

 

$

701

 

Accrued expenses

 

 

22,452

 

 

21,674

 

Deferred revenue-current

 

 

75,950

 

 

68,153

 

TOTAL CURRENT LIABILITIES

 

 

101,011

 

 

90,528

 

Long-term liabilities:

 

 

 

 

 

 

 

Deferred revenue-noncurrent

 

 

25,063

 

 

19,923

 

Other long-term liabilities

 

 

1,928

 

 

1,838

 

TOTAL LIABILITIES

 

 

128,002

 

 

112,289

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized, 96,048,823 shares and 89,066,031 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

10

 

 

 9

 

Additional paid-in capital

 

 

414,457

 

 

383,193

 

Accumulated deficit

 

 

(390,827)

 

 

(342,385)

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

23,640

 

 

40,817

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

151,642

 

$

153,106

 

September 30, 

December 31, 

    

2020

    

2019

 

ASSETS

Current assets:

Cash and cash equivalents

$

89,824

$

94,415

Accounts receivable, net of allowance for doubtful accounts of $511 and $412 at September 30, 2020 and December 31, 2019, respectively

 

39,120

 

58,815

Deferred commissions - current

8,019

 

9,825

Prepaid expenses and other current assets

 

13,686

 

11,965

TOTAL CURRENT ASSETS

 

150,649

 

175,020

Property and equipment—net

 

3,346

 

4,804

Operating lease right-of-use asset

10,346

13,683

Deferred commissions - noncurrent

7,964

 

8,077

Intangible assets

2,822

Goodwill

 

8,407

 

5,475

Other assets

 

4,110

 

5,371

TOTAL ASSETS

$

187,644

$

212,430

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

2,002

$

1,310

Accrued expenses

 

26,836

 

24,792

Lease liabilities - current

4,753

5,664

Unearned revenue - current

82,017

 

85,153

Customer arrangements with termination rights

 

11,268

 

16,130

TOTAL CURRENT LIABILITIES

 

126,876

 

133,049

Long-term liabilities:

Lease liabilities - noncurrent

6,680

10,088

Unearned revenue - noncurrent

 

25,874

 

33,058

Other long-term liabilities

 

122

 

237

TOTAL LIABILITIES

 

159,552

 

176,432

Commitments and contingencies (Note 12)

Stockholders’ equity:

Common stock, $0.0001 par value, 300,000,000 shares authorized, 121,730,409 shares issued and 118,560,029 shares outstanding and 115,685,153 shares issued and 112,725,391 shares outstanding at September 30, 2020 and December 31, 2019, respectively

 

12

11

Additional paid-in capital

 

534,259

504,041

Treasury stock

(15,825)

(15,141)

Accumulated deficit

 

(490,354)

(452,913)

TOTAL STOCKHOLDERS’ EQUITY

 

28,092

35,998

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

187,644

$

212,430

See accompanying notes.

56


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

$

8,986

 

$

11,311

 

$

28,572

 

$

31,462

 

Subscription

 

 

17,277

 

 

15,570

 

 

51,432

 

 

44,996

 

Software support and services

 

 

16,457

 

 

14,685

 

 

47,656

 

 

41,996

 

Total revenue

 

 

42,720

 

 

41,566

 

 

127,660

 

 

118,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

 

606

 

 

652

 

 

1,458

 

 

2,140

 

Subscription

 

 

2,266

 

 

2,202

 

 

6,341

 

 

6,184

 

Software support and services

 

 

4,835

 

 

4,774

 

 

15,209

 

 

14,691

 

Restructuring charge

 

 

311

 

 

181

 

 

311

 

 

181

 

Total cost of revenue

 

 

8,018

 

 

7,809

 

 

23,319

 

 

23,196

 

Gross profit

 

 

34,702

 

 

33,757

 

 

104,341

 

 

95,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

19,581

 

 

16,238

 

 

56,440

 

 

51,185

 

Sales and marketing

 

 

24,317

 

 

24,001

 

 

73,293

 

 

76,914

 

General and administrative

 

 

7,210

 

 

6,961

 

 

21,238

 

 

22,774

 

Litigation settlement charge

 

 

 —

 

 

 —

 

 

1,143

 

 

 —

 

Restructuring charge

 

 

489

 

 

871

 

 

489

 

 

871

 

Total operating expenses

 

 

51,597

 

 

48,071

 

 

152,603

 

 

151,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(16,895)

 

 

(14,314)

 

 

(48,262)

 

 

(56,486)

 

Other income (expense) - net

 

 

188

 

 

19

 

 

701

 

 

184

 

Loss before income taxes

 

 

(16,707)

 

 

(14,295)

 

 

(47,561)

 

 

(56,302)

 

Income tax expense

 

 

358

 

 

298

 

 

881

 

 

672

 

Net loss

 

$

(17,065)

 

$

(14,593)

 

$

(48,442)

 

$

(56,974)

 

Net loss per share, basic and diluted

 

$

(0.18)

 

$

(0.17)

 

$

(0.52)

 

$

(0.67)

 

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

 

 

95,024

 

 

86,713

 

 

92,825

 

 

85,008

 

Three Months Ended

Nine Months Ended

 

September 30, 

September 30, 

 

    

2020

    

2019

    

2020

    

2019

 

Revenue

Cloud services

$

20,890

$

17,591

$

59,073

$

49,163

License

6,465

12,216

32,553

35,814

Software support and services

 

22,644

 

22,394

 

66,996

 

66,171

Total revenue

 

49,999

 

52,201

 

158,622

 

151,148

Cost of revenue

Cloud services

6,792

5,557

19,673

 

15,413

License

 

415

 

436

 

1,461

 

1,423

Software support and services

 

4,914

 

4,466

 

14,263

 

14,333

Restructuring expense

 

300

Total cost of revenue

 

12,121

 

10,459

 

35,397

 

31,469

Gross profit

 

37,878

 

41,742

 

123,225

 

119,679

Operating expenses:

Research and development

 

20,259

 

19,072

 

60,115

 

60,889

Sales and marketing

 

23,597

 

23,577

 

72,575

 

74,099

General and administrative

 

9,949

 

6,932

 

26,069

 

22,477

Restructuring expense

 

579

2,758

Total operating expenses

 

53,805

 

49,581

 

159,338

 

160,223

Operating loss

 

(15,927)

 

(7,839)

 

(36,113)

 

(40,544)

Other income (expense) - net

 

263

 

35

 

183

 

987

Loss before income taxes

 

(15,664)

 

(7,804)

 

(35,930)

 

(39,557)

Income tax expense

 

608

 

399

 

1,511

 

1,335

Net loss

$

(16,272)

$

(8,203)

$

(37,441)

$

(40,892)

Net loss per share, basic and diluted

$

(0.14)

$

(0.07)

$

(0.32)

$

(0.37)

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

 

117,703

 

110,831

 

116,192

 

109,147

See accompanying notes.

67


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

 

 

 

    

 

 

 

 

Additional

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

BALANCE—December 31, 2016

 

89,066,031

 

$

 9

 

$

383,193

 

$

(342,385)

 

$

40,817

 

Issuance of common stock for stock option exercises

 

1,033,121

 

 

 —

 

 

3,084

 

 

 —

 

 

3,084

 

Vesting of early exercised stock options

 

2,477

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock pursuant to the Employee Stock Purchase Plan

 

1,676,158

 

 

 —

 

 

4,562

 

 

 —

 

 

4,562

 

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

 

1,688,097

 

 

 —

 

 

8,272

 

 

 —

 

 

8,272

 

Shares withheld for net settlement of Employee Stock-Settled Bonus Plans

 

(677,547)

 

 

 —

 

 

(3,149)

 

 

 —

 

 

(3,149)

 

Vesting of restricted stock units

 

3,260,486

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

18,496

 

 

 —

 

 

18,496

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(48,442)

 

 

(48,442)

 

BALANCE—September 30, 2017

 

96,048,823

 

$

10

 

$

414,457

 

$

(390,827)

 

$

23,640

 

    

    

    

    

    

    

    

    

 

    

Additional

Total

 

Common Stock

Paid-in

Accumulated

Stockholders’

 

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

Deficit

 

Equity

BALANCE—June 30, 2020

116,843,504

$

12

$

525,383

$

(15,825)

$

(474,082)

$

35,488

Issuance of common stock for stock option exercises

301,374

1,324

1,324

Issuance of common stock pursuant to the Employee Stock Purchase Plan

558,451

2,131

2,131

Shares withheld for net settlement of equity awards

(490,420)

(2,942)

(2,942)

Vesting of restricted stock units

1,347,120

Stock-based compensation

8,363

8,363

Net loss

(16,272)

(16,272)

BALANCE—September 30, 2020

 

118,560,029

$

12

$

534,259

$

(15,825)

$

(490,354)

$

28,092

BALANCE—December 31, 2019

112,725,391

$

11

$

504,041

$

(15,141)

$

(452,913)

$

35,998

Issuance of common stock for stock option exercises

443,674

1,823

1,823

Issuance of common stock pursuant to the Employee Stock Purchase Plan

1,120,684

4,282

4,282

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

1,730,682

1

7,633

7,634

Shares withheld for net settlement of equity awards

(1,305,947)

(6,484)

(6,484)

Repurchase of common stock

(210,618)

(684)

(684)

Vesting of restricted stock units

4,056,163

Stock-based compensation

22,964

22,964

Net loss

(37,441)

(37,441)

BALANCE—September 30, 2020

 

118,560,029

$

12

$

534,259

$

(15,825)

$

(490,354)

$

28,092

    

Additional

Total

Common Stock

Paid-in

Accumulated

Stockholders’

 

Shares

 

Amount

 

Capital

 

 

Treasury Stock

Deficit

 

Equity

BALANCE—June 30, 2019

109,770,021

$

11

$

484,593

$

(10,422)

$

(436,756)

$

37,426

Issuance of common stock for stock option exercises

 

780,029

 

 

3,761

 

 

3,761

Issuance of common stock pursuant to the Employee Stock Purchase Plan

530,190

2,085

2,085

Shares withheld for net settlement of equity awards

(102,535)

(707)

(707)

Repurchase of common stock

(290,844)

(2,033)

(2,033)

Vesting of restricted stock units

1,343,812

Stock-based compensation

 

 

 

7,453

 

 

7,453

Net loss

 

 

 

 

(8,203)

 

(8,203)

BALANCE—September 30, 2019

112,030,673

$

11

$

497,185

$

(12,455)

$

(444,959)

$

39,782

BALANCE—December 31, 2018

106,206,545

$

11

$

462,004

$

(3,831)

$

(404,067)

$

54,117

Issuance of common stock for stock option exercises

1,337,433

5,481

5,481

Issuance of common stock pursuant to the Employee Stock Purchase Plan

1,048,302

4,132

4,132

Issuance of common stock pursuant to the Employee Stock-Settled Bonus Plans

2,170,855

10,485

10,485

Shares withheld for net settlement of equity awards

(1,064,577)

(5,492)

(5,492)

Repurchase of common stock

(1,572,030)

(8,624)

(8,624)

Vesting of restricted stock units

3,904,145

Stock-based compensation

20,575

20,575

Net loss

(40,892)

(40,892)

BALANCE—September 30, 2019

 

112,030,673

$

11

$

497,185

$

(12,455)

$

(444,959)

$

39,782

See accompanying notesnotes.

78


MOBILEIRON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFLOWS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(48,442)

 

$

(56,974)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

26,249

 

 

26,666

 

Depreciation

 

 

2,430

 

 

2,540

 

Amortization of intangible assets

 

 

445

 

 

462

 

Provision for doubtful accounts

 

 

97

 

 

24

 

Amortization (accretion) of premium on investment securities

 

 

(36)

 

 

44

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,075)

 

 

970

 

Other current and noncurrent assets

 

 

(573)

 

 

(1,401)

 

Accounts payable

 

 

1,241

 

 

(944)

 

Accrued expenses and other long-term liabilities

 

 

2,362

 

 

119

 

Deferred revenue

 

 

12,937

 

 

8,297

 

Net cash used in operating activities

 

 

(7,365)

 

 

(20,197)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(5,046)

 

 

(2,349)

 

Proceeds from maturities of investment securities

 

 

35,415

 

 

70,717

 

Purchase of investment securities

 

 

(1,794)

 

 

(61,383)

 

Net cash provided by investing activities

 

 

28,575

 

 

6,985

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from Employee Stock Purchase Plan

 

 

3,590

 

 

3,247

 

Proceeds from exercise of stock options

 

 

3,911

 

 

814

 

Taxes paid for net settlement of stock-settled bonus

 

 

(3,149)

 

 

 —

 

Net cash provided by financing activities

 

 

4,352

 

 

4,061

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

25,562

 

 

(9,151)

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

 

54,043

 

 

47,234

 

CASH AND CASH EQUIVALENTS—End of period

 

$

79,605

 

$

38,083

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

758

 

$

817

 

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Value of shares issued under the 2015 Non-Executive Bonus Plan

 

$

n/a

 

$

5,639

 

Value of shares issued under the 2016 Bonus Plans

 

$

5,123

 

 

n/a

 

Value of shares issued under the Employee Stock Purchase Plan

 

$

4,562

 

$

4,851

 

Unpaid property and equipment purchases

 

$

667

 

$

 —

 

Nine Months Ended

 

September 30, 

 

    

2020

    

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(37,441)

$

(40,892)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Stock-based compensation expense

 

23,723

 

27,159

Depreciation

 

2,275

 

2,587

Amortization of intangible assets

 

302

 

Provision for doubtful accounts

119

Accretion of premium on investment securities

(21)

Impairment of right-of-use assets

1,328

Loss on disposal of fixed assets

170

Changes in operating assets and liabilities:

Accounts receivable

 

19,578

 

16,429

Deferred commissions

1,919

220

Other current and noncurrent assets

 

3,249

 

(2,372)

Accounts payable

 

615

 

637

Unearned revenue

(10,595)

 

964

Customer arrangements with termination rights

 

(4,862)

 

(3,121)

Accrued expenses and other long-term liabilities

 

5,702

 

(5,504)

Net cash provided by (used in) operating activities

 

4,584

 

(2,416)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

 

(796)

 

(1,233)

Purchase of incapptic, net of cash acquired

(5,668)

Proceeds from maturities of investment securities

3,250

Purchase of investment securities

(4,126)

Net cash used in investing activities

 

(6,464)

 

(2,109)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from Employee Stock Purchase Plan

 

2,977

 

3,100

Taxes paid for net settlement of equity awards

 

(6,485)

 

(5,492)

Proceeds from exercise of stock options

1,829

5,481

Repurchase of common stock

(684)

(8,624)

Net cash used in financing activities

 

(2,363)

 

(5,535)

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(4,243)

 

(10,060)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period

 

94,415

 

104,613

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period

$

90,172

$

94,553

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes

$

1,353

$

1,280

Lease payments included in cash provided by operating activities

$

4,865

$

5,540

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:

Value of shares issued under the Bonus Plans

$

4,765

$

6,374

Value of shares issued under the Employee Stock Purchase Plan

$

4,282

$

4,132

Unpaid property and equipment purchases

$

21

$

155

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE BALANCE SHEETS

Cash and cash equivalents

$

89,824

$

94,553

Restricted cash included within Other Assets

348

Total cash, cash equivalents and restricted cash

$

90,172

$

94,553

See accompanying notes.

89


MOBILEIRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Description of Business and Significant Accounting Policies

1.Description of Business and Significant Accounting Policies

Description of Business

MobileIron, Inc., and its wholly owned subsidiaries, collectively, the “Company”, “we”, “us” or “our”, provides a purpose-built mobile IT platform that enables enterprises to manage and secure mobile applications, content and devices while providing their employees with device choice, privacy and a native user experience. We were incorporated in Delaware in July 2007 and are headquartered in Mountain View, California, with additional sales and support presence in North America, Europe, the Middle East, Asia and Australia.Australia and employees in India primarily focused on research and development.

Pending Acquisition by Ivanti, Inc.

On September 26, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ivanti, Inc., a Delaware corporation (“Parent”), and Oahu Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger and becoming a wholly owned subsidiary of Parent. The Merger Agreement and the transactions contemplated thereby were approved unanimously by the Company’s Board of Directors on September 26, 2020.

 

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of our common stock that is outstanding immediately prior to the Effective Time (other than shares of common stock (1) held by the Company as treasury stock, (2) owned by Parent or Merger Sub, (3) owned by any direct or indirect wholly owned subsidiary of Parent or Merger Sub or (4) held by stockholders who have properly and validly exercised their statutory rights of appraisal under Section 262 of the Delaware General Corporation Law (the “DGCL”)) will be canceled and converted into the right to receive cash in the amount equal to $7.05, without interest (the “Per Share Merger Consideration”).

At the Effective Time, each outstanding vested restricted stock unit (“RSU”), performance stock unit (“PSU”) and option granted by the Company shall be cancelled and converted into the right to receive cash equal to (A) the aggregate number of shares of the Company’s common stock subject to such RSU, PSU or option, as applicable, multiplied by (B) the Per Share Merger Consideration (less the exercise price in the case of vested options) (the “Award Consideration”). Each outstanding RSU, PSU or option that is not vested but that is subject to acceleration shall be cancelled and converted into the right to receive an amount in cash equal to the Award Consideration pursuant to the terms of the Merger Agreement, a portion of which will be paid after the Effective Time in accordance with the applicable award agreement. Each outstanding RSU, PSU or option that is not vested and that does not automatically accelerate at closing of the Merger will be cancelled without consideration.

Pursuant to the Merger Agreement, the Company has acted to provide, among other things, that (1) each individual participating in an offering period under the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”) in progress on the date of the Merger Agreement will not be permitted to (A) increase his or her payroll contribution rate pursuant to the ESPP or (B) make separate non-payroll contributions to the ESPP on or following the date of the Merger Agreement, except as may be required by applicable law; (2) no individual who is not participating in the ESPP will be allowed to commence participation in the ESPP; and (3) any offering period that would otherwise be outstanding at the Effective Time will terminate no later than five days prior to the date on which the Effective Time occurs. The Company will make any pro rata adjustments as may be necessary to reflect the shortened offering period and will cause the exercise of each outstanding purchase right pursuant to the ESPP no later than one business day prior to the Effective Time.

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Table of Contents

The Company, and Parent and Merger Sub, have made certain representations, warranties and covenants in the Merger Agreement, including, among others, covenants by the Company to conduct its business in the ordinary course during the period between execution of the Merger Agreement and closing of the Merger.  

Pursuant to the terms of the Merger Agreement, the Company is subject to restrictions on its ability to solicit alternative acquisition proposals and to provide information to, and engage in discussion with, third parties regarding such proposals, except under limited circumstances. In the event the Merger Agreement is terminated by the Company to enter into a Superior Proposal, as defined in the Merger Agreement, the Company will be required to pay Parent a termination fee of $30.45 million.

Subject to certain exceptions, each of the parties has agreed to use its reasonable best efforts to take or cause to be taken actions necessary to consummate the Merger, including with respect to obtaining required government approvals. The Merger Agreement also contains certain termination rights for both the Company and Parent. Pursuant to the terms of the Merger Agreement, if the Company terminates the Merger Agreement as a result of Parent’s failure to close the Merger following the end of the marketing period for the debt financing required to consummate the transactions within two business days after receiving a written notice from the Company stating that all closing conditions have been satisfied or validly waived, Parent will pay the Company $65.25 million.

The Merger Agreement requires the Company to convene a special meeting of stockholders for purposes of obtaining approval of the adoption of the Merger Agreement. Commencing on October 26, 2020, the Company noticed and mailed a definitive proxy statement for a special meeting of the Company’s stockholders to be held on November 24, 2020.

The Merger is subject to the satisfaction or waiver of certain closing conditions including, among other things, (1) the affirmative vote of the holders of a majority of the voting power of the outstanding shares of the Company’s common stock entitled to vote on the adoption of the Merger Agreement, (2) the expiration or termination of the waiting period under Antitrust Laws (as defined in the Merger Agreement), (3) the absence of any law, injunction, judgment, order or ruling prohibiting the Merger, (4) the accuracy of the representations and warranties made by the parties, (5) the performance by the parties in all material respects of their covenants, obligations and agreements under the Merger Agreement, and (6) the absence of a material adverse effect on the Company prior to the closing.

Parent furnished the Company with copies of equity and debt financing commitments obtained by Parent, the proceeds of which will provide for funds to consummate the transactions contemplated by the Merger Agreement. The consummation of the Merger is not subject to a financing condition.

COVID-19 Pandemic

In the first quarter of 2020, the United States and other countries began shelter-in-place mandates and began to close many businesses as a result of the COVID-19 virus. The World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. The future impact of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is difficult at this time to predict the amount of the financial impact that COVID-19 will have on the Company’s business, financial position and operating results in future periods due to numerous uncertainties. The Company is closely monitoring the impact of the pandemic on all aspects of its business.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements as of September 30, 20172020 and for the three and nine months ended September 30, 20172020 and 20162019 have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and include the accounts of our wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

11

Table of Contents

Certain information and footnote disclosures in this Quarterly Report on Form 10-Q normally included in annual financial statements prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of our balance sheet as of September 30, 2017,2020, our operating results for the three and nine months ended September 30, 20172020 and 2016,2019, and our cash flows for the nine months ended September 30, 20172020 and 2016.2019. Our operating results for the three and nine months ended September 30, 20172020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2020. The condensed consolidated balance sheet as of December 31, 20162019 has been derived from the audited consolidated financial statements as of that date, but does not include all the footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with our audited financial statements and related notes theretoforefor the year ended December 31, 2016,2019, included in our Annual Report on Form 10-K for the year ended December 31, 2019 previously filed with the SEC on February 14, 2017.SEC.

Foreign Currency Translation

Our reporting currency is the U.S. dollar. The functional currency of all our international operations is the U.S. dollar. All monetary asset and liability accounts are translated into U.S. dollars at the period-end rate, nonmonetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at the weighted-average exchange rates in effect during the period. Translation adjustments are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations. We recognized a foreign currency gain of $236,000 and a loss of $4,000 and $117,000$420,000 in the three months ended September 30, 20172020 and 2016,2019, respectively, and we recognized a foreign currency gain of $169,000 and a loss of $164,000$189,000 and $612,000 in the nine months ended September 30, 20172020 and 2016,2019, respectively, in other income (expense)—net in our condensed consolidated statements of operations.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

9


These estimates include, but are not limited to, revenue recognition, deferred commissions and commissions expense, stock-based compensation, intangible assets, goodwill, and accounting for income taxes. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, money market funds and fixed income investments. Although we deposit our cash with multiple financial institutions, our deposits, at times, exceed federally insured limits. We invest in fixed income securities that are of high-credit quality. Substantially all of our money market funds, or $12.1$51.8 million, are held in two2 funds that are rated “AAA.”

We generally do not require collateral or other security in support of accounts receivable. Allowances are provided for individual accounts receivable when we become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration of the customer’s operating results, or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. We also consider broader factors in evaluating the sufficiency of our allowances for doubtful accounts, including the length of time receivables are past due, significant one-time events, overall or industry-specific economic conditions, and historical experience. At September 30, 2017 and December 31, 2016 weWe had an allowance for doubtful accounts of $431,000$511,000 and $433,000,$412,000 at September 30, 2020 and December 31, 2019, respectively.

One12

Table of Contents

NaN reseller accounted for 13%10% of total revenue (1% as an end customer) and 14% of total revenue (1% as an end customer) for the three and nine months ended September 30, 2017, respectively, and for 17% of total revenue (1% as an end customer) for both the three and nine months ended September 30, 2016. The same reseller2019. No resellers or end-user customers accounted for 17%10% or more of our total revenue in the three and 15%nine months ended September 30, 2020 and no other reseller or end-user customer accounted for 10% or more of our total revenue in the three and nine months ended September 30, 2019. NaN resellers accounted for 18% and 12%, respectively, of net accounts receivable at September 30, 2020. No reseller or end-user customer accounted for 10% or more of net accounts receivable as of September 30, 2017 and December 31, 2016, respectively.2019.

There were no other resellers or end-user customers that accounted for 10% or more as a percentage of our revenue or net accounts receivable for any period presented.Segments

Segments

We have one1 reportable segment.segment, software and services to manage and secure mobile devices, applications and content.

Summary of Significant Accounting Policies

Revenue Recognition

Revenue Presentation

We derive

Cloud services include sales of cloud-based solutions that allow customers to use hosted software over a contract period without taking possession of our software and are typically provided on a subscription or usage basis.

License revenue principally from software-related arrangements consistingincludes sales of perpetual software licenses, post-contract customersoftware licenses sold as part of on-premise term subscriptions, and appliances.

Software support for such licenses, or PCS or software support, including when and if available updates, and professional services such as consulting and training services. We also offer our software as term-based licenses and cloud-based arrangements. In addition, we install our software on servers that we ship to customers.

We begin to recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) theincludes sales price is fixed or determinable, and (iv) collection of the related receivable is probable. If collection is not considered probable, revenue is recognized only upon collection.

Signed agreements, including by electronic acceptance, are used as evidence of an arrangement. Delivery is considered to occur when we provide a customer with a link and credentials to download our software. Delivery of a hardware appliance (an “appliance”) is considered to occur when title and risk of loss has transferred to the customer, which typically occurs when appliances are delivered to a common carrier. Delivery of services occurs when performed.

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 combinationsold as part of on-premise term subscriptions, software on asupport for perpetual or subscription license, PCS,licenses, and professional services. The professional

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services

10


are not considered essential to customers in an amount that reflects the functionality of the software. All of these elements are considered separate units of accounting. Our standard agreements do not include rights for customersconsideration we expect 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 practicesreceive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, when sold separately by uswhich are generally capable of being distinct and contractual customer renewal ratesaccounted 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 feeas separate performance obligations. Revenue is recognized as revenue in thenet of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Nature of Products and Services

Cloud services, which allow customers to use hosted software over a contract period in which it was earned. If evidencewithout taking possession of the fair value of one or more undelivered elements does not exist, then the revenue is deferred and recognized when delivery of those elements occurs, or when fair value can be established, or ratably over the PCS period if the only undelivered element is PCS—we refer to these deferred revenue elements as the “Deferred Portion.”

Revenue from subscriptions to our on premise term licenses, arrangements where perpetual and subscriptions to our on premise term licensessoftware, are sold together, and subscriptions to our cloud service are recognized ratably over the contractual term for all periods presented and are included as a component of subscription revenue within our consolidated statements of operations. We refer to arrangements where perpetual and subscriptions to our on premise term licenses are sold together as “Bundled Arrangements.”

Occasionally, we enter into multiple-element arrangements with our customers in which a customer may purchase a combination of softwareprovided on a perpetualsubscription 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 standardusage basis. Revenue related to multiple-element arrangements, Accounting Standard Update, or ASU, No. 2009-13, Multiple Element Arrangements, and determine the revenue to be recognized basedcloud services provided on the standard’s fair value hierarchy and then determine the value of each element in the arrangement based on the relative selling price of the arrangement. Amounts related to appliances are generally recognized upon delivery with the remaining consideration allocated to software and software-related elements, which are recognized as described elsewhere in this policy.

Revenue from PCSa subscription basis is recognized ratably over the support termcontract period and is included as a component of software support and service revenue within the consolidated statements of operations.

Revenue related to professionalcloud services based on usage is generally recognized as the usage occurs.

Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase on-premise software licenses as perpetual licenses or as part of subscriptions. On-premise licenses are considered distinct performance obligations and revenue from the licenses is recognized upon deliveryupfront when the software is made available to the customer. In the case of our on-premise subscriptions, the license portion of revenue is recognized up-front, and is included as a component ofthe software support and services portion is recognized ratably.

Software support and services convey rights to the upgrades released over the contract period and provide support and tools to help customers deploy and use our products more efficiently. Revenue allocated to software support and services is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits, given that the software support and services comprises a distinct performance obligation that is satisfied over time.

On-premise subscriptions and software support and services occasionally contain termination rights. We recognize revenue withinfrom those arrangements, including the consolidated statementsdistinct licenses contained therein, as the termination rights

13

Table of operations.Contents

for the performance obligation expire. See also Unearned Revenue and Customer Arrangements with Termination Rights below.

Professional services include consulting, deployment and training services. Our professional services represent distinct performance obligations as our customers benefit from the services separately or together with other readily available resources. Professional services revenue is recognized as services are delivered.

Appliance revenue was less than 10%1% of total revenue for all periods presented and is included as a component of perpetual license revenue within the consolidated statements of operations.

Sales made through resellersRefer to Note 15 – Segment and Disaggregated Revenue Information for further information.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine whether a software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software support and services and recognized over time.

Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. We use a range of amounts to estimate the SSP for items that are not sold separately, including on-premises licenses sold with software support and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include other observable inputs. We typically fulfilled directlyhave more than one SSP for individual products and services due to end users,the stratification of those products and services by customer classes and circumstances. In these instances, we recognizemay use information such as the size and type of customer in determining the SSP.

Contract Balances  

Timing of revenue recognition may differ from the timing of invoicing customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue will be recognized after invoicing. For multi-year agreements, we delivereither invoice our customer in full at the inception of the contract or annually at the beginning of each annual period. We record an unbilled receivable related to revenue recognized for multi-year on-premise licenses invoiced annually when we have an unconditional right to end usersinvoice and all otherreceive payment in the future for those licenses or when we have the right to invoice future monthly periods under committed monthly recurring charge (“MRC”) agreements. The majority of our MRC agreements are for a month to month term (“non-committed”) or usage-based.

Payment terms and conditions vary by contract type, although terms generally include a requirement to pay within 30 to 60 days. In instances where the timing of revenue recognition criteria are met. Somediffers from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our operators, system integratorsinvoicing terms is to provide customers with simplified and other resellers, however, request that we deliver licensespredictable ways of purchasing our products and services, not to them. In those instances we recognize revenuereceive financing from our customers or to provide customers with financing. This includes invoicing at the timebeginning of a subscription term with revenue recognized ratably over the contract period or multi-year on-premise licenses that we deliverare invoiced annually with a portion of the revenue recognized upfront.

As of September 30, 2020 and December 31, 2019, the balance of accounts receivable, net of the allowance for doubtful accounts, included $2.3 million and $2.0 million, respectively, of unbilled receivables from upfront recognition of revenue for certain multi-period on-premises software subscriptions that include both distinct software licenses and software support and services.

As of September 30, 2020 and December 31, 2019, unbilled receivables included in other long-term assets on our condensed consolidated balance sheets were $726,000 and $795,000, respectively.

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Table of Contents

Unearned Revenue and Customer Arrangements with Termination Rights

We generally invoice our customers upfront for subscriptions and software support and services associated with perpetual licenses. Unearned revenue from those upfront billings is comprised of unearned revenue from cloud-based subscriptions, software support and services for on-premise subscriptions, software support and services associated with perpetual licenses and professional services to be performed in the resellers and all other revenue recognition criteria are met; such resellers have nofuture.

Because some of our arrangements with customers contain termination rights, the arrangements do not meet the definition of returna contract under Accounting Standard Codification, or exchange.

Shipping charges and sales tax billed to partners are excludedASC, Topic 606, Revenue Recognition from revenue.

Sales commissions and other incremental costs to acquire contracts are also expensed as incurredContracts with Customers, or ASC 606, and are not recorded in salesas unearned revenue and marketing expense.

For allinstead are recorded as “customer arrangements any revenue that has been deferred and is expected to be recognized beyond one year is classified as long-term deferred revenue in thewith termination rights” on our condensed consolidated balance sheets.

Refer to Note 14 – Unearned Revenue for further information on unearned revenue, changes in unearned revenue during the period, and customer arrangements with termination rights.

Deferred Commissions

11


obtaining a contract with a customer. We have determined that certain sales incentive programs meet the requirements to be capitalized and we include those costs in current and non-current deferred commissions on our consolidated balance sheets.

Deferred commissions are amortized over the period commensurate with revenue recognition.

Changes in deferred commissions were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Balance, beginning of the period

$

16,736

$

17,727

$

17,902

$

17,331

Deferral of commissions earned

 

3,519

4,271

 

11,967

12,862

Recognition of commission expense

 

(4,272)

(4,867)

 

(13,846)

(12,844)

Impairment of deferred commissions

(21)

(40)

(239)

Balance, end of the period

$

15,983

$

17,110

$

15,983

$

17,110

Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of September 30, 20172020 and December 31, 20162019, cash and cash equivalents consist of cash deposited with banks and money market funds and investments that mature within three months of their purchase.funds.

Held-To-Maturity Investments

We determine the appropriate classification of our fixed income investments at the time of purchase and reevaluate their classifications each reporting period. Investments are classified as held-to-maturity since the Company has positive intent and the ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. For the three and nine months ended September 30, 20172020 and 2016,2019, there were no0 differences between net loss and comprehensive loss. Therefore, the consolidated statements of comprehensive loss have been omitted.

Net Loss per Share of Common Stock

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period after repurchases but without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, unvested restricted stock and stock options are considered to be potentially dilutive securities. Because we have reported a net loss for the three and nine months ended

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September 30, 20172020 and 2016,2019, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

Software Development Costs Incurred in Connection with Software to be Sold or Marketed

The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no0 costs have been capitalized.

Internal Use Software

We capitalize costs incurred during the application development stage related to our internally used software. Such costs are primarily incurred by third partythird-party vendors and consultants. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Amounts capitalized in all periods presented were not significant.

All software development costs incurred in connection with our cloud offering, or SaaS, are also sold or marketed to partners or end customers, therefore we start capitalizing costs when technological feasibility is achieved. NoNaN costs were capitalized in any periods presented as we believe that our current process for developing software is essentially completed concurrent with the establishment of technological feasibility.

12


Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the property and equipment, determined to be three years for computers and equipment and software, five years for furniture and fixtures, and the lesser of the remaining lease term or estimated useful life for leasehold improvements. Expenditures for repairs and software support are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected as operating expenses in the condensed consolidated statements of operations.

Leases

We determine if an arrangement is a lease conveying the right to control identified property, plant, or equipment and whether the lease is operating or financing at the lease’s inception. We have determined that all of our leases are operating leases. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease arrangements. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The operating lease ROU asset also includes any advance lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have adopted the practical expedient as permitted by the new leasing standard to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. Our leases generally separate lease components from nonlease components. However, where lease and nonlease components are combined in our lease arrangements, we have adopted the practical expedient to not separate the lease from the nonlease components. Refer to Note 13 - Leases for further information about our leases.

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Goodwill and Intangible Assets

We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. We record purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased intangible assets are being amortized using the straight-line method over their remaining estimated useful lives, which range from three to five years. We evaluate the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period. Refer to Note 5 – Goodwill and Intangible Assets for further information about our goodwill and intangible assets.

Long-Lived Assets with Finite Lives

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate the recoverability of each of our long-lived assets, including property and equipment and purchased intangible assets, and property and equipment, by comparison of its carrying amount to the future bbbundiscounteddiscounted cash flows we expect the asset to generate. If we consider the asset to be impaired, we measure the amount of any impairment as the difference between the carrying amount and the fair value of the impaired asset.

Stock-Based Compensation

We use the estimated grant-date fair value method of accounting in accordance with Accounting Standards Codification, or ASC Topic 718 Compensation—Stock Compensation. Fair value is determined using the Black-Scholes Model using various inputs, including our estimates of expected volatility, term and future dividends.

On January 1, 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. The adoption of that standard did not have a material impact on our consolidated balance sheet, results of operations, cash flows or statement of stockholders’ equity because we have a full valuation allowance on our deferred tax assets. We have elected to continue to estimate the total number of awards that are expected to vest by applying a forfeiture rate to our equity awards. We estimated the forfeiture rate for the three and nine months ended September 30, 2017 based on our historical experience for annual grant years where the majority of the vesting terms have been satisfied.

We recognize compensation costs for awards with service and performance vesting conditions and for our Employee Stock Purchase Plan, or ESPP on an accelerated method over the requisite service period of the award. For stock options or restricted stock unit grants with no performance condition, we recognize compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

Research and Development

ResearchBecause we estimate that our software is essentially completed concurrent with the establishment of technological feasibility, we have charged all research and development or R&D, costs are charged to expense as incurred.

Advertising

Advertising costs are expensed and included in sales and marketing expense when incurred. Advertising expense for the three and nine months ended September 30, 20172020 and 20162019 was not significant.

13


Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognized when it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority. The

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Table of Contents

standard also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We are currently evaluating the impact of the CARES Act, but at present do not expect that the NOL carryback provision of the CARES Act would result in a cash benefit to us.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Recently Adopted Accounting Guidance

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial“Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In addition, for available-for-sale debt securities with unrealized losses, the losses will beare recognized as allowances rather than reductions in the amortized cost of the securities. The standard iswas effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018.2019. Entities will apply the standard’s provisions by recording a cumulative-effect adjustment to retained earnings. We are evaluating theadopted ASU 2016-13 effective January 1, 2020. The adoption of this ASU did not have a material impact of the adoption on our consolidated balance sheet, results of operations, cash flows and disclosures. for the three and nine months ended September 30, 2020.

In May 2014,August 2018, the FASB jointlyissued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software.” The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the International Accounting Standards Board, issued a comprehensive new standard on revenue recognition from contracts with customers. The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goodsrequirements for capitalizing implementation costs incurred to develop or services to customers in an amount that reflects the consideration to whichobtain internal-use software and require the entity expects(customer) to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1) identifyexpense the contract(s) withcapitalized implementation costs of a customer, (2) identifyhosting arrangement that is a service contract over the performance obligations interm of the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance will require significantly expanded disclosures about revenue recognition. As clarified by the FASB on July 9, 2015, provisions of this newhosting arrangement. The standard arewas effective for annual reporting periods (including interim reporting periods within those annual periods)fiscal years beginning after December 15, 2017. Early adoption is permitted for annual reporting periods (including2019, and interim reporting periods within those annual periods) beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance.fiscal years. We will adopt the new standard onadopted ASU 2018-15 effective January 1, 2018 and expect to use the full retrospective approach. We anticipate2020. The adoption of this standard willASU did not have a material impact on our consolidated financial statements. While we are continuingbalance sheet, results of operations, or cash flows for the three and nine months ended September 30, 2020.

Accounting Guidance Not Yet Adopted

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to assess all potential impactsthat reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the standard, we believereporting unit should be considered when measuring the most significant impact relates to our accounting for subscriptions to our on-premise licenses, specifically, as under the new standard we expect to recognize revenue from those subscriptions predominantly at the time of billing rather than ratably over the license term. In addition, we expect accounting for commissions togoodwill impairment loss, if applicable. This ASU should be impacted significantly as we will capitalize and amortize most commissions under the new standard instead of expensing commissions as incurred. Due to the complexity of certain of our contracts, the revenue recognition treatment required under the new standard will be dependentapplied on contract-specific terms.

In February 2016, the FASB finalizeda prospective basis. The ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize the assets and liabilities on the balance sheet for the rights and obligations created by most leases (leases with the term of 12

14


months or longer) and continue to recognize expenses on the income statements over the lease term. It will also require disclosure designed to give financial statement users information on the amount, timing, and uncertainly of cash flows arising from leases. The guidance is effective for annual and interim reporting periods beginning after December 15, 20182021. Early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated balance sheet, results of operations, or cash flows.

Simplifying Accounting for Income Taxes

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In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for annual and interim periods within thosein fiscal years. As a resultyears beginning after December 15, 2020. We are currently evaluating the impact of this new standard, we expect to record a lease commitment liabilityASU on our consolidated balance sheet, results of operations, and corresponding asset for most of our leases. We will adopt ASU 2016-02 effective January 1, 2019.cash flows.

2.Significant Balance Sheet Components

Accounts Receivable, Net —Accounts receivable, net at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

    

September 30, 2020

    

December 31, 2019

Accounts receivable - billed

$

37,331

$

57,184

Accounts receivable - unbilled

2,300

2,043

Allowance for doubtful accounts

 

(511)

 

(412)

Accounts receivable, net

$

39,120

$

58,815

Property and Equipment —Property and equipment at September 30, 20172020 and December 31, 20162019 consisted of the following (in thousands):

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

    

September 30, 2020

    

December 31, 2019

 

Computers and appliances

 

$

13,035

 

$

9,754

 

$

13,670

$

13,300

Purchased software

 

 

3,583

 

 

2,297

 

 

4,252

 

4,235

Furniture and fixtures

 

 

1,503

 

 

1,477

 

 

1,745

 

1,745

Leasehold improvements

 

 

3,109

 

 

2,985

 

 

3,834

 

3,403

Total property and equipment

 

 

21,230

 

 

16,513

 

 

23,501

 

22,683

Accumulated depreciation and amortization

 

 

(12,449)

 

 

(11,010)

 

 

(20,155)

 

(17,879)

Total property and equipment—net

 

$

8,781

 

$

5,503

 

$

3,346

$

4,804

Prepaid Expenses and Other Current Assets and Other Assets

Prepaid expenses and other current assets at September 30, 2020 and December 31, 2019 included $7.1 million and $6.3 million of prepaid royalties, respectively. Other assets at September 30, 2020 and December 31, 2019 included $1.5 million and $3.0 million of prepaid royalties, respectively. The prepaid royalties were primarily associated with MobileIron Threat Defense.

At September 30, 2020, $348,000 of restricted cash was included in Other Assets. The cash was restricted as part of a bank guarantee drawn in favor of India taxing authorities for an ongoing corporate income tax audit.

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Table of Contents

Accrued Expenses —Accrued expenses at September 30, 20172020 and December 31, 20162019 consisted of the following (in thousands):

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

    

September 30, 2020

    

December 31, 2019

 

Accrued commissions

 

$

5,327

 

$

5,908

 

$

3,450

$

4,810

Accrued stock-settled bonus

 

 

6,088

 

 

6,608

 

Accrued vacation

 

 

787

 

 

611

 

Accrued bonus

9,249

6,875

Employee Stock Purchase Plan liability

 

 

838

 

 

1,811

 

 

882

 

2,187

Other accrued payroll-related expenses

 

 

2,706

 

 

3,085

 

 

3,748

 

2,839

Accrued royalties

2,758

2,386

Other accrued liabilities

 

 

6,706

 

 

3,651

 

 

6,749

 

5,695

Total accrued expenses

 

$

22,452

 

$

21,674

 

$

26,836

$

24,792

In conjunction with our chief executive officer’s termination in October 2017, we will make severance and bonus payments totaling $963,000, of which $367,000 of the bonus earned through our third quarter was included in other accrued payroll-related expenses as of September 30, 2017 while $596,000 will be charged to expense in the three months ending December 31, 2017, the quarter in which the termination took place.

3.

Fair Value Measurement

Deferred Revenue —Current and non-current deferred revenue at September 30, 2017 and December 31, 2016 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Perpetual license

 

$

43

 

$

404

 

Subscription

 

 

46,356

 

 

35,495

 

Software support

 

 

51,874

 

 

50,117

 

Professional services

 

 

2,740

 

 

2,060

 

Total current and noncurrent deferred revenue

 

$

101,013

 

$

88,076

 

3.Fair Value Measurement

With the exception of our held-to-maturity fixed income investments, we report financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value as

15


the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

Our financial assets that are carried at fair value include cash and money market funds. We had no0 financial liabilities, or nonfinancial assets and liabilities that were required to be measured at fair value on a recurring basis, or that were measured at fair value as of September 30, 20172020 or December 31, 2016.2019.

Our financial instruments measured at fair value as of September 30, 20172020 and December 31, 20162019 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of September 30, 2020

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Money market funds

 

$

12,065

 

$

 —

 

$

 —

 

$

12,065

 

$

51,821

$

$

$

51,821

Corporate debt securities

 

 

 —

 

 

5,525

 

 

 —

 

 

5,525

 

Commercial paper

 

 

 —

 

 

52,252

 

 

 —

 

 

52,252

 

Government debt securities

 

 

 —

 

 

900

 

 

 —

 

 

900

 

Total

 

$

12,065

 

$

58,677

 

$

 —

 

$

70,742

 

$

51,821

$

$

$

51,821

    

As of December 31, 2019

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

Money market funds

$

82,411

$

$

$

82,411

Total

$

82,411

$

$

$

82,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

As of December 31, 2016

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Money market funds

 

$

15,003

 

$

 —

 

$

 —

 

$

15,003

 

Corporate debt securities

 

 

 —

 

 

10,738

 

 

 —

 

 

10,738

 

Commercial paper

 

 

 —

 

 

47,479

 

 

 —

 

 

47,479

 

Total

 

$

15,003

 

$

58,217

 

$

 —

 

$

73,220

 

4.Investments

Our portfolio of fixed income securities consists of commercial paper, corporate debt securities and obligations of foreign government related entities. All our investments in fixed income securities are classified as held-to-maturity. These investments are carried at amortized cost.

1620


4. Acquisitions

On April 24, 2020, we acquired all of the issued and outstanding capital stock of incapptic Connect GmbH (“incapptic”), a privately held company based in Germany that provides automated mobile application distribution software, for $5.9 million in cash. Our investmentsunified endpoint management platform integrates with the incapptic software to help customers develop, deploy and secure in-house business applications. Of the $5.9 million paid, $1.1 million was paid to an escrow account and will be distributed to former incapptic shareholders within 24 months, less any amounts used to satisfy any claims for indemnification that we may make for certain breaches of representations, warranties and covenants.

Transaction costs associated with the acquisition were $347,000 in fixed income securitiesthe nine months ended September 30, 2020 and are included in general and administrative expenses. NaN further transaction costs associated with the acquisition were incurred in the three months ended September 30, 2020.

We accounted for the incapptic acquisition as a business combination. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of September 30, 2017 and December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

    

Amortized

    

    

 

    

    

 

    

Fair

(in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Corporate debt securities

 

$

5,525

 

$

 —

 

$

 —

 

$

5,525

Commercial paper

 

 

52,256

 

 

 —

 

 

(4)

 

 

52,252

Government debt securities

 

 

900

 

 

 —

 

 

 —

 

 

900

Total

 

$

58,681

 

$

 —

 

$

(4)

 

$

58,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

    

Amortized

    

    

 

    

    

 

    

Fair

(in thousands)

 

Cost

 

Gains

 

Losses

 

Value

Corporate debt securities

 

$

10,740

 

$

 —

 

$

(2)

 

$

10,738

Commercial paper

 

 

47,473

 

 

 8

 

 

(2)

 

 

47,479

Total

 

$

58,213

 

$

 8

 

$

(4)

 

$

58,217

The following table summarizes the balance sheet classificationdate of our investments:

 

 

 

 

 

 

 

 

    

As of September 30, 

 

As of December 31,

(in thousands)

 

2017

 

2016

Cash equivalents

 

$

56,081

 

$

22,029

Short-term investments

 

 

2,600

 

 

36,184

Total investments

 

$

58,681

 

$

58,213

The gross amortized cost and estimated fairacquisition. We engaged an independent third-party valuation firm to assist us in the determination of the value of our held-to-maturity investments bythe purchased intangible assets. The methodologies used to value the intangible assets were relief from royalty for tradename, multi-period excess earnings for contractual maturity are shown below. Actual maturities may differ from contractual maturities becausecustomer relationships and the issuerscost approach for developed technology. The excess of the securities may have the right to prepay obligations without prepayment penalties.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of December 31, 2016

 

 

Gross

    

 

 

Gross

    

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

(in thousands)

 

Cost

 

Value

 

Cost

 

Value

Due in one year or less

 

$

58,681

 

$

58,677

 

$

58,213

 

$

58,217

Due after one year through five years

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

58,681

 

$

58,677

 

$

58,213

 

$

58,217

We monitor our investment portfolio for impairment on a periodic basis. In order to determine whether a decline in fair value is other-than-temporary, we evaluate, among other factors: the duration and extent to which the fair value has been less than the carrying value; our financial condition and business outlook, including key operational and cash flow metrics, current market conditions and future trends in our industry; our relative competitive position within the industry; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. A decline inpurchase price over the fair value of the security belownet tangible and identifiable intangible assets acquired was recorded as goodwill, which will not be amortized cost thatand is deemed other-than-temporarynot deductible for tax purposes. The goodwill generated from the business combination was primarily related to the value placed on expected synergies and the value of the acquired workforce. Although we believe the purchase price allocation is chargedsubstantially complete, the finalization of certain liabilities, or tax-related issues, among other things, could result in a future adjustment to earnings, resultingthe purchase price allocation. The preliminary purchase price allocation is as follows (in thousands):

Intangible assets:

    

Tradename

$

163

Contractual customer relationship

1,415

Developed technology

1,546

Goodwill

2,932

Cash

279

Unearned revenue

    

 

(275)

Other assets and liabilities, net

(113)

Net assets acquired

    

$

5,947

The tradename, contractual customer relationship and developed technology intangible assets are being amortized on a straight-line basis over estimated useful lives of 3, 5, and 4 years, respectively.

Incapptic has been included in our condensed consolidated results of operations since the establishmentdate of a new cost basisacquisition. Pro forma results of operations for the affected securities. Inacquisition have not been presented because the three and nine months ended September 30, 2017, we had an insignificant amountacquisition was not material to our condensed consolidated statement of unrealized gains or losses, and we did not recognize any other-than-temporary impairments.operations.

17


5.Goodwill and IntangiblesIntangible Assets

The following table reflects intangible assets subject to amortization as of September 30, 2017 and2020:

    

September 30, 2020

 

    

Gross Carrying

    

Accumulated

    

    

Net Book

Amount

 

Amortization

Impairment

 

Value

Tradename

$

163

$

(23)

 

$

140

Contractual customer relationship

1,415

(118)

1,297

Developed technology

1,546

(161)

1,385

Total

$

3,124

$

(302)

$

$

2,822

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The net book value of intangible assets subject to amortization was 0 at December 31, 2016 (in thousands):2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

 

 

    

Gross Carrying

    

Accumulated

    

 

    

Net Book

 

 

 

Amount

 

Amortization

 

Impairment

 

Value

 

Technology

 

$

3,080

 

$

(2,880)

 

 

 —

 

$

200

 

Total

 

$

3,080

 

$

(2,880)

 

$

 —

 

$

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2016

 

 

    

Gross Carrying

    

Accumulated

    

    

 

Net Book

 

 

 

Amount

 

Amortization

 

Impairment

 

Value

 

Technology

 

$

3,080

 

$

(2,435)

 

 

 —

 

$

645

 

Total

 

$

3,080

 

$

(2,435)

 

$

 —

 

$

645

 

AmortizationWe recorded amortization of the technology intangible assets of $178,000 and $302,000 in the three and nine months ended September 30, 2020. There was recorded in cost0 amortization of revenue. intangible assets for the three and nine months ended September 30, 2019.

The weighted average remaining life of our intangible assets on September 30, 20172020 was 0.5 year.4.1 years.

EstimatedAs of September 30, 2020, estimated remaining intangible assetsasset amortization expense for the next five fiscal years and thereafter is as follows (in thousands):

 

 

 

Year

    

 

 

    

 

2017

 

$

100

 

2018

 

 

100

 

2019

 

 

 —

 

2020

 

 

 —

 

$

181

2021

 

 

 —

 

 

724

2022

 

724

2023

 

687

2024

 

412

Thereafter

94

Total

 

$

200

 

$

2,822

At September 30, 20172020 and December 31, 2016,2019, the carrying value of goodwill was $5.5 million.as follows (in thousands):

    

    

Balance, December 31, 2019

$

5,475

Additions

 

2,932

Balance, September 30, 2020

$

8,407

We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We determined that goodwill was not impaired based on the impairment test completed in the third quarter of 2020.

6. Restructuring ChargeExpense

In addition to our restructuring plans initiated in August 2015 and 2016,we initiated a reduction in our workforceWe implemented business restructurings in the three months ended March 31, 2020 and the three and nine months ended September 30, 2017,2019 to further alignreduce our cost structure with expected revenue growththrough workforce reductions. The three and recorded all amounts associated withnine months ended September 30, 2019 also included charges for the exit of an office building.

The following table summarizes the activity in accrued restructuring plan as an expense.

Restructuring costs, recordedexpense, included in operatingaccrued expenses, and cost of sales, totaled $800,000 for the three and nine months ended September 30, 2017.

The following table summarizes the restructuring activities in the nine months ended September 30, 20172020 (in thousands):

 

 

 

 

 

 

Severance

 

    

and Related Costs

Balance, December 31, 2016

 

$

15

Provision for restructuring charges

 

 

800

Cash payments

 

 

(661)

Balance, September 30, 2017

 

$

154

The remaining restructuring balance of $154,000 at September 30, 2017, recorded in accrued expenses, is for severance expense that we

    

Severance and Other Restructuring Costs

Three Months Ended

Nine Months Ended

September 30, 2020

Accrued restructuring, beginning of the period

$

419

$

282

Provision for restructuring expense

579

Cash payments

(121)

(563)

Accrued restructuring, end of the period

$

298

$

298

We expect to pay the remaining accrued restructuring balance by December 31, 2017.June 30, 2021.

1822


7. Line of Credit

We have a $20.0 million revolving line of credit with a financial institution that can be used to (a) borrow for working capital and general business requirements (b)and issue letters of credit, and (c) enter into foreign exchange contracts.credit. Amounts borrowed accrue interest at a floating per annum rate equal to the greater of (a) the prime rate.rate or 3.25% plus 0.25% or (b) LIBOR plus 3 percent. A default interest rate shall apply during an event of default at a rate per annum equal to 5% above the otherwise applicable interest rate. The line of credit is collateralized by substantially all of our assets, except intellectual property, and requires us to comply with working capital net worth and other covenants, including limitations on indebtedness and restrictions on dividend distributions, among others, andbut does allow for the borrowing capacity isrepurchase of a limited to eligible accounts receivable.amount of our common stock. We are required to maintain an adjusted quick ratio (defined as the ratio of current assetseligible cash and cash equivalents plus accounts receivable to current liabilities minus deferred revenue)revenue and customer arrangements with termination rights) of at least 1.25.

In May 2015, we issued a letter of credit for $1.5 million as a security deposit for a new lease for office space in a building in Mountain View, lease thereby reducingCalifornia, and in November 2017 we issued a bank guarantee to a customer of approximately $3.0 million that can be drawn if we become insolvent or bankrupt. The issuances of the letter of credit and bank guarantee reduced the borrowing capacity under our line of credit to $18.5approximately $15.5 million.

In June 2017,2020, we amended our revolving line of credit and extended its maturity date to June 2018.2023.

There were no other outstanding amounts under the line of credit at September 30, 20172020 or December 31, 20162019 and we were in compliance with all financial and non-financial covenants.

8.

Preferred Stock

8.Preferred Stock

We were authorized to issue up to 10,000,000 shares of convertible preferred stock as of September 30, 20172020 and December 31, 2016. No2019. NaN shares of convertible preferred stock were issued and outstanding as of September 30, 20172020 or December 31, 2016.2019.

9.

Common Stock

9.Common Stock

We were authorized to issue 300,000,000 shares of common stock with a par value of $0.0001 per share as of September 30, 20172020 and December 31, 2016.2019. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends out of funds legally available therefore, when and if declared by the board of directors, subject to the approval and priority rights of holders of all classes of preferred stock outstanding.

As of September 30, 20172020 and December 31, 2016, we reserved2019, our shares of common stock reserved for issuance were as follows:

 

 

 

 

    

 

    

 

    

September 30, 

    

December 31,

 

2017

 

2016

    

    

    

September 30, 

    

December 31,

2020

2019

Options outstanding

 

7,896,734

 

9,835,992

2,293,276

2,898,977

Unvested restricted stock units outstanding

 

13,241,111

 

10,474,975

12,730,746

12,639,066

Unvested early exercised stock options

 

 —

 

2,471

Unvested performance stock units outstanding

835,000

Shares available for grant under the 2014 Equity Incentive Plan and 2015 Inducement Plan

 

2,521,805

 

4,199,415

1,692,599

1,301,881

Shares available for purchase under the Employee Stock Purchase Plan

 

990,501

 

575,974

385,094

378,525

Total

    

24,650,151

    

25,088,827

    

17,936,715

    

17,218,449

10.Share Based AwardsRepurchase Program

In October 2018, our Board of Directors approved a common stock repurchase program (“Repurchase Program”) whereby the Company is authorized to purchase up to a maximum of $25 million of its common stock, subject to compliance with applicable law and the limitations in the Company’s credit facilities on stock repurchases.

1923


The authorization allows repurchases from time to time in the open market or in privately negotiated transactions. The amount and timing of repurchases made under the Repurchase Program will depend on a variety of factors, including available liquidity, cash flow and market conditions. Shares can be purchased through the Repurchase Program through October 2020, unless extended or shortened by our Board of Directors. The Repurchase Program does not obligate us to acquire any particular amount of common stock and the program may be modified or suspended at any time at our discretion. The repurchases would be funded from available working capital and are subject to compliance with the terms and limitations of the Company’s credit facilities.

In the three months ended September 30, 2020, we did not repurchase any shares of common stock under the Repurchase Program. In the nine months ended September 30, 2020, we repurchased 210,618 shares of common stock at an average price of $3.25 per share for a total cost of $684,000 under the Repurchase Program. This excludes shares repurchased to settle employee tax withholding related to the vesting of our stock-settled bonus and RSUs. The maximum remaining dollar value of shares that may be purchased under the Repurchase Program was $9.2 million at September 30, 2020. Our Board of Directors has not extended the program as of the date of the filing of this quarterly report on Form 10-Q.

10.

Share Based Awards

2008 Stock Plan

Our 2008 Stock Plan, or 2008 Plan, which expired on June 12, 2014, provided for the grant of incentive and nonstatutory stock options to employees, nonemployee directors and consultants of the Company. Options granted under the 2008 Plan generally become exercisable within three to four years following the date of grant and expire 10 years from the date of grant. When options are subject to our repurchase right, we may buy back any unvested shares at their original exercise price in the event of an employee’s termination prior to full vesting.

Our 2008 Plan was terminated following the date our 2014 Equity Incentive Plan, or our 2014 Plan, became effective. Any outstanding stock awards under our 2008 Plan will continue to be governed by the terms of our 2008 Plan and applicable award agreements.

2014 Equity Incentive Plan

Our 2014 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to our employees, directors and consultants. Additionally, our 2014 Plan provides for the grant of performance cash awards to our employees, directors and consultants.

The initial number of shares of our common stock available to be issued under our 2014 Plan was 8,142,857, which number of shares will be increased by any shares subject to stock options or other stock awards granted under the 2008 Stock Plan that would have otherwise returned to our 2008 Stock Plan (such as upon the expiration or termination of a stock award prior to vesting), not to exceed 16,312,202.

The number of shares of our common stock reserved for issuance under our 2014 Plan automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors. On January 1, 2017,2020, we increased the number of shares of common stock reserved for issuance under our 2014 Plan by 4,453,4255,636,269 shares, which was 5% of the total number of shares of our common stock outstanding at December 31, 2016.2019.

Amended and Restated 2015 Inducement Plan 

On December 20, 2015, our board of directors adopted our 2015 Inducement Plan, or the Inducement Plan, to reserve 1,600,000 shares of our common stock to be used exclusively for grants of awards to individuals that were not previously employees or directors of the Company. The terms and conditions of the Inducement Plan are substantially

24

Table of Contents

similar to our stockholder-approved 2014 Plan. On January 5, 2016, our board of directors approved the amendment and restatement of the Inducement Plan to increase the share reserve under the Inducement Plan to 1,970,000 shares of our common stock. As of September 30, 2017,2020, there were 1,654,167312,500 stock options and restricted stock units outstanding under the Inducement Plan.

2014 Employee Stock Purchase Plan

The purpose of our 2014 Employee Stock Purchase Plan, or ESPP, is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates.customers, other partners, and shareholders. Our ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Our ESPP permits eligible employees to purchase our common stock through payroll deductions, which may not exceed 15% of the employee’s base compensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of our common stock on either the first day of the offering or the last day of the applicable purchase period, whichever is lower.

As of September 30, 20172020 and December 31, 2016,2019, approximately 990,501385,094 and 575,974378,525 shares of common stock were available for future issuance under our ESPP, respectively. The number of shares of our common stock

20


reserved for issuance under our ESPP increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; (ii) 2,142,857 shares of common stock; or (iii) such lesser number as determined by our board of directors. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP. On January 1, 2017,2020, we increased the number of shares available for issuance under the ESPP by 890,6851,127,253 shares, which was 1% of the total number of shares of our common stock outstanding as of December 31, 2016. On June 14, 2017, our stockholders approved the amendment and restatement of the ESPP to provide for a one-time increase of 1.2 million shares of common stock available for issuance under the ESPP.2019.

Restricted Stock Units and Performance Stock Units

In 2014 we began granting restricted stock unitsWe grant RSUs and, beginning in our first quarter of 2020, PSUs under our 2014 Plan. For stock-based compensation expense, we measure the value of the restricted stock unitsRSUs and PSUs based on the fair value of our common stock on the date of grant. Our restricted stock unitRSU grants are subject to service conditions and we expense the fair value of those shares on a straight-line basis over their vesting periods. Our PSU grants are subject to performance and service conditions and we expense the fair value of those shares on an accelerated-graded basis over the employee’s requisite service period. The PSU expense may be adjusted each quarter based on our forecast of the Company’s performance relative to the annual recurring revenue metrics that determine the number of PSUs that will vest. To the extent that updated estimates of PSU expense differ from original estimates, the cumulative effect on current and prior periods of those changes is recorded in the period in which those estimates are revised.

Our restricted stock unitRSU activity for the nine months ended September 30, 20172020 was as follows:

Restricted Stock Units

 

Weighted-

 

Average

 

Number of

Grant Date

 

    

Shares

    

Fair Value

 

Unvested, December 31, 2019

 

12,639,066

$

5.20

Granted

 

7,543,265

 

4.54

Vested

 

(5,786,845)

 

4.84

Forfeitures

 

(1,664,740)

 

4.94

Unvested, September 30, 2020

 

12,730,746

$

5.01

 

 

 

 

 

 

 

 

 

Restricted Stock Units

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Number of

 

Grant Date

 

 

    

Shares

    

Fair Value

 

Unvested, December 31, 2016

 

10,474,975

 

$

4.45

 

Granted

 

9,669,478

 

 

5.20

 

Vested

 

(4,948,583)

 

 

4.67

 

Forfeitures

 

(1,954,759)

 

 

5.12

 

Unvested, September 30, 2017

 

13,241,111

 

$

4.82

 

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Table of Contents

Our PSU activity for the nine months ended September 30, 2020 was as follows:

Performance Stock Units

Weighted-

Average

Number of

Grant Date

    

Shares

    

Fair Value

Unvested, December 31, 2019

 

$

n/a

Granted

 

1,005,000

 

3.27

Vested

 

 

n/a

Forfeitures

 

(170,000)

 

3.27

Unvested, September 30, 2020

 

835,000

$

3.27

Bonus Plans

In 2015, our board of directors approved the 2015The 2018 Non-Executive and Executive Bonus Plan and 2015 Non-Executive Bonus Plan, whichPlans provided for the issuance of shares of unrestricted common stock to employees based on meetingthe achievement of certain 2018 Company metrics.

We issued 1,653,3711,338,220 shares of unrestricted common stock in the first quarter of 20162019, after withholding 832,635 shares to cover employee payroll taxes which we paid in cash totaling $4.1 million.

In March 2019, the Compensation Committee of our board of directors approved the 2019 Non-Executive Bonus Plan and the 2019 Executive Bonus Plan, or collectively, the 2019 Bonus Plans. The 2019 Bonus Plans provided for the issuance of shares of unrestricted common stock to employees based on amounts earned under the 2015 Non-Executive Bonus Plan. No shares were issued under the 2015 Executive Bonus Plan.

achievement of certain 2019 Company metrics. We issued 1,010,5501,061,165 shares of unrestricted common stock in the first quarter of 2017,2020, after withholding 677,547669,517 shares to cover employee payroll taxes based on amounts earned under the Executive Bonus Plan and 2016 Non-Executive Bonus Plan, or 2016 Bonus Plans,which we paid in the first quarter of 2017.cash totaling $2.9 million.

In April 2017,2020, the Compensation Committee of our board of directors approved the 2017 Executive2020 Non-Executive Bonus Plan and 2017 Non-executivethe 2020 Executive Bonus Plan, or collectively, the 20172020 Bonus Plans. The 20172020 Bonus Plans are fundedprovide for the issuance of shares of unrestricted common stock to employees based on the achievement of certain 20172020 Company metrics. Other than with respect to our CEO, amounts earned undermetrics as determined by the 2017 Bonus Plans, if any, will be issued in shares of unrestricted common stock in the first quarter of 2018.Compensation Committee.

Shares issued under the aforementioned Bonus Plans will beare issued from our 2014 Plan and reduce the 2014 Plan shares available for issuance.

We record stock-based compensation expense related to the bonus plansBonus Plans over the service period of eligible employees based on forecasted performance relative to the Company target metrics. To the extent that updated estimates of bonus expense differ from original estimates, the cumulative effect on current and prior periods of those changes is recorded in the period those estimates are revised.

21


In the three and six months ended March 31, 2017,June 30, 2020, we recorded $1.7$5.7 million of stock-based compensation expense under the 20162020 Bonus Plans. In September 2020, following the completion of negotiations among the parties regarding the material terms of the Merger Agreement (including the price of $7.05 per share), the Compensation Committee of our board of directors split the 2020 Bonus Plans into Nine-Month Plans, covering January 1, 2020 to September 30, 2020, and Three-Month Plans, covering October 1, 2020 to December 31, 2020. In the case of the Three-Month Plans and the Nine-Month Plans, the level of achievement will be determined by the Company based on the application of the metrics and terms previously adopted by the Company, but with a minimum payout of 100% of target under each plan. In addition to our splitting of the 2020 Bonus Plans and requiring a minimum 100% of target payout, the Merger Agreement imposes certain pre-closing restrictions on our activities, one of which precludes settlement of our 2020 Bonus Plans in unrestricted common stock. Because we are currently required to settle the 2020 Bonus Plans in cash, we recorded a cumulative adjustment in the three months ended September 30, 2020 to reclassify the $5.7 million previously recorded as stock-based compensation expense to bonus expense. We recorded an additional $3.5 million of bonus expense under the 2020 Bonus Plans in the three months ended September 30, 2020 based on expected performance relative to the 2020 Bonus Plan metrics. The $3.5 million of bonus expense recorded in three months ended September 30, 2020 included a $515,000 cumulative expense catch-up for revising our performance estimates relative to the Company target metrics. In the nine months ended September 30, 2020, we recorded $757,000 of stock-based

26

Table of Contents

compensation expense under the 2019 Bonus Plans. In the three and nine months ended September 30, 2017,2019, we recorded $2.0 million$559,000 and $6.1$5.5 million, respectively, of stock-based compensation expense under the 20172019 Bonus Plans. In the threenine months ended March 31, 2016,September 30, 2019, we recorded $924,000$1.1 million of stock-based compensation expense under the 2015 Non-Executive2018 Bonus Plan.  In the three and nine months ended September 30, 2016, we recorded $1.4 million and $5.1 million, respectively, of stock-based compensation expense related to the 2016 Bonus Plans.

Stock Options

Stock option activity under the 2008 Plan, 2014 Plan and 2015 Inducement Plan for the nine months ended September 30, 20172020 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Options Outstanding

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

Number of

 

 

 

 

 

 

Average

 

Aggregate

 

 

Shares

 

 

 

Weighted-

 

Remaining

 

Intrinsic

 

 

Available

 

Number of

 

Average

Contractual

 

Value

 

 

for Issuance

 

Shares

    

Exercise Price

    

Term (Years)

    

(In thousands)

  

Balance—December 31, 2016

 

4,199,415

 

9,835,992

 

$

4.39

 

6.23

 

$

5,734

 

    

    

Options Outstanding

 

Weighted-

Number of

Average

Aggregate

 

Shares

Weighted-

Remaining

Intrinsic

 

Available

Number of

Average

Contractual

Value

 

for Issuance

Shares

    

Exercise Price

    

Term (Years)

    

(In thousands)

  

Balance—December 31, 2019

 

1,301,881

 

2,898,977

$

5.17

4.89

$

1,556

Authorized

 

4,453,425

 

 —

 

 

 

 

 

 

 

 

 

 

5,636,269

Stock options granted

 

(100,000)

 

100,000

 

 

4.90

 

 

 

 

 

 

 

 

Issuance of shares under 2016 Bonus Plans

 

(1,688,077)

 

 —

 

 

 

 

 

 

 

 

 

Issuance of shares under Bonus Plans

(1,730,682)

Shares withheld from net settlement of restricted stock units

 

677,547

 

 

 

 

 

 

 

 

 

 

 

1,305,947

Restricted stock units granted

 

(7,981,401)

 

 —

 

 

 

 

 

 

 

 

 

(5,812,583)

Performance stock units granted(1)

(1,005,000)

Exercised

 

 —

 

(1,033,121)

 

 

2.99

 

 

 

 

 

 

 

(443,674)

 

4.12

Stock options canceled

 

1,006,137

 

(1,006,137)

 

 

6.31

 

 

 

 

 

 

 

162,027

(162,027)

 

5.46

Restricted stock units canceled

 

1,954,759

 

 —

 

 

 

 

 

 

 

 

 

Balance—September 30, 2017

 

2,521,805

 

7,896,734

 

$

4.34

 

4.84

 

$

4,387

 

Vested and exercisable—September 30, 2017

 

 

 

6,593,808

 

$

4.26

 

 

 

$

4,147

 

Vested and expected to vest(1)—September 30, 2017

 

 

 

7,752,157

 

$

4.34

 

 

 

$

4,354

 

Restricted and Performance stock units forfeited

1,834,740

Balance—September 30, 2020

 

1,692,599

 

2,293,276

$

5.36

4.07

$

4,358

Vested and exercisable—September 30, 2020

 

2,068,275

$

5.45

3.76

$

3,800

Vested and expected to vest(2)—September 30, 2020

 

2,261,882

$

5.37

3.94

$

4,281

(1)

(1)

Performance stock units granted are reflected in the table as a decrease in the number of shares available for issuance at target achievement for tracking and reporting purposes but do not technically reduce shares available for issuance until earned.

(2)

Options expected to vest reflect an estimated forfeiture rate.

Our stock-based compensation expense was recorded in the following cost and expense categories (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

September 30, 

 

September 30, 

    

2017

    

2016

    

2017

    

2016

    

Three Months Ended

    

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Cost of revenue

 

$

932

 

$

747

 

$

2,859

 

$

2,192

$

(57)

$

1,052

$

2,739

$

3,859

Research and development

 

 

3,914

 

 

2,709

 

 

11,046

 

 

9,122

 

367

 

3,279

 

8,710

 

11,015

Sales and marketing

 

 

2,258

 

 

2,307

 

 

6,612

 

 

8,418

 

1,208

 

2,029

 

6,670

 

6,367

General and administrative

 

 

1,974

 

 

2,109

 

 

5,732

 

 

6,934

 

1,126

 

1,652

 

5,604

 

5,918

Total

 

$

9,078

 

$

7,872

 

$

26,249

 

$

26,666

$

2,644

$

8,012

$

23,723

$

27,159

2227


We used the Black-Scholes Model to estimate the fair value of our stock options granted to employees with the following assumptions:

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2017

    

2016

 

2017

    

2016

 

    

Nine Months Ended

 

September 30, 

 

 

2020

    

2019

Expected dividend yield

 

n/a

 

 

 

 

 

n/a

Risk-free interest rate

 

n/a

 

1.5%

  

2.1%

 

1.4 -1.5%

 

 

n/a

2.5%

Expected volatility

 

n/a

 

42%

 

41%

  

42%

 

 

n/a

  

50%

Expected life (in years)

 

n/a

 

6.1

 

6.1

 

6.1

 

 

n/a

6.1

NaN stock options were granted in the three and nine months ended September 30, 2020 or the three months ended September 30, 2019.

We used the Black-Scholes modelModel to estimate the fair value of our Employee Stock Purchase Plan awards with the following assumptions:

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2017

    

2016

 

2017

    

2016

Expected dividend yield

 

 

 

 

Risk-free interest rate

 

1.3%

 

0.6%

  

0.9 - 1.3%

 

0.6%

Expected volatility

 

54%

 

34-38%

 

34% -54%

 

34 - 41%

Expected life (in years)

 

1.3

 

1.3

 

1.3

 

1.3

    

Three Months Ended

    

Nine Months Ended

September 30, 

September 30, 

 

2020

    

2019

2020

    

2019

Expected dividend yield

 

Risk-free interest rate

 

0.1%

1.7%

  

0.8%

2.1%

Expected volatility

 

57%

  

40%

51%

41%

Expected life (in years)

 

1.3

1.3

1.3

1.3

As required by Topic 718 Compensation—Stock Compensation, we estimate expected forfeitures and recognize compensation costs only for those equity awards expected to vest.

As of September 30, 2017,2020, unrecognized stock-based compensation expense and its remaining weighted-average recognition period was as follows:

 

 

 

 

 

 

Unrecognized

 

Remaining

 

Stock-based

 

Weighted-Average

 

Compensation

 

Recognition

 

Expense

 

Period

   

(in millions)

   

(in years)

Unrecognized

Remaining

Stock-based

Weighted-Average

Compensation

Recognition

Expense

Period

   

(in millions)

   

(in years)

Stock options

 

$

2.1

 

1.8

 

$

0.3

2.0

Restricted stock units

 

 

52.7

 

2.9

 

47.8

2.7

Performance stock units

2.4

1.6

ESPP

 

 

1.7

 

0.6

 

2.1

1.5

Total

 

$

56.5

 

 

 

$

52.6

11.

Employee Benefit Plan

11.Employee Benefit Plan

We maintain a defined contribution 401(k) plan. The plan covers all full-time U.S. employees over the age of 21. Each employee can contribute up to $18,000$19,500 annually (with a $6,000$6,500 catch up contribution limit for employees aged 50 or older). We have the option toBeginning January 2020, we provide matching contributions but have not done soat 100% of every dollar an employee contributes, up to date.3% of eligible compensation with a $2,000 annual maximum match.

12.

Commitments and Contingencies

12.Commitments and ContingenciesLitigation

Operating Leases

We lease our office facilities under noncancelable agreements expiring between 2017 and 2023.

23


Rent expense for the three months ended September 30, 2017 and 2016 was $1.9 million and $1.7 million respectively. Rent expense for the nine months ended September 30, 2017 and 2016 was $5.3 million and $5.1 million respectively. The aggregate future minimum lease payments under our agreements as of September 30, 2017 are as follows (in thousands):

 

 

 

 

 

Year

    

 

    

 

2017 (remaining)

 

$

1,769

 

2018

 

 

7,195

 

2019

 

 

7,102

 

2020

 

 

5,553

 

2021

 

 

4,071

 

Thereafter

 

 

4,402

 

Total

 

$

30,092

 

Litigation

On August 5, 2015, August 21, 2015 and August 24, 2015, purported stockholder class action lawsuits were filed in the Superior Court of California, Santa Clara County against the Company, certain of its officers, directors, underwriters and investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v. MobileIron, Inc., et al, which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The actions are purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued pursuant or traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things, compensatory damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected consolidated complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company filed a demurrer to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016.

On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and entered final judgment in the case on October 11, 2017 releasing all parties.  The settlement called for a payment of $7.5 million to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company contributed $1.1 million to the settlement in the three months ending September 30, 2017. This amount represented the remainder of the Company’s retention amount under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability insurance. 

While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid further distractions to management.

We continually evaluate uncertainties associated with litigation and record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the

28

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date of the financial statements and (ii) the loss or range of loss can be reasonably estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements. We evaluate, on a quarterly basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, if any, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss, and such amounts could be material. An estimateFor legal proceedings for which there is a reasonable possibility of a reasonably possible loss (or a range of loss) cannot be made in our lawsuits(meaning those losses for which the likelihood is more than remote but less than probable), we have determined we do not have material exposure on an aggregate basis at this time.

Patent Claim

24We received a letter in August 2019 from BlackBerry Corp. asserting that our products and software infringe BlackBerry’s patents, and that we should license its portfolio. We retained counsel and evaluated BlackBerry’s letter, as well as potential counterclaims against BlackBerry. BlackBerry sent a second letter in March 2020 asserting that our products and software infringe additional BlackBerry patents, although BlackBerry did not specify its infringement theories or make a demand for damages in the March 2020 letter. The parties have attempted to negotiate, and we accrued an immaterial amount related to the matter in 2019. However, through the date of the filing of this Quarterly Report on Form 10-Q, these discussions have not been resolved.


 

California on April 27, 2020. The case is MobileIron, Inc. v. BlackBerry Corp. and BlackBerry Ltd. The lawsuit asserts that BlackBerry’s products infringe MobileIron patents, that MobileIron’s products and software do not infringe BlackBerry’s patents, and that BlackBerry has engaged in certain unlawful activities related to its licensing program for its patent portfolio. We intend to vigorously assert our claims and defend against any claims or lawsuits that BlackBerry may assert against us. The amount of damages that could be awarded in the lawsuit is unknown at this time.

Indemnification

Under the indemnification provisions of our standard sales related contracts, we agree to defend and/or settle claims brought by third parties against our customers and channel partners alleging that our software or the customer’s use of our softwarethereof infringes the third party’sthird-party’s intellectual property right, such as a patent right. These indemnification obligations are typically not subject to limitation; however if we believe such a claim is reasonably likely to occur and if it is commercially impractical for us to either procure the right for the customer to continue to use our software or modify our software so that it’s not infringing, we typically can terminate the customer agreement and refund the customer a portion of the license fees paid prorated(prorated over the three year period from initial delivery.delivery for software licensed on a perpetual basis). We also on occasion indemnify our customers for other types of third partythird-party claims. In addition, we indemnify our officers, directors, and certain key employees while they are serving in such capacities in good faith. Through September 30, 2017,2020, we have not received any material written claim for indemnification.

13.Segment InformationLeases

We have operating leases for office facilities and data centers. Our leases have remaining lease terms of less than one year to approximately seven years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.

On our balance sheet, we have current and noncurrent lease commitment liabilities of approximately $4.8 million and $6.7, million, respectively, and corresponding right-of-use assets of approximately $10.3 million at September 30, 2020 for our operating leases.

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Table of Contents

The operating lease cost for both the three months ended September 30, 2020 and 2019 was $1.3 million. The operating lease cost for the nine months ended September 30, 2020 and 2019 was $3.7 million and $4.7 million, respectively. The future maturities of lease liabilities as of September 30, 2020 are as follows (in thousands):

Year

    

    

2020 (remaining)

$

1,400

2021

 

4,968

2022

 

3,526

2023

 

1,518

2024

 

355

Thereafter

 

579

Total lease payments

12,346

Less: imputed interest

 

(913)

Total lease liability

$

11,433

All of our leases are classified as operating leases. In the nine months ended September 30, 2020, the weighted average discount rate used to determine the lease liabilities was 5.3% and the weighted average remaining lease term was 35 months.

14.Unearned Revenue

Changes in unearned revenue were as follows for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

2020

    

2019

    

2020

    

2019

Balance, beginning of period

$

113,213

$

106,399

$

118,211

$

105,837

Billings, excluding billings for customer arrangements with termination rights

40,123

46,246

133,961

135,904

Additions to unearned revenue upon expiration of termination rights

4,634

5,056

13,878

15,118

Recognition of revenue, net of change in unbilled accounts receivable*

(50,079)

(50,900)

(158,434)

(150,058)

Acquired unearned revenue

275

Balance, end of period

$

107,891

$

106,801

$

107,891

$

106,801

* Reconciliation to Revenue Reported per Condensed Consolidated Statement of Operations:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

2020

    

2019

    

2020

    

2019

Revenue billed as of the end of period

$

50,079

$

50,900

$

158,434

$

150,058

Increase (decrease) in total unbilled accounts receivable

(80)

1,301

188

1,090

Revenue Reported in Condensed Consolidated Statement of Operations

$

49,999

$

52,201

$

158,622

$

151,148

Revenue allocated to remaining performance obligations includes unearned revenue plus contractually committed amounts that will be invoiced and recognized as revenue in future periods, but excludes amounts invoiced and not recognized as revenue under customer arrangements that contain termination rights. Remaining performance obligations were $118.9 million as of September 30, 2020, of which we expect to recognize approximately 76% as revenue over the next 12 months and the remainder thereafter.

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Table of Contents

As of September 30, 2020 and December 31, 2019, the balance of customer arrangements that contain termination rights was $11.3 million and $16.1 million, respectively.

15.

Segment and Disaggregated Revenue Information

We conduct business globally. Our chief operating decision maker (Chief Executive Officer) reviews financial information presented on a consolidated basis accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one1 business activity, software and services to manage and secure mobile devices, applications and content, and there are no0 segment managers who are held accountable for operations, operating results and plans for levels, components or types of products or services below the consolidated unit level. Accordingly, we are considered to be in a single reportable segment and operating unit structure.

Revenue by geographic region based on the billing address was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

(in thousands)

    

2017

    

2016

    

2017

    

2016

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

18,396

 

$

20,292

 

$

58,251

 

$

57,587

International

 

 

24,324

 

 

21,274

 

 

69,409

 

 

60,867

Total

 

$

42,720

 

$

41,566

 

$

127,660

 

$

118,454

We recognized revenue of $5.0 million, or 12% of total revenue, and $5.4 million, or 13% of total revenue, from customers with a billing address in Germany for the three months ended September 30, 2017 and 2016, respectively. We recognized revenue of $16.3 million, or 13% of total revenue, and $15.1 million, or 13% of total revenue, from customers with a billing address in Germany for the nine months ended September 30, 2017 and 2016, respectively. No other country, except for the United States and Germany, exceeded 10% of total revenue in the three or nine months ended September 30, 2017 or 2016.

Approximately $2.3$1.4 million and $1.3$2.0 million or 26% and 24%, as of September 30, 20172020 and December 31, 2016,2019, or 41% and 42%, respectively, of our net Property and Equipment was attributable to our operations located in India. Substantially all other long-lived assets were attributable to operations in the United States.

Revenue by geographic region based on the billing address was as follows:

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

    

2020

    

2019

    

2020

    

2019

Revenue

United States

$

22,448

$

23,376

$

67,746

$

64,849

International

 

27,551

 

28,825

 

90,876

 

86,299

Total

$

49,999

$

52,201

$

158,622

$

151,148

We recognized revenue of $6.5 million, or 13% of total revenue, and $7.3 million, or 14% of total revenue, from customers with a billing address in Germany for the three months ended September 30, 2020 and 2019, respectively. We recognized revenue of $23.6 million, or 15% of total revenue, and $23.4 million, or 15% of total revenue, from customers with a billing address in Germany for the nine months ended September 30, 2020 and 2019, respectively. No other country, except for the United States and Germany, exceeded 10% of total revenue in the three or nine months ended September 30, 2020 or 2019.

Revenue from recurring and non-recurring contractual arrangements was as follows:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

(in thousands)

2020

    

2019

    

2020

    

2019

Cloud subscriptions - ratable

$

20,890

$

17,591

$

59,073

$

49,163

On-premise subscriptions - point-in-time

5,139

5,964

14,240

17,394

On-premise subscriptions - ratable

5,267

4,902

15,232

13,872

Software support on perpetual licenses - ratable

16,132

16,363

48,305

48,669

Recurring revenue

47,428

44,820

136,850

129,098

Perpetual license - point-in-time

1,326

6,252

18,314

18,420

Professional services - point-in-time

 

1,245

1,129

3,458

 

3,630

Non-recurring revenue

2,571

7,381

21,772

22,050

Total revenue

$

49,999

$

52,201

$

158,622

$

151,148

Recurring revenue in the table above is defined as revenue that requires a contract renewal for the service or license to continue beyond the initial or current contract term and additional revenue will be recognized if that renewal occurs. Non-recurring revenue is defined as sales of perpetual license or professional services that are one-time in nature and do not need to be renewed.

2531


16.

Net Loss per Share

14.Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share for the three and nine months ended September 30, 20172020 and 20162019 (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

2017

    

2016

 

Three Months Ended

Nine Months Ended

 

September 30, 

September 30, 

 

    

2020

    

2019

    

2020

    

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,065)

 

$

(14,593)

 

$

(48,442)

 

$

(56,974)

 

$

(16,272)

$

(8,203)

$

(37,441)

$

(40,892)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted–average shares outstanding

 

 

95,024

 

 

86,714

 

 

92,826

 

 

85,017

 

Less: weighted average shares subject to repurchase

 

 

 —

 

 

(1)

 

 

(1)

 

 

(9)

 

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

 

 

95,024

 

 

86,713

 

 

92,825

 

 

85,008

 

 

117,703

 

110,831

 

116,192

 

109,147

Basic and diluted net loss per share

 

$

(0.18)

 

$

(0.17)

 

$

(0.52)

 

$

(0.67)

 

$

(0.14)

$

(0.07)

$

(0.32)

$

(0.37)

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Because we have reported a net loss for the three and nine months ended September 30, 20172020 and 2016,2019, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share for those periods presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported (in common stock equivalent shares):

 

 

 

 

 

 

September 30, 

 

September 30, 

 

    

2017

    

2016

    

September 30, 

September 30, 

    

2020

    

2019

Stock options outstanding, net of unvested exercised stock options

 

7,896,734

 

10,736,433

 

2,293,276

2,929,095

Unvested restricted stock units

 

13,241,111

 

11,210,178

 

12,730,746

13,806,088

Unvested performance stock units

835,000

ESPP shares

 

262,007

 

271,174

 

226,673

194,622

Stock-settled bonus shares

 

987,177

 

1,105,943

 

499,612

Total potentially dilutive securities

 

22,387,029

 

23,323,728

 

16,085,695

17,429,417

For September 30, 2016, we have corrected the previously reported amount to include 1.4 million additional shares related to our ESPP and stock-settled bonus plans that were excluded from the computation of the weighted-average diluted shares because such securities have an antidilutive impact due to losses reported. We do not consider this correction to be material, and there was no impact to our consolidated interim financial statements.

2632


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read theThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with theour consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 14, 2017. TheSEC. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussedcontained in theor implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof.

Overview

The current perimeter-based enterprise security model, which is based on locked-down desktop endpoints, enterprise-controlled networks, and company data that only sits behind a firewall, is being disrupted by the move to mobileMobile and cloud services. Employeescomputing are the catalysts for modern work and lines-of-business, not IT, now choose the softwaredigital workplace. Mobile empowers employees to make better decisions and cloud servicestake faster actions because the information and tools they need to do their jobs.jobs are always available from anywhere. Cloud is transforming IT, Security and DevOps and has accelerated how the developer ecosystem builds and rolls out innovative services enabling unparalleled user experience.

However, this comes with new risks. The traditional, locked-down, perimeter-based approach to security no longer applies to mobile endpoints and cloud services that operate outside the corporate network. Data no longer resides behind the firewall on locked-down PCs and servers, and so it cannot be secured by legacy firewall-based solutions. Instead, data is spread across a wide variety of modern endpoints including Android, iOS, macOS, Chrome OS and Windows 10, as well as cloud services such as Box, Concur, Microsoft Office 365, Netsuite, Salesforce, Workday and custom cloud applications that are hosted on cloud infrastructure providers like AWS or on-premise.

This shift to mobile and cloud technologies introduces three main challenges that CIOs and CISOs need to address to realize their secure digital workplace:

1.Drive business innovation by allowing employees to securely use mobile, cloud, services and on-premises apps from any device, anywhere;
2.Enforce corporate security without impacting the user experience;
3.Redefine enterprise security strategies to address a perimeter-less environment.

To solve these challenges, many organizations are in the early stages of investigating a zero trust security framework for their enterprise. Zero trust assumes that bad actors are already in the network and secure access is determined by a “never trust, always verify” approach.

MobileIron is an established player in the zero trust market, and a leader in mobile-centric, zero trust solutions that go beyond traditional approaches to security by utilizing a more comprehensive set of attributes to grant secure access. MobileIron products and services validate the device, establish user context, check application authorization, verify the network, and detect and mitigate threats before granting secure access to a device or user. We believe traditional identity-based and gateway approaches to zero trust fall short because they provide only limited visibility into devices, applications, and threats.

We are redefining how customers build a secure foundation in a perimeter-less world. Our solution provides enterprise security for this open, but complex, modern IT architecture.

Weinvented a purpose-built security platform for enterprises to secure business data in a modern IT architecture, while enabling employee personal data privacyis built on the foundation of unified endpoint management (UEM) with additional zero trust capabilities including zero sign-on (ZSO), multifactor authentication (MFA), and mobile device choice. The MobileIron Enterprise Mobility Management (EMM) solution isthreat defense (MTD). Together these products and services create a more seamless mobile security platform that:

1)

configures and delivers applications to smartphones, tablets, laptops and desktops running modern operating systems;

2)

secures data-at-rest on these modern endpoints;

3)

secures data-in-motion across theexperience by automating access control decisions across users, endpoints, operating systems, clouds, networks, threats, and vulnerabilities so that only trusted resources can access corporate network; and

4)

secures access to back-end corporate networks and cloud services.

We believe that every modern endpoint, whether a smartphone, tablet, laptop, desktop, or IoT device, with access to enterprise data will require a solution like MobileIron’s to secure that data.

Our platform has fostered a growing ecosystem of partnerscustomers can deploy MobileIron solutions as either cloud services or on-premise software. They have historically been able to enablechoose to purchase our customers and their employees to leverage best-of-breed solutions rather than being locked into a particular vendor’s solution. MobileIron enables employees to have ubiquitous access to the information they need in order to work productively anywhere. Our business model is based on winning new customers, expanding sales and upselling new products within existing customers, and renewing subscriptions andon-premise software support agreements. We have sold our platform to over 15,000 cumulative customers since 2009. Our global customer support team focuses on enabling customer success, which is designed to lead to additional sales and renewals of subscription and software support agreements.

We offer our customers the flexibility to deploy our solutionpriced as a cloud servicesubscription or perpetual license. However, we announced the discontinuation of sales of on-premise software priced as on-premises software. They can also choose from various pricing options, including subscription anda perpetual licensing.license effective

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Table of Contents

beginning the third quarter of 2020. We primarily target midsize and large enterprises around the world across a broad range of industries including financial services, government, healthcare, legal, manufacturing, professional services, retail, technology, and telecommunications.

Subscription revenue is an increasing portion of our revenue. When we sell our solutions on a subscription basis, we offer 12 months or longer terms and bill in advance, or certain service providers often operate under a monthly recurring charge, or MRC, model. In the MRC model, revenue and billings are based on active devices or users of the service provider’s customer and are reported to us by the service provider on a monthly basis over time and billed by us one month in arrears. Thus, under the MRC model, we receive no billings or revenue for MRC at the time the deal is booked, but instead the MRC is billed and revenue is recognized each month based on active usage. Unlike one-year and other term subscriptions, MRC is not reflected in deferred revenue. This important difference between MRC billings and perpetual and term subscription billings can lead to significant variability of billings in a given quarter depending on the type of billing model that the customer chooses and the overall mix of billing types for all customers within a quarter.Over time, we may see variability in the MRC revenue and billings trends, as customers choose to switch between MRC and prepaid billing models, or as a result of the timing of operators usage reporting and other factors. In recent quarters,

27


the trend has been for customers to switch from MRC to longer-term subscriptions, which increases deferred revenue, or to perpetual licenses with maintenance, which increases revenue and deferred revenue.

Our total revenue was $42.7 million and $127.7 million in the three and nine months ended September 30, 2017, respectively, representing growth rates of 3% and 8% compared to $41.6 million and $118.5 million in the three and nine months ended September 30, 2016.

Revenue from subscriptions represented 40% and revenue from perpetual licenses represented 21% and 23%, respectively, of total revenue in the three and nine months ended September 30, 2017. The balance, constituting 39% and 37% of total revenue in the three and nine months ended September 30, 2017, respectively, was software support and services revenue which consists primarily of revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses. This represents a continuing mix shift in favor of subscription and software support and services revenue, as we recognized 38% of our total revenue from subscriptions, 27% from perpetual licenses and 35% from software support and services in both the three and nine months ended September 30, 2016. Our MRC revenue, included in our reported subscription revenue, comprised approximately 11% and 12% of total revenue in the three and nine months ended September 30, 2017, respectively, and 14% and 16% of total revenue in the three and nine months ended September 30, 2016, respectively. The decrease in MRC revenue as a percentage of total revenue was largely due to customers switching from MRC to longer-term subscriptions or perpetual licenses.

Our perpetual license revenue for the three and nine months ended September 30, 2017 was $9.0 million and $28.6 million, respectively, representing a decrease of $2.3 million, or 21%, and $2.9 million, or 9%, compared to the corresponding periods of 2016. The decline in perpetual license revenue was primarily due to a decrease in demand for our perpetual licenses and to a mix shift in favor of software licenses priced as subscriptions rather than perpetual licenses.

Our subscription revenue for the three and nine months ended September 30, 2017 was $17.3 million and $51.4 million, respectively, representing an increase of $1.7 million, or 11%, and $6.4 million, or 14%, compared to the corresponding periods of 2016, reflecting customers’ preference to purchase licenses priced as subscriptions. While we expect subscription revenue to increase as new and existing customers continue to purchase software subscription licenses, we also expect potential quarterly volatility in both billings and revenue as a result of mix changes between perpetual, term subscription and MRC transactions.

Our software support and services revenue for the three and nine months ended September 30, 2017 was $16.5 million and $47.7 million, respectively, representing an increase of $1.8 million, or 12%, and $5.7 million, or 13%, compared to the corresponding periods of 2016. The growth rate of support and services revenue is primarily dependent on growth in our installed base of customers that purchase recurring software support.

Our gross billings were $50.4 million and $140.6 million in the three and nine months ended September 30, 2017, representing an increase of $3.1 million, or 7%, and $13.8 million, or 11%, from the corresponding periods of 2016. Our gross billings were $182.1 million, $165.0 million and $145.7 million in 2016, 2015 and 2014, respectively, representing growth rates of 10% from 2015 to 2016 and 13% from 2014 to 2015. See “Key Metrics and Non-GAAP Financial Information” and “Recent Accounting Pronouncements” for more information and a reconciliation of gross billings to total revenue.

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We sell a significant portion of our products through our channel partners, including resellers, service providers and system integrators.  integrators. Our sales force develops sales opportunities and works closely with our channel partners to sell our solutions. We have a high touch sales force focused on large organizations, inside sales teams focused on mid-sized enterprises and sales teams that work with service providers that focus on smaller businesses. We prioritize our internal sales and marketing efforts on large organizations because we believe that they represent the largest potential opportunity.

Our total revenue in the three and nine months ended September 30, 2020 was $50.0 million and $158.6 million, compared to $52.2 million and $151.1 million in the three and nine months ended September 30, 2019, representing a decrease of 4% and an increase of 5%, respectively.

Revenue from cloud services, licenses and software support and services represented 42%, 13% and 45% of total revenue, respectively, in the three months ended September 30, 2020, and 34%, 23% and 43% of total revenue, respectively, in the three months ended September 30, 2019. Revenue from cloud services, licenses and software support and services represented 37%, 21% and 42% of total revenue, respectively, in the nine months ended September 30, 2020, and 32%, 24% and 44% of total revenue, respectively, in the nine months ended September 30, 2019. Revenue from recurring sources, which includes revenue from the license component of on-premise term subscriptions, cloud services, and software support on perpetual and on-premise term licenses, was 95% and 86% of total revenue in the three and nine months ended September 30, 2020, respectively, compared to 86% and 85% of total revenue in the three and nine months ended September 30, 2019, respectively. Cloud services and on-premise subscription revenue have increased as a percentage of our total revenue over the long-term. After the second quarter of 2020, we discontinued the perpetual license pricing model and, consequently, we expect to generate nearly all of our revenue from recurring sources in the future, as we did in the three months ended September 30, 2020, with cloud services accounting for an increasing proportion of that recurring revenue.

Our cloud services revenue in the three months ended September 30, 2020 and 2019 was $20.9 million and $17.6 million, respectively, representing an increase of 19%. Our cloud services revenue in the nine months ended September 30, 2020 and 2019 was $59.1 million and $49.2 million, respectively, representing an increase of 20%. This growth reflects our customers’ preference to purchase cloud services and contributions from MobileIron Threat Detection and Access. When we sell our cloud solutions on a subscription basis, we typically offer 12 months or longer terms and bill in advance.

Our license revenue in the three months ended September 30, 2020 and 2019 was $6.5 million and $12.2 million, respectively, representing a decrease of 47%. Our license revenue in the nine months ended September 30, 2020 and 2019 was $32.6 million and $35.8 million, respectively, representing a decrease of 9%. The decrease in license revenue in the three and nine months ended September 30, 2020 was primarily due to the discontinuation of sales of perpetual licenses. Over time, demand for our perpetual licenses decreased and we announced in the first quarter of 2020 that we would be discontinuing that pricing model at the end of our second quarter of 2020. As a result of that announcement, the three months ended June 30, 2020 benefitted from perpetual license sales that would have otherwise closed in future quarters. In the third quarter of 2020, however, perpetual license revenue was minimal. In future quarters, license revenue will be generated primarily from sales of on-premise subscriptions which do not generate as much up-front license revenue as perpetual licenses.

Our software support and services revenue in the three months ended September 30, 2020 and 2019 was $22.6 million and $22.4 million, respectively. Our software support and services revenue in the nine months ended September 30, 2020 and 2019 was $67.0 million and $66.2 million, respectively, representing an increase of 1%. Software support and services revenue includes support of perpetual license customers, the support component of on-premise subscriptions, and professional services. The growth rate of software support and services revenue has primarily been dependent on growth in our installed base of customers that purchase perpetual licenses or on-premises subscriptions, renewals of on-premises subscriptions and software support on perpetual licenses, and purchases of professional services

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as part of our solutions. The discontinuation of sales of perpetual licenses eliminates the sale of new perpetual licenses with accompanying support as a software support and services growth factor in the future.

Our Annual Recurring Revenue (or “Total ARR”) at September 30, 2020 was $191.5 million compared to $174.3 million at September 30, 2019, representing a growth rate of 10%. Total ARR is defined as the annualized value of all recurring revenue contracts active at the end of a reporting period. See “Key Metrics and Non-GAAP Financial Information” for more information about ARR.

We believe that our market opportunity is large, and sales to customers outside of the United States will remain a significant opportunity for future growth. In the three and nine months ended September 30, 2017,  2020, 57% and 54%, respectively, of our total revenue was generated from customers located outside of the United States primarily those located in Europe. Inand for both the threefull years of 2019 and nine months ended September 30, 2016, 51%2018, 58% of our total revenue was generated from customers located outside of the United States. The international revenue was primarily generated from customers located in Europe. International market trends that may affect sales of our products and services include heightened concerns and legal requirements relating to data security and privacy, the importance of execution on our international channel partner strategy, the importance of recruiting and retaining sufficient international personnel, the effect of exchange rates, and political and financial market instability.

In April 2020, we acquired all of the threeissued and nine months ended September 30, 2017, while we increased our spendingoutstanding capital stock of incapptic, a privately-held German software company, for $5.9 million. Our unified endpoint management platform integrates with the incapptic software to support the developmenthelp customers develop, deploy and secure in-house business applications, a natural extension of our product portfolio.

Since 2016, we reduced sales and marketing and general and administrative spending compared to the corresponding periods of 2016.have focused on driving more efficiency in our business. However, we have continued to incur a net loss. losses. We have incurred net losses of $67.2$37.4 million, $84.5$48.8 million and $61.9 million in 2016, 2015 and 2014, respectively, and $48.4 million and $57.0$43.1 million in the nine months ended September 30, 20172020, and 2016,the full years 2019 and 2018, respectively. As a result of this, we do not expect to be profitable for the foreseeable future under our current operating plan. Future profitability is primarily dependent on revenue growth, which may be challenging for a number of reasons including possible continued mix shift towards cloud subscription licensing, increasing and entrenched competition, product features, changes in our pricing model, the amount of revenue we generate from sales of partner solutions that bear royalties, our ability to continue to develop and evolve our products, any failure to capitalize on market opportunities, and the ability of our Salessales organization to retain its key employees and leadership team. Future profitability is also dependent on our ability to drive efficiencies into the business and to manage our expenses, which are beingcontinue to be impacted by increasing overhead costs associated with security initiatives, systems upgrade projects, new revenue guidance implementation, office expansion in India,stock-based compensation charges from RSU and increased depreciation expense from capital expenditures for our new headquarters officePSU grants and office in India, and network and data center upgrades.stock-settled bonuses. We will also need to increase operating efficiency, which may be challenging given our operational complexity.

In addition, we are assessing the first quarter of 2020, the United States and other countries began shelter-in-place mandates and began to close many businesses as a result of the COVID-19 virus. The World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. The future impact of the new revenue accounting standard, includingpandemic and any resulting economic impact are largely unknown and rapidly evolving.

While we are closely monitoring the changessituation, it is difficult at this time to commission accounting,predict the impact that COVID-19 will continue to have on our profitability.business, financial position and operating results in future periods due to numerous uncertainties. As a result of COVID-19, we have seen a reduction in expense due to travel and marketing event restrictions and the limited use of our office facilities. We expect spending in these areas to mostly continue to run below historical norms until national and local authorities have issued updated guidance and regulations, and our employees, customers and partners have confidence that the pandemic has been contained. Our future financial position is likely to be negatively impacted by the loss of current customers or prospects, delays in existing customer renewals or new customer purchases, limitation in our ability to expand or upsell within our existing customer base, pricing pressure, or by our customers’ inability to pay amounts owed to us. While we cannot predict the amount of the future financial impact from COVID-19, shelter-in-place mandates across the world have disrupted certain of our ARR growth drivers as the priorities of the IT leaders of our customers and prospective customers have shifted. As a result of those and other priority changes, as well as the economic toll that COVID-19 has had and we expect will continue to have on our customers, we have seen and expect to continue to see a negative impact on our ARR and revenue, which may increase net losses, until the pandemic

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is contained and likely for an unknown period of time thereafter. Because of our IT infrastructure and the nature of our business, our employees have generally been able to work remotely and productively despite the shelter-in-place requirements, but future productivity and the effects of COVID-19 on our operations is unknown at this time.

On September 26, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ivanti, Inc., a Delaware corporation (“Parent”), and Oahu Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent. The consummation of the merger pursuant to the Merger Agreement is subject to certain closing conditions, including approval by our stockholders. See Note 1 in Notes to the Consolidated Financial Statements for additional information about the Merger Agreement.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions in the preparation of ourOur consolidated financial statements and accompanying notes.notes are prepared in accordance with U.S. GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results could differ from those estimates.

Revenue Recognition

We believederive revenue from software-related arrangements consisting of perpetual software licenses, post-contract customer support for such licenses, or PCS or software support, including when and if available updates, and professional services such as consulting and training services. We also offer our software as term-based licenses and cloud-based arrangements.

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is also required to determine the stand-alone selling price (“SSP") for each distinct performance obligation. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with software support. We use a range of amounts to estimate SSP when we sell our products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative SSP of the various products and services.  

We typically have beenmore than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the size of the customer in determining the SSP.  

Our products are sometimes sold with a right of refund which we have to consider when estimating the amount of revenue to recognize.

Commissions

Current accounting principles require us to defer commission costs and amortize them in a manner consistent with how we recognize revenue. Key judgments that impact our commission expense include estimating our customer life and the determination of the impairment of commission assets we deem to be unrecoverable.

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Goodwill and Intangible Assets

We record the excess of the acquisition purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. We perform an impairment test of our goodwill in the third quarter of our fiscal year, or more frequently if indicators of potential impairment arise. We have a single reporting unit and consequently evaluate goodwill for impairment based on an evaluation of the fair value of the Company as a whole. We observed no significant changesimpairment indicators in 2020. In our critical accounting policiesimpairment test completed in the third quarter of 2020, we observed that the fair value of the Company as a whole is substantially in excess of its carrying value, including goodwill.

We record purchased intangible assets at their respective estimated fair values at the date of acquisition. Purchased intangible assets are being amortized using the straight-line method over their estimated useful lives, which range from those describedthree to five years. We evaluate the remaining useful lives of intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining estimated amortization period.

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. For stock awards, 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.

We estimate the fair value of the rights to acquire stock under our ESPP using the Black-Scholes option pricing formula. Our ESPP typically provides for consecutive 24 month offering periods, consisting of four tranches. We recognize compensation expense on an accelerated-graded basis over the employee’s requisite service period. We account for the fair value of restricted stock units, or RSUs, and, beginning 2020, performance stock units, or PSUs, using the closing market price of our common stock on the date of grant. RSUs granted to existing employees typically vest ratably on a quarterly basis over four years. RSUs granted to new employees typically vest one-fourth after one year and ratably on a quarterly basis over the following three years. Based on achievement relative to certain company metrics, one-fourth of PSUs vest in the first quarter of the year after grant and the remaining PSUs vest ratably on a quarterly basis over the following three years. We recognize compensation expense for RSUs on a straight-line basis over the employee’s requisite service period. We recognize compensation expense for PSUs on an accelerated-graded basis over the employee’s requisite service period and the expense may be adjusted each quarter based on our Annual Reportforecast of the Company’s performance relative to the metrics that determine the number of PSUs that will vest.

In 2019 and prior years, stock-based compensation expense associated with our annual stock-settled bonus program was recognized on Form 10-K fileda straight-line basis over the required service period and the expense is evaluated each quarter based on our forecast of the Company’s performance relative to the metrics that determine the bonus pool. The Merger Agreement imposes certain pre-closing restrictions on our activities, one of which precludes settlement of our 2020 Bonus Plans in unrestricted common stock. Consequently, we have classified the 2020 Bonus Plan expense as bonus expense rather than stock-based compensation expense in the three and nine months ended September 30, 2020. The expense methodology otherwise remains the same as in 2019 and prior years. In September 2020, following the completion of negotiations among the parties regarding the material terms of the Merger Agreement (including the price of $7.05 per share), the Compensation Committee of our board of directors split the 2020 Bonus Plans into Nine-Month Plans, covering January 1, 2020 to September 30, 2020, and Three-Month Plans, covering October 1, 2020 to December 31, 2020. In the case of the Three-Month Plans and the Nine-Month Plans, the level of achievement will be determined by the Company based on the application of the metrics and terms previously adopted by the Company, but with a minimum payout of 100% of target under each plan.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax liabilities and assets are recognized for the SEC on February 14, 2017.expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

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We currently have a full valuation allowance against our U.S. net deferred tax assets, which was $117.7 million as of December 31, 2019. We continue to monitor the relative weight of positive and negative evidence of future profitability in relevant jurisdictions. The allowance will be released if evidence indicates that it becomes more likely than not that the tax asset may be utilized.

Recent Accounting Pronouncements

For discussion onof recent accounting pronouncements, see “Summary of Significant Accounting Policies” under Note 1 “Description of Business and Significant Accounting Policies” included in Item 1, “Financial Statements” of Part I of this Quarterly Report on Form 10-Q.

Key Metrics and Non-GAAP Financial Information

To supplement our financial results presented on a U.S. GAAP basis, we provide investors with certain non-GAAP financial measures, including gross billings, recurring billings, recurring revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss,income (loss), non-GAAP operating margin, non-GAAP net loss andincome (loss), non-GAAP net lossincome (loss) per share.share and free cash flow. These non-GAAP financial measures exclude stock-based compensation, the amortization ofrestructuring expense, and intangible assets, and a litigation settlement charge.asset amortization.

29


Stock-based compensation expenses

In our non-GAAP financial measures, we have excluded the effect of stock-based compensation expenses. We exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe that providing non-GAAP financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between our operating results and those of other companies. Stock-based compensation expenses will recur in future periods. in varying amounts.

Amortization of intangible assets2020 Bonus Plan expense

In our non-GAAP financial measures, we have excluded the effect of the amortizationexpense associated with our 2020 Bonus Plans. The Merger Agreement imposes certain pre-closing restrictions on our activities, one of intangible assets. Amortization of intangible assets is significantly affected by the timing and sizewhich precludes settlement of our acquisitions. Amortization of intangible assets will recur2020 Bonus Plans in future periods.

Litigation settlement charge

Inunrestricted common stock. Consequently, we have classified expense from the 2020 Bonus Plans as bonus expense rather than stock-based compensation expense in the three and nine months ended September 30, 2020. We believe that excluding this expense from our non-GAAP financial measures we have excluded a charge formakes the cost of2020 periods presented more comparable since the settlement of2019 periods presented classify expense from our shareholder litigation. While it is possible that we will have material litigation-related charges in the future, we do not expect such charges to be a consistently recurringBonus Plans as stock-based compensation expense.

Restructuring chargesexpense

In our non-GAAP financial measures, we have excluded the effect of theexpenses associated with severance and other expenses related to reductions in our reduction in workforce.workforce and the exit of an office building. Restructuring chargesexpense may recur in the future; however, the timing and amounts are difficult to predict.

Intangible asset amortization

In our non-GAAP financial measures, we have excluded the effect of intangible asset amortization. Amortization of intangible assets can be significantly affected by the timing and size of acquisitions of companies or technology.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating loss,income (loss), non-GAAP operating margin, non-GAAP net loss,income (loss), and non-GAAP net lossincome (loss) per share

We believe that the exclusion of stock-based compensation expense, therestructuring expense, and intangible asset amortization of intangible assets, the litigation settlement charge, and restructuring charges from various non-GAAP financial metrics such as gross profit, gross margin, operating loss, operating margin, net loss, and net loss per share provides useful measures for management and investors. Stock-basedBecause stock-based compensation, restructuring charges,expense, and theintangible asset amortization of intangible assets have been and can continue to be inconsistent in amount from period to period. We have not historically had a material litigation-related settlement charge. While it is possible thatperiod, we will have material litigation settlement charges in the future, we do not expect it to be a consistently recurring expense. We believe the inclusion of these items makes it difficult to compare periods and understand the growth and performance of our business.business, on its own and in comparison to other companies. The Merger Agreement contains a pre-closing restriction

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from settling our Bonus Plans in unrestricted common stock which caused us to change the classification of expense from our 2020 Bonus Plans from stock-based compensation expense to bonus expense. Because bonus plans were historically settled in unrestricted common stock, we classified the associated expense as stock-based compensation expense in the comparable periods of 2019. In addition, we evaluate our business performance and compensate management based in part on these non-GAAP measures. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by our competitors and exclude expenses that may have a material impact on our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees. Similarly, amortization of intangible assets has been and will continue to be a recurring expense.

Free Cash Flow

30


Gross and recurring billings, recurring revenue and free cash flow

Our non-GAAP financial measures also include: gross billings, which we define as total revenue plus the change in deferred revenue in a period; recurring billings, which we define as total revenue less perpetual license, hardware, and professional services revenue plus the change in deferred revenue for subscription and software support arrangements in a period, adjusted for nonrecurring perpetual license billings; recurring revenue, which we define as total revenue less perpetual license, hardware, professional services and perpetual amounts recorded as subscription or software support revenue in multiple elements arrangements; and include free cash flow,, which we define as cash used inprovided by (used in) operating activities less the amount of property and equipment purchased. We consider gross billings to be a useful metric for management and investors because subscription billings, excluding MRC, and software support and services billings drive deferred revenue, which is an important indicator of future revenue. Similarly, we consider recurring billings and recurring revenue to be useful metrics because they are important indicators of the portion of our business that we would expect to recur each year. There are a number of limitations related to the use of gross, recurring billings and recurring revenue. First,  gross and recurring billings include amounts that have not yet been recognized as revenue. Second, our calculation of gross and recurring billings may be different from other companies that report similar financial measures. Third, recurring revenue excludes perpetual license amounts recognized from multiple elements arrangements that we record as subscription or software support revenue in our GAAP statements of operations, and these perpetual license amounts are based on invoice value, not fair value, although we believe invoice value approximates the fair value of the element. Fourth, in the MRC model, revenue and billings are based on active devices or users of the service provider’s customer and are billed to us by the service provider on a monthly basis over time and one month in arrears. Thus, under the MRC model, we receive no billings or revenue for MRC at the time the deal is booked, but instead the MRC is billed and revenue is recognized each month based on active usage. Unlike term subscriptions, MRC is not reflected in deferred revenue. This important difference between MRC billings and perpetual and term subscription billings can lead to significant variability of billings in a given quarter depending on the type of billing model that the customer chooses and the overall mix of billing types for all customers within a quarter. We compensate for these limitations by providing specific information regarding revenue and evaluating gross and recurring billings and recurring revenue together with revenue calculated in accordance with GAAP. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to invest in our business and fund ongoing operations. However, our calculation of free cash flow may not be comparable to similar measures used by other companies.

We believe these non-GAAP financial measures are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business, and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business usingrelative to certain of these non-GAAP measures.

Non-GAAP financial measures for the three and nine months ended September 30, 2020 and 2019 were as follows (unaudited):

Three Months Ended

    

Nine Months Ended

    

September 30, 

September 30, 

(in thousands, except percentages and per share data)

2020

    

2019

    

2020

    

2019

    

Non-GAAP gross profit

$

39,573

$

42,794

$

127,782

$

123,838

Non-GAAP gross margin

 

79.1

%  

 

82.0

%  

 

80.6

%  

 

81.9

%  

Non-GAAP operating income (loss)

$

(3,857)

$

173

$

(2,261)

$

(10,327)

Non-GAAP operating margin

 

(7.7)

%  

 

0.3

%  

 

(1.4)

%  

 

(6.8)

%  

Non-GAAP net loss

$

(4,202)

$

(191)

$

(3,589)

$

(10,675)

Non-GAAP loss per share

$

(0.04)

$

(0.00)

$

(0.03)

$

(0.10)

Free cash flow

$

3,069

$

(6,197)

$

3,788

$

(3,649)

3139


We monitor the following non-GAAP financial measures (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

    

 

 

September 30, 

 

September 30, 

 

(in thousands, except percentages and per share data)

    

2017

    

2016

    

2017

    

2016

    

Gross billings

 

$

50,357

 

$

47,251

 

$

140,597

 

$

126,751

 

Year-over-year percentage increase

 

 

 7

%  

 

 —

 

 

11

%  

 

 —

 

Recurring billings

 

$

37,532

 

$

34,915

 

$

105,234

 

$

92,123

 

Percentage of gross billings

 

 

75

%  

 

74

%  

 

75

%  

 

73

%  

Year-over-year percentage increase

 

 

 7

%  

 

 —

 

 

14

%  

 

 —

 

Recurring revenue

 

$

32,440

 

$

28,957

 

$

95,517

 

$

83,204

 

Percentage of total revenue

 

 

76

%  

 

70

%  

 

75

%  

 

70

%  

Year-over-year percentage increase

 

 

12

%  

 

 —

 

 

15

%  

 

 —

 

Non-GAAP gross profit

 

$

36,082

 

$

34,839

 

$

107,956

 

$

98,093

 

Non-GAAP gross margin

 

 

84.5

%  

 

83.8

%  

 

84.6

%  

 

82.8

%  

Non-GAAP operating loss

 

$

(6,880)

 

$

(5,236)

 

$

(19,625)

 

$

(28,306)

 

Non-GAAP operating margin

 

 

(16.1)

%  

 

(12.6)

%  

 

(15.4)

%  

 

(23.9)

%  

Non-GAAP net loss

 

$

(7,050)

 

$

(5,515)

 

$

(19,805)

 

$

(28,794)

 

Non-GAAP loss per share

 

$

(0.07)

 

$

(0.06)

 

$

(0.21)

 

$

(0.34)

 

Free cash flow

 

$

(8,373)

 

$

(6,822)

 

$

(12,411)

 

$

(22,546)

 

32


Reconciliation of Non-GAAP Financial Measures

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

    

 

 

September 30, 

 

September 30, 

 

 

 

2017

 

2016

 

2017

 

2016

 

(in thousands, except percentages and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross billings reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

42,720

 

$

41,566

 

$

127,660

 

$

118,454

 

Total deferred revenue, end of period (1)

 

 

101,013

 

 

78,172

 

 

101,013

 

 

78,172

 

Less: Total deferred revenue, beginning of period

 

 

(93,376)

 

 

(72,487)

 

 

(88,076)

 

 

(69,875)

 

Total change in deferred revenue

 

 

7,637

 

 

5,685

 

 

12,937

 

 

8,297

 

Gross billings

 

$

50,357

 

$

47,251

 

$

140,597

 

$

126,751

 

Recurring billings reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

42,720

 

$

41,566

 

$

127,660

 

$

118,454

 

Less: Perpetual license revenue

 

 

(8,986)

 

 

(11,311)

 

 

(28,572)

 

 

(31,462)

 

Less: Professional services revenue

 

 

(776)

 

 

(780)

 

 

(2,081)

 

 

(2,373)

 

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

 

 

98,230

 

 

75,956

 

 

98,230

 

 

75,956

 

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

 

 

(90,647)

 

 

(70,286)

 

 

(85,612)

 

 

(67,267)

 

Total change in subscription and software support deferred revenue

 

 

7,583

 

 

5,670

 

 

12,618

 

 

8,689

 

Less: Adjustments (2)

 

 

(3,009)

 

 

(230)

 

 

(4,391)

 

 

(1,185)

 

Recurring billings

 

$

37,532

 

$

34,915

 

$

105,234

 

$

92,123

 

Recurring revenue reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

 

42,720

 

 

41,566

 

 

127,660

 

 

118,454

 

Less: Perpetual license revenue

 

 

(8,986)

 

 

(11,311)

 

 

(28,572)

 

 

(31,462)

 

Less: Professional services revenue

 

 

(776)

 

 

(780)

 

 

(2,081)

 

 

(2,373)

 

Less: Perpetual license recorded over the term of subscription or software support (3)

 

 

(518)

 

 

(518)

 

 

(1,490)

 

 

(1,415)

 

Recurring revenue:

 

$

32,440

 

$

28,957

 

$

95,517

 

$

83,204

 

Non-GAAP gross profit reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

34,702

 

$

33,757

 

$

104,341

 

$

95,258

 

Add: Stock-based compensation expense

 

 

932

 

 

747

 

 

2,859

 

 

2,192

 

Add: Amortization of intangible assets

 

 

137

 

 

154

 

 

445

 

 

462

 

Add: Restucturing charge

 

 

311

 

 

181

 

 

311

 

 

181

 

Non-GAAP gross profit

 

$

36,082

 

$

34,839

 

$

107,956

 

$

98,093

 

Non-GAAP gross margin reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross margin: GAAP gross profit over GAAP total revenue

 

 

81.2

%  

 

81.2

%  

 

81.7

%  

 

80.4

%  

GAAP to non-GAAP gross margin adjustments

 

 

3.3

%  

 

2.6

%

 

2.9

%  

 

2.4

%

Non-GAAP gross margin

 

 

84.5

%  

 

83.8

%  

 

84.6

%  

 

82.8

%  

Non-GAAP operating loss reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating loss

 

$

(16,895)

 

$

(14,314)

 

$

(48,262)

 

$

(56,486)

 

Add: Stock-based compensation expense

 

 

9,078

 

 

7,872

 

 

26,249

 

 

26,666

 

Add: Amortization of intangible assets

 

 

137

 

 

154

 

 

445

 

 

462

 

Add: Litigation settlement charge

 

 

 —

 

 

 —

 

 

1,143

 

 

 —

 

Add: Restructuring charge

 

 

800

 

 

1,052

 

 

800

 

 

1,052

 

Non-GAAP operating loss

 

$

(6,880)

 

$

(5,236)

 

$

(19,625)

 

$

(28,306)

 

Non-GAAP operating margin reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating margin: GAAP operating profit over GAAP total revenue

 

 

(39.5)

%

 

(34.4)

%

 

(37.8)

%

 

(47.7)

%

GAAP to non-GAAP operating margin adjustments

 

 

23.4

%  

 

21.8

%

 

22.4

%  

 

23.8

%

Non-GAAP operating margin

 

 

(16.1)

%

 

(12.6)

%

 

(15.4)

%

 

(23.9)

%

Non-GAAP net loss reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss

 

$

(17,065)

 

$

(14,593)

 

$

(48,442)

 

$

(56,974)

 

Add: Stock-based compensation expense

 

 

9,078

 

 

7,872

 

 

26,249

 

 

26,666

 

Add: Amortization of intangible assets

 

 

137

 

 

154

 

 

445

 

 

462

 

Add: Litigation settlement charge

 

 

 —

 

 

 —

 

 

1,143

 

 

 —

 

Add: Restructuring charge

 

 

800

 

 

1,052

 

 

800

 

 

1,052

 

Non-GAAP net loss

 

$

(7,050)

 

$

(5,515)

 

$

(19,805)

 

$

(28,794)

 

Non-GAAP net loss per share reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss per share

 

$

(0.18)

 

$

(0.17)

 

$

(0.52)

 

$

(0.67)

 

Add: Stock-based compensation expense per share

 

 

0.10

 

 

0.10

 

 

0.28

 

 

0.31

 

Add: Amortization of intangible assets per share

 

 

 —

 

 

 —

 

 

0.01

 

 

0.01

 

Add: Litigation settlement charge

 

 

 —

 

 

 —

 

 

0.01

 

 

 —

 

Add: Restructuring charge

 

 

0.01

 

 

0.01

 

 

0.01

 

 

0.01

 

Non-GAAP net loss per share

 

$

(0.07)

 

$

(0.06)

 

$

(0.21)

 

$

(0.34)

 

Free cash flow:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(4,249)

 

$

(6,525)

 

$

(7,365)

 

$

(20,197)

 

Purchase of property and equipment

 

 

(4,124)

 

 

(297)

 

 

(5,046)

 

 

(2,349)

 

Free cash flow

 

$

(8,373)

 

$

(6,822)

 

$

(12,411)

 

$

(22,546)

 

    

Three Months Ended

    

Nine Months Ended

    

September 30, 

September 30, 

2020

2019

2020

2019

(in thousands, except percentages and per share data)

Non-GAAP gross profit reconciliation:

Gross profit

$

37,878

$

41,742

$

123,225

$

119,679

Add: Stock-based compensation expense

 

(57)

 

1,052

 

2,739

 

3,859

Add: Expense from 2020 Bonus Plans

1,657

 

 

1,657

 

Add: Amortization of intangible assets

 

95

 

 

161

 

Add: Restructuring expense

 

 

 

 

300

Non-GAAP gross profit

$

39,573

$

42,794

$

127,782

$

123,838

Non-GAAP gross margin reconciliation:

GAAP gross margin: GAAP gross profit over GAAP total revenue

 

75.8

%  

 

80.0

%  

 

77.7

%  

 

79.2

%  

GAAP to non-GAAP gross margin adjustments

 

3.3

%  

 

2.0

%

 

2.9

%  

 

2.7

%

Non-GAAP gross margin

 

79.1

%  

 

82.0

%  

 

80.6

%  

 

81.9

%  

Non-GAAP operating income (loss) reconciliation:

GAAP operating loss

$

(15,927)

$

(7,839)

$

(36,113)

$

(40,544)

Add: Stock-based compensation expense

 

2,644

 

8,012

 

23,723

 

27,159

Add: Expense from 2020 Bonus Plans

9,248

 

 

9,248

 

Add: Amortization of intangible assets

 

178

 

 

302

 

Add: Restructuring expense

579

3,058

Non-GAAP operating income (loss) reconciliation:

$

(3,857)

$

173

$

(2,261)

$

(10,327)

Non-GAAP operating margin reconciliation:

GAAP operating margin: GAAP operating loss over GAAP total revenue

 

(31.9)

%

 

(15.0)

%

 

(22.8)

%

 

(26.8)

%

GAAP to non-GAAP operating margin adjustments

 

24.2

%  

 

15.3

%

 

21.4

%  

 

20.0

%

Non-GAAP operating margin

 

(7.7)

%

 

0.3

%

 

(1.4)

%

 

(6.8)

%

Non-GAAP net loss reconciliation:

GAAP net loss

$

(16,272)

$

(8,203)

$

(37,441)

$

(40,892)

Add: Stock-based compensation expense

 

2,644

 

8,012

 

23,723

 

27,159

Add: Expense from 2020 Bonus Plans

9,248

 

 

9,248

 

Add: Amortization of intangible assets

 

178

 

 

302

 

Add: Restructuring expense

579

3,058

Non-GAAP net loss reconciliation:

$

(4,202)

$

(191)

$

(3,589)

$

(10,675)

Non-GAAP net loss per share reconciliation:

GAAP net loss

$

(0.14)

$

(0.07)

$

(0.32)

$

(0.37)

Add: Stock-based compensation expense

 

0.02

 

0.07

 

0.20

 

0.24

Add: Expense from 2020 Bonus Plans

0.08

 

 

0.08

 

Add: Amortization of intangible assets

 

 

 

 

Add: Restructuring expense

 

 

0.01

 

0.03

Non-GAAP net loss per share

$

(0.04)

$

(0.00)

$

(0.03)

$

(0.10)

Free cash flow:

Net cash provided by operating activities

$

3,181

$

(5,746)

$

4,584

$

(2,416)

Purchase of property and equipment

 

(112)

 

(451)

 

(796)

 

(1,233)

Free cash flow

$

3,069

$

(6,197)

$

3,788

$

(3,649)

Annual Recurring Revenue

We utilize the operating metric, total annual recurring revenue (“Total ARR”), which is defined as the annualized value of all recurring revenue contracts active at the end of a reporting period. Total ARR includes the annualized value of subscriptions (“Subscription ARR”) and the annualized value of software support contracts related to perpetual licenses (“Perpetual license support ARR”) active at the end of a reporting period and does not include revenue reported as perpetual license or professional services in our consolidated statement of operations. We are monitoring these metrics because they align with how our customers are increasingly purchasing our solutions and how we are managing our business. These ARR measures should be viewed independently of revenue, unearned revenue, and customer arrangements with termination rights as ARR is an operating metric and is not intended to be combined with or replace those items. ARR is not an indicator of future revenue and can be impacted by contract start and end dates and renewal rates.

3340


(1)

Our deferred revenue consists of amounts that have been invoiced, but that have not yet been recognized as revenue as of the period end, including subscription, software support and service revenue paid for in advance by the customer that is recognized ratably over the contractual service period.

(2)

Includes nonrecurring perpetual license billings that consists of the Deferred Portion arising from undelivered elements of perpetual license arrangements and billings classified under Bundled Arrangements. See “Note 1—Summary of Significant Accounting Policies—Revenue Recognition” for a description of Deferred Portion and Bundled Arrangements.

(3)

Perpetual amounts recorded as subscription or software revenue in multiple elements arrangements, where undelivered elements do not have VSOE.

ARR metrics as of September 30, 2020 and 2019 were as follows (unaudited):

September 30, 

(in thousands, except percentages)

    

2020

    

2019

    

Total ARR

$

191,529

$

174,296

Year-over-year percentage increase

 

10

%  

 

14

%  

Subscription ARR

$

126,113

$

108,559

Year-over-year percentage increase

 

16

%  

 

23

%  

Perpetual license support ARR

$

65,416

$

65,737

Year-over-year percentage increase

 

-

%  

 

1

%  

Results of Operations

Revenue

Perpetual license revenueCloud Services

Perpetual license revenue primarily relatesCloud services include sales of cloud-based solutions that allow customers to use hosted software over a contract period without taking possession of our software and are typically provided on a subscription or usage basis. We recognize revenue from cloud-based subscriptions ratably over the term of the subscriptions or, if usage based, as the usage is billed.

License

License revenue consists primarily of revenue from on-premises perpetual licenses and the license portion of on-premise perpetual licenses.subscriptions. From time to time, we enter into multiple element arrangements with customers in which a customer purchases our software with an appliance. Appliance revenues arerevenue is also included in perpetual license revenue and constituteconstituted less than 10%1% of total revenue for the three and nine months ended September 30, 20172020 and 2016.2019.

Subscription revenue

Subscription revenue is generated primarily from subscriptions to our on-premise term licenses, arrangements where perpetual and term license subscriptions are bundled together, and subscriptions to our cloud service. These revenues are recognized ratably over the subscription period or term. While most of our subscriptions have at least a one-year commitment, we also recognize in this category MRC, which is revenue from month-to-month subscription arrangements that are typically sold through service providers and billed on a monthly basis, one month in arrears. Except for MRC, we typically bill subscriptions annually in advance.

Software support and services revenue

Software support and services revenue consists of recurring revenue from agreements to provide software upgrades and updates, as well as technical support, to customers with perpetual software licenses.licenses, on-premise subscriptions, and professional services. Revenue related tofrom software support for both perpetual and on-premise subscriptions is recognized ratably over the support or subscription term. Revenue from professional services is recognized as work is performed.

Cost of Revenue

Cloud Services

Our cloud services cost of revenue consists of cloud service data center operations expense, the portion of our global Customer Success organization (See Software support and services below) associated with our cloud services business, and third-party royalties. Cloud service data center operations expenses primarily consist of personnel costs, stock-based compensation, third-party hosting facilities, telecommunication and information technology costs. We expect cloud services cost of revenue also includes revenue from professional services, consistingto increase if we continue to increase sales of implementation consulting servicesMobileIron Threat Defense or other royalty-bearing cloud solutions and training of customer personnel.as we scale our data center operations team and infrastructure to support our growing cloud business.

Cost of RevenueLicense

Perpetual license

Our cost of perpetual license revenue consists of the cost of third-party software royalties appliances and amortization of intangible assets.appliances.

Subscription

Our cost of subscription revenue primarily consists of costs associated with our cloud service 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 personnel costs, third-party hosting facilities, telecommunication and information technology costs. Global Customer Success organization and data center operations costs primarily consist of salaries, benefits, stock-based compensation, depreciation, and facilities.

3441


Software support and serviceservices

Our software support and services cost of revenue primarily consists of coststhe portion of our global Customer Success organization expenses associated with our software support business and third-party royalties. Costs associated with our global Customer Success organization includinginclude our customer support, professional services, customer advocacy, and training teams. These costs consist of salaries, benefits,personnel costs, stock-based compensation, depreciation, facilities and information technology costs.

Gross Margin

Gross margin, or gross profit as a percentage of total revenue, has been and will continue to beis affected by various factors, including mix between large and small customers, mix of products sold, including our MobileIron Threat Defense which bears a royalty, mix between perpetual, on-premises and cloud subscription licenses, timing of revenue recognition and the extent to which we expand our global Customer Success organization and data center operations, including costs associated with third-party hosting facilities and stock-based compensation expense associated with grants of equity awards. We expect our gross margins to fluctuatedecline somewhat over time dependingthe short term based on the factors described above.

Operating Expenses

Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation and, in sales and marketing expense, sales commissions. While operating expenses, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect them to decrease over the long term as a percentage of total revenue. Stock-based compensation expense may fluctuate depending on the size and timing of restricted stock unitRSU and PSU grants and achievement under stock-settled bonus plans, if any. For example, in the nine months ended September 30, 2017, stock-based compensation expense in operating expenses was $23.4 million compared to $24.5 million in the nine months ended September 30, 2016.plans.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expense consists primarily of personnel costs. Research and development expense also includes costs associated with contractors and consultants, equipment and software to support our development and quality assurance teams, facilities and information technology. While our research and development expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.

Sales and Marketing Expenses

Sales and marketing expense consists primarily of personnel costs, including sales commissions. We expense commissions up-front at the time of the sale. Sales and marketing expense also includes costs associated with third-party events, lead generation campaigns, promotional and other marketing activities, as well as travel, equipment and software depreciation, consulting, information technology and facilities. While our sales and marketing expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.

General and Administrative Expenses

General and administrative expense consists of personnel costs, travel, information technology, facilities and professional services fees. General and administrative personnel include our executive, finance, human resources and legal organizations. Professional services fees consist primarily of litigation, other legal, accounting and consulting costs. While our general and administrative expense, exclusive of stock-based compensation expense, may fluctuate as a percentage of total revenue from period to period, we expect it to decrease as a percentage of total revenue over the long term.

3542


Restructuring Expense

Litigation Settlement Charge

The litigation settlement charge is the expense associated with the settlement of outstanding shareholder litigation.

Restructuring Charges

Restructuring charges consistexpense consists of severance and other costs associated with reducingexpenses related to reductions in our workforce and the exit of an office building. Restructuring expense may recur in the future; however, the timing and amounts are difficult to align our cost structure with our expected growth rate.predict.

Other Income (Expense)Net

Other income (expense), net consists primarily of interest income earned on our cash and cash equivalents and fixed income securities and the effect of exchange rates on our foreign currency-denominated asset and liability balances and interest income earned on our cash and cash equivalents and fixed income securities.foreign currency transactions. All translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations.

Income Tax Expense

Income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business. Due to our history of losses, we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards,carryforwards, research and development tax credits, capitalized research and development and other book versus tax differences.

Consolidated Results of Operations

The following tables summarize our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of results is not necessarily indicative of results for future periods.

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

    

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

 

2016

 

2017

 

2016

 

Three Months Ended

    

Nine Months Ended

 

September 30, 

September 30, 

 

    

2020

2019

2020

2019

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

$

8,986

 

$

11,311

 

$

28,572

 

$

31,462

 

Subscription

 

 

17,277

 

 

15,570

 

 

51,432

 

 

44,996

 

Cloud services

$

20,890

$

17,591

$

59,073

$

49,163

License

6,465

12,216

32,553

35,814

Software support and services

 

 

16,457

 

 

14,685

 

 

47,656

 

 

41,996

 

 

22,644

 

22,394

 

66,996

 

66,171

Total revenue

 

 

42,720

 

 

41,566

 

 

127,660

 

 

118,454

 

 

49,999

 

52,201

 

158,622

 

151,148

Cost of revenue (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

 

606

 

 

652

 

 

1,458

 

 

2,140

 

Subscription

 

 

2,266

 

 

2,202

 

 

6,341

 

 

6,184

 

Cloud services

 

6,792

 

5,557

 

19,673

 

15,413

License

 

415

 

436

 

1,461

 

1,423

Software support and services

 

 

4,835

 

 

4,774

 

 

15,209

 

 

14,691

 

 

4,914

 

4,466

 

14,263

 

14,333

Restructuring charge

 

 

311

 

 

181

 

 

311

 

 

181

 

Restructuring expense

 

 

 

300

Total cost of revenue

 

 

8,018

 

 

7,809

 

 

23,319

 

 

23,196

 

 

12,121

 

10,459

 

35,397

 

31,469

Gross profit

 

 

34,702

 

 

33,757

 

 

104,341

 

 

95,258

 

 

37,878

 

41,742

 

123,225

 

119,679

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (1)

 

 

19,581

 

 

16,238

 

 

56,440

 

 

51,185

 

 

20,259

 

19,072

 

60,115

 

60,889

Sales and marketing (1)

 

 

24,317

 

 

24,001

 

 

73,293

 

 

76,914

 

 

23,597

 

23,577

 

72,575

 

74,099

General and administrative (1)

 

 

7,210

 

 

6,961

 

 

21,238

 

 

22,774

 

 

9,949

 

6,932

 

26,069

 

22,477

Litigation settlement charge

 

 

 —

 

 

 —

 

 

1,143

 

 

 —

 

Restructuring charge

 

 

489

 

 

871

 

 

489

 

 

871

 

Restructuring expense

579

2,758

Total operating expenses

 

 

51,597

 

 

48,071

 

 

152,603

 

 

151,744

 

 

53,805

 

49,581

 

159,338

 

160,223

Operating loss

 

 

(16,895)

 

 

(14,314)

 

 

(48,262)

 

 

(56,486)

 

 

(15,927)

 

(7,839)

 

(36,113)

 

(40,544)

Other income (expense) - net

 

263

 

35

 

183

 

987

Loss before income taxes

 

(15,664)

 

(7,804)

 

(35,930)

 

(39,557)

Income tax expense

 

608

 

399

 

1,511

 

1,335

Net loss

$

(16,272)

$

(8,203)

$

(37,441)

$

(40,892)

3643


Other income (expense) - net

 

 

188

 

 

19

 

 

701

 

 

184

 

Loss before income taxes

 

 

(16,707)

 

 

(14,295)

 

 

(47,561)

 

 

(56,302)

 

Income tax expense

 

 

358

 

 

298

 

 

881

 

 

672

 

Net loss

 

$

(17,065)

 

$

(14,593)

 

$

(48,442)

 

$

(56,974)

 

(1)

(1)

Includes Stock-basedstock-based compensation expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended,

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2017

 

2016

 

2017

 

2016

 

Three Months Ended,

Nine Months Ended

 

September 30, 

September 30, 

 

    

2020

2019

2020

2019

Cost of revenue

 

$

932

 

$

747

 

$

2,859

 

$

2,192

 

$

(57)

$

1,052

$

2,739

$

3,859

Research and development

 

 

3,914

 

 

2,709

 

 

11,046

 

 

9,122

 

 

367

 

3,279

 

8,710

 

11,015

Sales and marketing

 

 

2,258

 

 

2,307

 

 

6,612

 

 

8,418

 

 

1,208

 

2,029

 

6,670

 

6,367

General and administrative

 

 

1,974

 

 

2,109

 

 

5,732

 

 

6,934

 

 

1,126

 

1,652

 

5,604

 

5,918

Total

 

$

9,078

 

$

7,872

 

$

26,249

 

$

26,666

 

$

2,644

$

8,012

$

23,723

$

27,159

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Revenue

 

 

 

 

 

 

 

 

 

Perpetual license

 

21

%  

27

%  

23

%  

27

%  

Subscription

 

40

 

38

 

40

 

38

 

Software support and services

 

39

 

35

 

37

 

35

 

Total revenue

 

100

 

100

 

100

 

100

 

Cost of revenue

 

 

 

 

 

 

 

 

 

Perpetual license

 

 2

 

 2

 

 1

 

 2

 

Subscription

 

 5

 

 5

 

 5

 

 5

 

Software support and services

 

11

 

12

 

12

 

13

 

Restructuring charge

 

 1

 

 —

 

 0

 

 —

 

Total cost of revenue

 

19

 

19

 

18

 

20

 

Gross profit

 

81

 

81

 

82

 

80

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

46

 

39

 

44

 

43

 

Sales and marketing

 

57

 

58

 

58

 

64

 

General and administrative

 

17

 

17

 

17

 

19

 

Litigation settlement charge

 

 —

 

 —

 

 1

 

 —

 

Restructuring charge

 

 1

 

 2

 

 0

 

 1

 

Total operating expenses

 

121

 

116

 

120

 

127

 

Operating loss

 

(40)

 

(35)

 

(38)

  

(47)

 

Other income (expense) - net

 

 1

 

 —

 

 1

 

 —

 

Loss before income taxes

 

(39)

 

(35)

  

(37)

 

(47)

  

Income tax expense

 

 1

 

 1

 

 1

 

 1

 

Net loss

 

(40)

%

(36)

%

(38)

%

(48)

%

Statement of operations presented as a percentage of revenue:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

    

Revenue

Cloud services

42

%  

34

%  

37

%  

32

%  

License

13

23

21

24

Software support and services

45

 

43

 

42

 

44

 

Total revenue

100

 

100

 

100

 

100

 

Cost of revenue

Cloud services

13

 

11

 

12

 

10

 

License

1

 

1

 

1

 

1

 

Software support and services

10

 

8

 

9

 

10

 

Restructuring expense

 

 

 

Total cost of revenue

24

 

20

 

22

 

21

 

Gross profit

76

 

80

 

78

 

79

 

Operating expenses:

Research and development

41

 

37

 

38

 

40

 

Sales and marketing

47

 

45

 

46

 

49

 

General and administrative

20

 

13

 

17

 

15

 

Restructuring expense

0

2

Total operating expense

108

 

95

 

101

 

106

 

Operating loss

(32)

 

(15)

 

(23)

  

(27)

 

Other income (expense) - net

1

 

 

0

 

1

 

Loss before income taxes

(31)

 

(15)

  

(23)

 

(26)

  

Income tax expense

1

 

1

 

1

 

1

 

Net loss

(32)

%

(16)

%

(24)

%

(27)

%

37


Comparison of the Three and Nine Months Ended September 30, 20172020 and 20162019

Three Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Cloud services

$

20,890

$

17,591

$

3,299

 

19

%  

License

6,465

12,216

(5,751)

 

(47)

Software support and services

 

22,644

 

22,394

 

250

 

1

Total revenue

$

49,999

$

52,201

$

(2,202)

 

(4)

%  

Nine Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Cloud services

$

59,073

$

49,163

$

9,910

 

20

%  

License

 

32,553

35,814

 

(3,261)

 

(9)

Software support and services

 

66,996

 

66,171

 

825

 

1

Total revenue

$

158,622

$

151,148

$

7,474

 

5

%  

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Perpetual

 

$

8,986

 

$

11,311

 

$

(2,325)

 

(21)

%  

Subscription

 

 

17,277

 

 

15,570

 

 

1,707

 

11

 

Software support and services

 

 

16,457

 

 

14,685

 

 

1,772

 

12

 

Total revenue

 

$

42,720

 

$

41,566

 

$

1,154

 

 3

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenue

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual

 

 

21

%

 

27

%

 

 

 

 

 

Subscription

 

 

40

 

 

38

 

 

 

 

 

 

Software support and services

 

 

39

 

 

35

 

 

 

 

 

 

 

 

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Perpetual

 

$

28,572

 

$

31,462

 

$

(2,890)

 

(9)

%  

Subscription

 

 

51,432

 

 

44,996

 

 

6,436

 

14

 

Software support and services

 

 

47,656

 

 

41,996

 

 

5,660

 

13

 

Total revenue

 

$

127,660

 

$

118,454

 

$

9,206

 

 8

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenue

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual

 

 

23

%

 

27

%

 

 

 

 

 

Subscription

 

 

40

 

 

38

 

 

 

 

 

 

Software support and services

 

 

37

 

 

35

 

 

 

 

 

 

 

 

 

100

%

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

 

2017

 

2016

 

Change

 

 

    

 

 

    

% of

    

 

 

    

% of

    

 

 

    

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

 

Amount

 

Revenue

 

Amount

 

 Revenue

 

Amount

 

%

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

18,396

 

43

%  

$

20,292

 

49

%  

$

(1,896)

 

(9)

%  

International

 

 

24,324

 

57

 

 

21,274

 

51

 

 

3,050

 

14

 

Total revenue

 

$

42,720

 

100

%  

$

41,566

 

100

%  

$

1,154

 

 3

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

 

2017

 

2016

 

Change

 

 

    

 

 

    

% of

    

 

 

    

% of

    

 

 

    

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

 

Amount

 

Revenue

 

Amount

 

Revenue

 

Amount

 

%

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

58,251

 

46

%  

$

57,587

 

49

%  

$

664

 

 1

%  

International

 

 

69,409

 

54

 

 

60,867

 

51

 

 

8,542

 

14

 

Total revenue

 

$

127,660

 

100

%  

$

118,454

 

100

%  

$

9,206

 

 8

%  

3844


Three Months Ended

 

September 30, 

 

2020

2019

Change

 

    

    

% of

    

    

% of

    

    

 

Total

Total

 

(in thousands, except percentages)

Amount

Revenue

Amount

 Revenue

Amount

%

 

Revenue

United States

$

22,448

 

45

%  

$

23,376

 

45

%  

$

(928)

 

(4)

%  

International

 

27,551

 

55

 

28,825

 

55

 

(1,274)

 

(4)

Total revenue

$

49,999

 

100

%  

$

52,201

 

100

%  

$

(2,202)

 

(4)

%  

Nine Months Ended

 

September 30, 

 

2020

2019

Change

 

    

    

% of

    

    

% of

    

    

 

Total

Total

 

(in thousands, except percentages)

Amount

Revenue

Amount

Revenue

Amount

%

 

Revenue

United States

$

67,746

 

43

%  

$

64,849

 

43

%  

$

2,897

 

4

%  

International

 

90,876

 

57

 

86,299

 

57

 

4,577

 

5

Total revenue

$

158,622

 

100

%  

$

151,148

 

100

%  

$

7,474

 

5

%  

Revenue

Perpetual license

Cloud services revenue increased $3.3 million, or 19%, and $9.9 million, or 20%, in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of 2019, which was attributable to sales of MobileIron Threat Defense, Access and customer preference for our UEM solutions sold under a cloud-based delivery model.

License revenue decreased $2.3$5.8 million, or 21%47%, and $2.9$3.3 million, or 9%, in the three and nine months ended September 30, 2017,2020, respectively compared to the corresponding periods of 2016, primarily due to a continued slowdown in perpetual2019. Perpetual license orderssales decreased by $4.9 million and a shift in favor of software licenses priced as subscriptions. In addition,$107,000, respectively, in the three and nine months ended September 30, 2017,2020 compared to the corresponding periods of the prior year due to the discontinuation of sales of on-premise software priced as perpetual licenses as of June 30, 2020. The nine months ended September 30, 2020 benefitted from our announced discontinuation of perpetual license sales as we recognizedclosed sales in our second fiscal quarter of 2020 that would otherwise have closed in future quarters. In the three and nine months ended September 30, 2020, the up-front revenue contribution from sales of on-premise subscriptions decreased by $825,000 and $3.2 million, respectively, compared to the corresponding periods of 2019. License revenue from on-premise subscriptions is impacted by the timing, size and contract length of on-premise subscription sales in a large perpetual license transaction ratably rather than up-front because we did not have VSOEgiven period.

Software support and as a result, recognized nominal revenue from that transaction.

Subscriptionservices revenue increased $1.7by $250,000 and $825,000, respectively, in the three and nine months ended September 30, 2020 compared to the corresponding periods of 2019. Professional services revenue was $1.2 million and $3.5 million in the three and nine months ended September 30, 2020, respectively, compared to $1.1 million and $3.6 million in the three and nine months ended September 30, 2019, respectively. Professional services revenue for the three and nine months ended September 30, 2019 included revenue of $278,000 and $961,000, respectively, from a single professional services engagement whereas in the corresponding periods of 2020 there was no comparable single professional services engagement revenue contribution. Support for perpetual licenses declined $231,000 and $364,000 in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of 2019. The support component of on-premise subscriptions increased $365,000, or 7%, and $1.4 million, or 11%, and $6.4 million, or 14%10%, in the three and nine months ended September 30, 20172020, respectively, compared to the corresponding periods of 2016, primarily due to2019.

Revenue from U.S. sales decreased 4% and increased sales of solutions sold under either a cloud-based delivery model or a subscription term license for our on-premise software products. MRC revenue, a component of subscription revenue, decreased to $4.5 million in the three months ended September 30, 2017 from $6.0 million in the three months ended September 30, 2016, and MRC revenue decreased to $15.6 million in the nine months ended September 30, 2017 from $18.6 million in the nine months ended September 30, 2016, largely due to the conversion of MRC agreements to longer-term subscription or perpetual license agreements.

Software support and services revenue increased $1.8 million, or 12%, and $5.7 million, or 13%,4% in the three and nine months ended September 30, 20172020, respectively, compared to the corresponding periods of 2016, primarily as a result of an increased installed base of customers that purchase recurring software support. Professional services revenue was $776,000 and $779,000 in the three months ended September 30, 2017 and 2016, respectively, and decreased from $2.4 million to $2.1 million in the nine months ended September 30, 2017 compared to the corresponding periods of 2016, as a result of completing fewer professional services engagements.

2019. Revenue from international sales decreased 4% and

45

Table of Contents

increased 14% in both the three and nine months ended September 30, 2017 compared to the corresponding periods of 2016 due to an increase in the adoption of our products and an increased cumulative installed base of customers outside of the United States. 

Revenue from U.S. sales decreased 9% and increased 1%5% in the three and nine months ended September 30, 2017,2020, respectively, compared to the corresponding periods of 2016. The impact of customers purchasing licenses priced as subscriptions rather than perpetual software licenses was greater2019. Contributing to the decline in theinternational revenue and, to a lesser degree, U.S. than internationally.

Revenue from our largest reseller, AT&T, decreased to 13% and 14% of total revenue, in the three and nine months ended September 30, 2017, respectively,2020 was the first quarter after we discontinued sales of on-premise software priced as compared to 17%perpetual licenses. Over the longer nine-month periods, continued adoption of totalour products, unfavorably impacted somewhat by the discontinuation of sales of perpetual licenses, drove both the international and U.S. revenue in both of the corresponding periods of the prior year. growth rates.

No other customer accounted for 10% or more of total revenue in the three and nine months ended September 30, 20172020 or 2019, except for our largest reseller, AT&T, which accounted for 10% of total revenue in the three and 2016.  nine months ended September 30, 2019.

Cost of Revenue and Gross Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

2017

 

2016

 

Change

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

Three Months Ended

 

September 30, 

 

2020

2019

Change

 

% of

% of

Total

Total

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

$

606

 

 2

$

652

 

 2

$

(46)

 

(7)

Subscription

 

 

2,266

 

 5

 

 

2,202

 

 5

 

 

64

 

 3

 

Cloud services

$

6,792

 

13

%  

$

5,557

 

11

%  

$

1,235

 

22

%  

License

415

 

1

436

 

1

(21)

 

(5)

Software support and services

 

 

4,835

 

11

 

 

4,774

 

12

 

 

61

 

 1

 

 

4,914

 

10

 

4,466

 

8

 

448

 

10

Restructuring charge

 

 

311

 

 1

 

 

181

 

 —

 

 

130

 

72

 

Restructuring expense

 

 

 

 

 

Total cost of revenue

 

$

8,018

 

19

$

7,809

 

19

$

209

 

 3

$

12,121

 

24

%  

$

10,459

 

20

%  

$

1,662

 

16

%  

Gross profit

 

$

34,702

 

 

 

$

33,757

 

 

 

$

945

 

 

 

$

37,878

$

41,742

$

(3,864)

Gross margin

 

 

 

 

81

 

 

 

81

 

 

 

 

 

 

76

%  

 

80

%  

Nine Months Ended

 

September 30, 

 

2020

2019

Change

 

% of

% of

Total

Total

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Cost of revenue:

Cloud services

$

19,673

 

12

%  

$

15,413

10

%  

$

4,260

 

28

%  

License

1,461

 

1

1,423

1

38

 

3

Software support and services

 

14,263

 

9

 

14,333

10

 

(70)

 

Restructuring expense

 

 

300

 

(300)

 

(100)

Total cost of revenue

$

35,397

 

22

%  

$

31,469

21

%  

$

3,928

 

12

%  

Gross profit

$

123,225

$

119,679

$

3,546

Gross margin

 

78

%  

 

79

%  

39


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

 

2017

 

2016

 

Change

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Perpetual license

 

$

1,458

 

 1

%  

$

2,140

 

 2

%  

$

(682)

 

(32)

%  

Subscription

 

 

6,341

 

 5

 

 

6,184

 

 5

 

 

157

 

 3

 

Software support and services

 

 

15,209

 

13

 

 

14,691

 

13

 

 

518

 

 4

 

Restructuring charge

 

 

311

 

 0

 

 

181

 

 —

 

 

130

 

72

 

Total cost of revenue

 

$

23,319

 

19

%  

$

23,196

 

20

%  

$

123

 

 1

%  

Gross profit

 

$

104,341

 

 

 

$

95,258

 

 

 

$

9,083

 

 

 

Gross margin

 

 

 

 

82

%  

 

 

 

80

%  

 

 

 

 

 

Total cost of revenue increased $209,000,$1.7 million, or 3%16%, and $3.9 million, or 12%, in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of 2019 due primarily to increases in cloud services cost of revenue.

Cloud services cost of revenue increased $1.2 million and $4.3 million in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of the prior year. Royalty expense in cloud services cost of revenue increased $722,000 and $2.9 million in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of the prior year due to higher sales of partner solutions that bear royalties, in particular MobileIron Threat Defense. Data center operations expense increased $229,000 and $1.0 million in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of the prior year. Within data center operations, facilities and infrastructure expense increased $315,000 and $1.1 million in the three and nine months ended September 30, 2020, respectively, due primarily to third-party hosting costs. Customer Success

46

Table of Contents

expense allocated to cloud services cost of revenue increased $288,000 and $418,000, in the three and nine months ended September 30, 2020, respectively, as a result of increased headcount, merit increases, other payroll-related benefits and bonus expense. The Merger Agreement imposes certain pre-closing restrictions on our activities, one of which precludes settlement of our 2020 Bonus Plans in unrestricted common stock. Because we are currently required to settle the 2020 Bonus Plans in cash, we have recorded a cumulative adjustment in the three months ended September 30, 2020 to reclassify expense recorded as stock-based compensation expense in prior periods of 2020 to bonus expense and have recorded estimated amounts earned under the 2020 Bonus Plans in the three months ended September 30, 2020 as bonus expense. This adjustment applies to all operating expenses and cost of revenue income statement categories for the three month and year-to-date periods. As a result of precluding the settlement of the 2020 Bonus Plans with unrestricted common stock, stock-based compensation expense recorded in cloud cost of revenue was $458,000 and $363,000 lower in the three and nine months ended September 30, 2020, respectively, while bonus expense was $628,000 higher for those periods. Expense recognized under the 2020 Bonus Plans in the three months ended September 30, 2020 was higher than expense recognized under the 2019 Bonus Plans in 2019 based on Company performance relative to the underlying plan metrics. This was the same for cost of support and services revenue for the three and nine month periods ended September 30, 2020 compared to 2019. The aforementioned increases were partially offset by lower travel- and facility-related expenses resulting from COVID-19 restrictions and office space reductions.

License cost of revenue was roughly flat in the three and nine months ended September 30, 2020 compared to the corresponding periods of 2019 as expense associated with the amortization of intangible assets from our incapptic acquisition were roughly offset by lower expenses from appliance sales.

Cost of software support and services increased $448,000 and decreased $70,000 in the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods of the prior year. Within cost of support and services, expenses associated with increased headcount, annual merit increases and additional benefits, as well as stock-based compensation expense increased in both the three and nine month periods. Bonus expense increased $1.0 million for both the three and nine months ended September 30, 2020 due to the 2020 Bonus Plan expense reclassification. Stock-based compensation expense decreased $651,000 and $757,000, respectively, in the three and nine month periods due to the 2020 Bonus Plan expense reclassification. The aforementioned expense increases were partially offset in the three month period and fully offset in the nine month period by reductions in expense associated with office facilities and travel. We have reduced office space and restrictions related to COVID-19 limited our employees’ ability to travel and use our offices.

In the nine months ended September 30, 2019, we incurred $300,000 of restructuring expense due to a reduction in our workforce. Additional restructuring expense for the nine month period was recorded in operating expenses. We had no similar restructuring events recorded in cost of revenue in 2020.

Operating Expenses

Three Months Ended

 

September 30, 

 

2020

2019

Change

 

% of

% of

Total

Total

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Operating expenses:

Research and development

$

20,259

 

41

%  

$

19,072

 

37

%  

$

1,187

 

6

%  

Sales and marketing

 

23,597

 

47

 

23,577

 

45

 

20

 

General and administrative

 

9,949

 

20

 

6,932

 

13

 

3,017

 

44

Restructuring expense

 

 

 

 

 

Total operating expenses

$

53,805

 

108

%  

$

49,581

 

95

%  

$

4,224

 

9

%  

47

Table of Contents

Nine Months Ended

 

September 30, 

 

2020

2019

    

Change

 

% of

% of

Total

Total

(in thousands, except percentages)

    

Amount

    

Revenue

Amount

    

Revenue

Amount

    

%

 

Operating expenses:

Research and development

$

60,115

 

38

%  

$

60,889

 

40

%  

$

(774)

 

(1)

%  

Sales and marketing

 

72,575

 

46

 

74,099

 

49

 

(1,524)

 

(2)

General and administrative

 

26,069

 

17

 

22,477

 

15

 

3,592

 

16

Restructuring expense

579

0

2,758

2

(2,179)

(79)

Total operating expenses

$

159,338

 

101

%  

$

160,223

 

106

%  

$

(885)

 

(1)

%  

Research and development expense increased $1.2 million, or 6%, in the three months ended September 30, 20172020 compared to the samecorresponding period of 2019. Payroll-related expense increased $1.4 million compared to the corresponding period of the prior year. We incurredyear as a $311,000 restructuring chargeresult of an increase in bonus expense of $4.0 million and a $300,000 increase in salaries, payroll tax and other benefits-related expense, which was partially offset by a $2.9 million decrease in stock-based compensation expense. Expense recognized under the 2020 Bonus Plans in the three months ended September 30, 2020 was higher than expense recognized under the 2019 Bonus Plans in 2019 based on Company performance relative to the underlying plan metrics. This was the same across all operating expense categories for the three month periods ended September 30, 2020 compared to 2019. Consulting and other professional services expense increased $253,000 due to a reductionthe use of supplemental development resources. Facilities and infrastructure expense decreased $323,000 primarily due to reductions in force, which was $130,000 higher than our restructuring chargeoffice space and decreases in facility-related expense from restrictions in the same perioduse of our facilities as governments continued shelter-in-place measures to mitigate the prior year. The restructuring charges resultedspread of COVID-19. Travel-related expense decreased $124,000 as a result of travel restrictions from workforce reductions designed to align our spending with our expected growth rate.the shelter-in-place measures.

Total cost of revenue increased $123,000,Research and development expense decreased $774,000, or 1%, in the nine months ended September 30, 20172020 compared to the samecorresponding period of the prior year. Perpetual license cost of revenue2019. Facilities and infrastructure expense decreased $682,000$2.6 million primarily due to lower appliance sales. Subscription costtelecommunications costs, reductions in office space and decreases in facility-related expense because of revenue increased $157,000restrictions in the use of our facilities. Stock-based compensation expense decreased $2.3 million due to the 2020 Bonus Plan expense reclassification. Travel-related expense decreased $434,000 as a result of travel restrictions. The decreases were partially offset by a $3.9 million increase in other compensation expense, due primarily to $4.0 million higher Global Customer Successbonus expense associated with the 2020 Bonus Plans, and data center operations spending. Software supporta $717,000 increase in consulting and other professional services costexpense due primarily to the use of revenueoutside resources to supplement development efforts. Expense recognized under the 2020 Bonus Plans in the nine months ended September 30, 2020 was higher than expense recognized under the 2019 Bonus Plans in 2019 based on Company performance relative to the underlying plan metrics. This was the same across all operating expense categories for the nine month periods ended September 30, 2020 compared to 2019.

Sales and marketing expense was roughly flat in the three months ended September 30, 2020 compared to the corresponding period of 2019. Stock-based compensation expense decreased $821,000 due to the change in classification of expense associated with our 2020 Bonus Plans, partially offset by an increase in expense from RSU grants and our ESPP. Other payroll-related expense increased $518,000$2.2 million due primarily to an increase in Global Customer Success expense. Global Customer Successexpense associated with our 2020 Bonus Plans of $2.0 million, as well as increases in headcount and other benefits, of which much of the benefits expense increase was a bonus provided to sales personnel to compensate for our cancelled annual sales recognition event. The change in other payroll-related expense also reflected lower commission expense due to the discontinuation of perpetual license sales and sales team performance relative to commission plans. Consulting and outside services expense increased $238,000 to supplement our sales and marketing resources. Offsetting those increases, travel-related expense decreased $1.4 million as a result of travel restrictions and marketing program expense decreased $406,000 due primarily to lower spending on events, collateral and other field marketing activities.

Sales and marketing expense decreased $1.5 million, or 2%, in the nine months ended September 30, 2020 compared to the corresponding period of 2019. Travel-related expense decreased $3.6 million as a result of travel restrictions. Marketing program expense decreased $2.6 million due primarily to the cancellation or postponement of our MobileLive annual user conferences and less spending on other marketing events. Other sales-related expense decreased $775,000 due to higherthe cancellation of our annual sales recognition event and lower spending on our annual sales kickoff

48

Table of Contents

event. Partially offsetting the decreases, stock-based compensation expense increased $303,000 because of higher expense associated with RSUs, PSUs and data center operationsour ESPP, partially offset by the change in classification of expense associated with the 2020 Bonus Plans. Other payroll-related expense increased $4.6 million of which $2.0 million was due to higher telecommunicationthe 2020 Bonus Plan expense classification change, and infrastructure costs, including software toolsthe remainder was due primarily to increases in headcount, commission expense, and depreciation on equipment purchases. We incurred a $311,000 restructuring charge dueother benefits expense, of which some benefits were bonuses provided to a reduction in force, which was $130,000 higher thansales personnel as compensation for our restructuring charge in the same period of the prior year.cancelled annual sales recognition event.

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

 

2017

 

2016

 

Change

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

    

Amount

    

Revenue

    

Amount

    

Revenue

    

Amount

    

%

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

19,581

 

46

%  

$

16,238

 

39

%  

$

3,343

 

21

%  

Sales and marketing

 

 

24,317

 

57

 

 

24,001

 

58

 

 

316

 

 1

 

General and administrative

 

 

7,210

 

17

 

 

6,961

 

17

 

 

249

 

 4

 

Restructuring charge

 

 

489

 

 1

 

 

871

 

 2

 

 

(382)

 

(44)

 

Total operating expenses

 

$

51,597

 

121

%  

$

48,071

 

116

%  

$

3,526

 

 7

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

 

 

 

 

 

 

 

2017

 

2016

    

Change

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

Total

 

 

 

 

 

 

(in thousands, except percentages)

    

Amount

    

Revenue

 

Amount

    

Revenue

 

Amount

    

%

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

56,440

 

44

%  

$

51,185

 

43

%  

$

5,255

 

10

%  

Sales and marketing

 

 

73,293

 

58

 

 

76,914

 

64

 

 

(3,621)

 

(5)

 

General and administrative

 

 

21,238

 

17

 

 

22,774

 

19

 

 

(1,536)

 

(7)

 

Litigation settlement charge

 

 

1,143

 

 1

 

 

 —

 

 —

 

 

1,143

 

 —

 

Restructuring charge

 

 

489

 

 0

 

 

871

 

 1

 

 

(382)

 

(44)

 

40


Total operating expenses

$

152,603

120

%  

$

151,744

127

%  

$

859

 1

%  

ResearchGeneral and developmentadministrative expense increased $3.3$3.0 million, or 21%44%, in the three months ended September 30, 20172020 compared to the corresponding period of 20162019. Consulting and other professional service expense increased $2.0 million due primarily to legal fees associated with our plan of merger with Parent and other legal activities, including those related to our patent dispute. Payroll-related expense, excluding stock-based compensation expense, increased $1.7 million primarily due to an increase in personnel coststhe reclassification of $2.0the 2020 Bonus Plan expense, which accounted for $1.6 million facilities and infrastructure expense of $820,000, and outside professional services expense of $554,000.the increase. Stock-based compensation expense part of personnel costs, increaseddecreased $526,000 due primarily to the 2020 Bonus Plan expense reclassification, partially offset by $1.2 million primarily because of higher expense associated with restricted stock unit grantsour PSUs. Travel-related expense decreased $130,000 due to travel restrictions.

General and the stock-settled bonus plan, partially offset by lower stock option expense. The remainder of the increase in personnel costs was due primarily to increased headcount. Facilities and infrastructureadministrative expense increased due to an investment in our information technology (“IT”) infrastructure, particularly to address systems enhancement projects, and engineering-specific needs for equipment, software applications and other infrastructure. We incurred additional professional services expense to supplement our development work.

Research and development expense increased $5.3$3.6 million, or 10%16%, in the nine months ended September 30, 20172020 compared to the corresponding period of 20162019. Consulting and other professional service expense increased $2.5 million due primarily to legal fees associated with our plan of merger with Parent and other legal activities, including those related to our patent dispute. Payroll-related expense, excluding stock-based compensation expense, increased $1.8 million primarily due to an increase in personnel coststhe reclassification of $3.1the 2020 Bonus Plan expense, which accounted for $1.6 million facilities and infrastructure expense of $1.3 million, and professional services expense of $632,000.the increase. Stock-based compensation expense part of personnel costs, increaseddecreased $314,000 due primarily to the 2020 Bonus Plan expense reclassification, partially offset by $1.9 million primarily because of higher expense associated with restricted stock unit grants and the stock-settled bonus plan, partially offset by lower stock option expense. The remainder of the increase in personnel costs was due primarily to increased headcount. Facilities and infrastructureour PSUs. Travel-related expense increaseddecreased $276,000 due to an investment in our IT infrastructure, and engineering-specific needs for equipment, software applications and other infrastructure and costs to support the higher headcount. travel restrictions.

We incurred additional professional serviceszero and $579,000 of restructuring expense to supplement our development work. Professional services expense increased as we continued to supplement our development work.

Sales and marketing expense increased $316,000, or 1%, in the three and nine months ended September 30, 20172020 compared to thezero and $2.8 million of restructuring expense in operating expenses in corresponding period of 2016. Personnel costs increased by $316,000 compared to the corresponding periodperiods of the prior year due primarily to an increaseexpenses associated with reductions in commissions expense. Marketing program spending increased by $367,000 due to higher spending on events. Facilitiesour workforce and, infrastructure expense increased $225,000 as a resultin the 2019 nine-month period, the exit of an investment in our IT infrastructure, equipment and software costs, and rent. Outside professional services fees decreased $409,000 due to lower costs associated with contractors who supplemented our sales team,office building. Additional restructuring expense associated with security initiatives, and recruiting expense. 

Sales and marketing expense decreased $3.6 million, or 5%, in the nine months ended September 30, 2017 compared to the corresponding period2019 was recorded in cost of 2016. Personnel costs decreased by $2.3 million. Within personnel costs, stock-based compensation expense and other payroll-related expense decreased $1.8 million and $525,000, respectively, in the nine months ended September 30, 2017 compared to the corresponding period of the prior year. A more measured approach to hiring and replacing personnel, which accounted for a decrease in headcount, but partially offset by higher commissions expense due to higher billings, was the primary reason for the other payroll-related expense decrease. The stock-based compensation expense decrease was driven primarily by lower expense associated with restricted stock unit grants, stock options, and ESPP. Outside professional services fees decreased $1.1 million due to lower costs associated with contractors who supplemented our sales team, expense associated with security initiatives, and recruiting expense. Travel-related expense decreased $835,000 due to lower sales headcount and continued cost control. These expense decreases were partially offset by a $479,000 increase in facilities and infrastructure expense due to an investment in our IT infrastructure, equipment and software costs, and rent.

General and administrative expense increased $249,000, or 4%, in the three months ended September 30, 2017 compared to the corresponding period of 2016 primarily due to a $302,000 increase in facilities and infrastructure expense and a $179,000 increase in professional services expense, partially offset by a $230,000 decrease in personnel costs. Facilities and infrastructure expense increased due to an investment in our IT infrastructure, company-wide training expense and software application expense. Outside professional services expense increased due to higher accounting fees resulting from efforts to implement the new revenue recognition standard, partially offset by lower litigation legal fees as the shareholder lawsuit settled. The decrease in personnel costs includes a decrease in stock-based compensation expense of $140,000, which was driven primarily by lower stock option expense due to terminations but partially offset by higher RSU expense.

revenue.

4149


General and administrative expense decreased $1.5 million, or 7%, in the nine months ended September 30, 2017 compared to the corresponding period of 2016 primarily due to a $1.8 million decrease in personnel costs. The decrease in personnel costs includes a decrease in stock-based compensation expense of $1.2 million, which was driven primarily by lower stock option grant expense due to terminations and stock-settled bonus expense but partially offset by higher RSU expense. Other personnel-related expense decreased $584,000 due to a decrease and change in mix of general and administrative headcount. Outside professional services expense decreased by $326,000 due to lower litigation legal fees as the shareholder lawsuit settled and lower recruiting fees, partially offset by higher accounting fees resulting from efforts to implement the new revenue recognition standard. Partially offsetting the decreases, facilities and infrastructure expense increased $480,000 due to an investment in our IT infrastructure, training, software application and other support expenses.

We recorded a litigation settlement charge of $1.1 million in the three months ended March 31, 2017 for the expense associated with the settlement of our shareholder litigation. The settlement received final court approval in the three months ended September 30, 2017.

We incurred a $489,000 restructuring charge in the three months ended September 30, 2017 due to a reduction in force, which was $382,000 lower than our restructuring charge in the same period of the prior year. The restructuring charges resulted from workforce reductions designed to align our spending with our expected growth rate.

Other Income (Expense)—Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

September 30, 

 

Change

 

Three Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

    

2020

    

2019

    

Amount

    

%

 

Other income (expense)—net

 

$

188

 

$

19

 

$

169

 

889

%  

$

263

$

35

$

228

 

651

%  

Nine Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Other income (expense)—net

$

183

$

987

$

(804)

 

(81)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Other income (expense)—net

 

$

701

 

$

184

 

$

517

 

281

%

Other income (expense)—net was primarily comprised of interest income and gains or losses from foreign currency transactions and the translation of foreign-denominated balances to the U.S. dollar. We recorded $191,000$28,000 and $115,000$454,000 of interest income for the three months ended September 30, 20172020 and 2016,2019, respectively, and a $4,000$236,000 foreign currency gain and $117,000$420,000 foreign currency loss for the three months ended September 30, 20172020 and 2016,2019, respectively. We recorded $507,000$346,000 and $320,000$1.6 million of interest income for the nine months ended September 30, 20172020 and 2016,2019, respectively, and a $169,000 foreign currency gain$189,000 and a $164,000$612,000 foreign currency loss for the nine months ended September 30, 20172020 and 2016,2019, respectively.

Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Income tax expense

 

$

358

 

$

298

 

$

60

 

20

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Income tax expense

 

$

881

 

$

672

 

$

209

 

31

%  

Income tax expense was $358,000 A lower interest rate environment and $298,000our investment of excess cash in money market funds rather than corporate debt and commercial paper reduced our interest income. Changes in the value of the U.S. dollar versus foreign currencies generates gains or losses on our foreign currency-denominated assets, most notably cash and accounts receivable balances. Devaluation of the U.S. dollar relative to foreign currencies such as the Euro and Rupee resulted in a gain in the three months ended September 30, 20172020.

Income Tax Expense

Three Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Income tax expense

$

608

$

399

$

209

 

52

%  

Nine Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Income tax expense

$

1,511

$

1,335

$

176

 

13

%  

Income tax expense was $608,000 and 2016,$399,000 in the three months ended September 30, 2020 and 2019, respectively, and $881,000$1.5 million and $672,000$1.3 million in the nine months ended September 30, 20172020 and 2016,2019, respectively. The

42


increase in incomeIncome tax expense was due to an increase inis primarily recorded for foreign income taxes on profits realized by our foreign subsidiariessubsidiaries. Income tax expense has increased as we have expanded internationally most significantlyand have experienced increased scrutiny and changes in India.tax rules and practices in certain foreign tax jurisdictions. As a result, we have recorded reserves for potential challenges by foreign tax authorities. We have a full valuation allowance on our deferred tax assets.

Liquidity and Capital Resources

As of

As of

September 30, 

December 31,

(in thousands)

    

2020

    

2019

    

Cash and cash equivalents

$

89,824

$

94,415

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30, 

 

December 31,

 

(in thousands)

    

2017

    

2016

    

Cash and cash equivalents

 

$

79,605

 

$

54,043

 

Short term-investments

 

 

2,600

 

 

36,184

 

Total cash, cash equivalents and investments

 

$

82,205

 

$

90,227

 

50

Table of Contents

Nine Months Ended

 

September 30, 

Change

 

(in thousands, except percentages)

    

2020

    

2019

    

Amount

    

%

 

Net cash provided by (used in) operating activities

$

4,584

$

(2,416)

$

7,000

(290)

%  

Net cash used in investing activities

(6,464)

(2,109)

(4,355)

206

Net cash used in financing activities

$

(2,363)

$

(5,535)

$

3,172

(57)

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30, 

 

Change

 

(in thousands, except percentages)

    

2017

    

2016

    

Amount

    

%

 

Net cash used in operating activities

 

$

(7,365)

 

$

(20,197)

 

$

12,832

 

(64)

%  

Net cash provided by investing activities

 

 

28,575

 

 

6,985

 

 

21,590

 

309

 

Net cash provided by financing activities

 

$

4,352

 

$

4,061

 

$

291

 

 7

%  

At September 30, 2017,2020, we had cash and cash equivalents of $79.6$89.8 million. Substantially allApproximately 89% of our cash and cash equivalents are held in the United States. At September 30, 2017, we had short-term investments of $2.6 million.

In addition, we have a $20.0 million revolving line of credit with a financial institution with potential borrowing capacity of $18.5 million that expires in June 2018.2023 which, after issuing a $1.5 million letter of credit and a $3.0 million bank guarantee, has borrowing capacity of approximately $15.5 million as of September 30, 2020. We are required to maintain an adjusted quick ratio (defined as the ratio of current assetseligible cash and cash equivalents plus accounts receivable to current liabilities minus deferred revenue)revenue and customer arrangements with termination rights) of at least 1.25. At September 30, 2017,2020, we had no borrowings outstanding under this revolving loan facility and we were in compliance with our loan covenants.

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 acquisitions and similar transactions, and the proportioneconomic impact of COVID-19 on our customers and prospects. Any delays in new customer purchases of our solutions and existing customer renewals, loss of customers, limited ability to expand or upsell within our existing customer base, and pricing pressure related to the business impact of the COVID-19 pandemic could reduce our cash collections. At the same time, we saw some reductions in expenditures for travel, marketing event and some facility-related expense in our second and third quarters of 2020 and expect that trend to generally continue for the remainder of 2020 due to COVID-19. In addition, our discontinuation of sales of perpetual versus subscription sales.licenses starting in July 2020 will have a negative effect on cash from operations for a period of time, beginning in our fourth quarter of 2020 as subscriptions, which we expect will replace these perpetual licenses, generate lower upfront billing amounts than perpetual licenses. 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. In October 2018, our Board of Directors approved the repurchase of up to an aggregate of $25.0 million of our common stock, subject to compliance with applicable laws, over a two-year period (the “Repurchase Program”). The maximum remaining dollar value of shares that may be purchased under the Repurchase Program was $9.2 million at September 30, 2020. Shares can be purchased through the Repurchase Program through October 2020, and our Board of Directors has not extended the program as of the date of the filing of this quarterly report on Form 10-Q.

Cash Used inProvided by 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.

In the nine months ended September 30, 2017,2020, we used $7.4generated $4.6 million of cash forfrom operating activities compared to a use of $20.2$2.4 million in the corresponding period of the prior year. We incurred a net loss of $48.4$37.4 million in the nine months ended September 30, 20172020 compared to a net loss of $57.0$40.9 million in the corresponding period of 2016 as we had roughly flat2019. In the nine months ended September 30, 2020 compared to the corresponding period of 2019, our net loss decreased primarily due to a $7.5 million increase in revenue partially offset by a $3.1 million increase in cost of sales and operating expenses and increased our revenue by 8%.a decrease in other income of $788,000. The net loss included non-cash charges of $29.2$26.4 million, primarily due to stock-based compensation and depreciation expense, compared to $29.7$31.2 million in the nine months ended September 30, 2016.2019. Changes in operating assets and liabilities, as sources of cash, consisted primarily of a $12.9$19.6 million increasedecrease in deferred revenue,accounts receivable as our fourth fiscal quarter is a $2.4seasonally high billing quarter compared to our first three fiscal quarters and the majority of cash from receivables is collected in the quarter following the billing quarter. Collections of accounts receivable were also favorably impacted by collections of amounts billed for perpetual licenses

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which spiked in our second quarter due to the end of sales of perpetual licenses. Sales of perpetual licenses have been replaced by sales of subscriptions which do not generate as much up-front billings as perpetual licenses and billings were therefore lower in our third quarter. Other changes in assets and liabilities that were sources of cash were a $5.7 million increase in accrued expenses and other long-term liabilities, a $3.2 million decrease in other current and noncurrent assets, and a $1.2$1.9 million increasedecreased in accounts payable,deferred commissions. Changes in operating assets and liabilities that were partially offset by an increaseused cash consisted primarily of a decrease in accounts receivableunearned revenue of $4.1$10.6 million and a decrease in the liability for customer arrangements with termination rights of $4.9 million.

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In the nine months ended September 30, 2016,2019, we used $20.2$2.4 million of cash forfrom operating activities. We incurred a net loss of $57.0$40.9 million in the nine months ended September 30, 2016.2019. The net loss included non-cash charges of $29.7$31.2 million, primarily due to stock-based compensation and depreciation expense. Changes in operating assets and liabilities, net of acquisitions, as sources of cash, consisted primarily of a $970,000$16.4 million decrease in accounts receivable as our fourth fiscal quarter is a seasonally high billing quarter compared to our first three fiscal quarters and the majority of the cash from those receivables is collected in the quarter following the billing quarter. In addition, our year-to-date billings were negatively impacted by a focus on driving increases in ARR rather than billings. Changes in operating assets and liabilities that used cash consisted primarily of a decrease in accrued expenses and other long-term liabilities of $5.5 million, a decrease in the liability for customer arrangements with termination rights of $3.1 million, and an $8.3 million increase in deferred revenue that were partially offset by changesother current and noncurrent assets of $2.4 million.

Cash Used in other working capital items of $2.2 million that used cash.

Cash Provided by Investing Activities

Our investing activities have primarily consisted of purchases of property and equipment and purchases of investment securities, offset by maturities of the investment securities. We expect to continue to purchase property and equipment in the near-term, but less significantly than inIn the nine months ended September 30, 2017, principally to support2020, our India office expansion and software implementation and enhancement projects.investing activities also included the purchase of a business.

Cash provided byused in investing activities was $28.6$6.5 million for the nine months ended September 30, 20172020 as compared to $7.0$2.1 million used in the corresponding period of 2016.2019. In the nine months ended September 30, 2017,2020, we received $35.4purchased incapptic Connect GmbH for $5.7 million, from maturitiesnet of investment securitiescash acquired. Approximately $1.1 million of the incapptic purchase price was paid to an escrow account and will be distributed to former incapptic shareholders within 24 months, less any amounts used to satisfy any claims for indemnification that we may make for certain breaches of representations, warranties and covenants. In the nine months ended September 30, 2020, all of our excess cash was invested $1.8 million in newmoney market funds and consequently we had no purchases of or proceeds from investment securities, compared to the nine months ended September 30, 20162019 where we received $70.7$3.3 million from maturities of our investmentsinvestment securities and invested $61.4$4.1 million in new investment securities. Cash paid for the purchase of property and equipment was $5.0 million$796,000 and $2.3$1.2 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. In the nine months ended September 30, 2017, we continued to upgrade our network and data centers and also had expenditures for a headquarters building and India office move. In the nine months ended September 30, 2016, we purchased equipment to upgrade and expand our data centers, IT network and engineering lab, and to outfit new office facilities.

Cash Provided byUsed in Financing Activities

Our financing activities have historically consisted of proceeds from the issuance of common stock, the exercise of stock options, and our ESPP. Our financing activities also include cash used to pay employee payroll taxes as part of the net settlement of our equity awards. Beginning in the fourth quarter of 2018, our financing activities include cash outflows associated with the repurchase of shares of our common stock under a repurchase program approved by our Board of Directors in October 2018.

In the nine months ended September 30, 2017,2020, our financing activities provided $4.4used $2.4 million of cash. We received $3.9$1.8 million from the exercise of stock options and $3.6$3.0 million from ESPP contributions. We used $3.1$6.5 million to pay employee payroll taxes as part of the net settlement of our stock-settled bonus.bonuses and RSUs and $684,000 for the repurchase of common stock.

In the nine months ended September 30, 2016, our financing activities provided $4.12019, we used $5.5 million of cash.cash for financing activities. We received $814,000$5.5 million from the exercise of stock options and $3.2$3.1 million from ESPP contributions. We used $5.5 million to pay employee payroll taxes as part of the net settlement of our stock-settled bonuses and RSUs and $8.6 million for the repurchase of common stock.

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Off-Balance-Sheet Arrangements

ThroughAs of September 30, 2017,2020, we dodid not have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenuesrevenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Segment Information

We have one primary business activity and operate in one reportable segment.segment, software and services to manage and secure mobile devices, applications and content.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management believes that there have been no material changes to our quantitative and qualitative disclosures about market risks during the nine months ended September 30, 2017, compared to those disclosed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 20162019 previously filed with the SEC on February 14, 2017.

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Item 4. Controls and Procedures

Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017.2020. The term “disclosure controls and procedures,” as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensureprovide a reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on ourthis evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,2020, our disclosure controls and procedures are designed at a reasonable assurance level and arewere effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commissionthe SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controlcontrols over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarterthree months ended September 30, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On August 5, 2015, August 21, 2015From time to time, we are a party to litigation and August 24, 2015, purported stockholder class action lawsuits were filedsubject to claims in the Superior Courtordinary course of California, Santa Clara County againstbusiness. Although the Company, certainresults of its officers, directors, underwriters and investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v. MobileIron, Inc., et al, which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The actions are purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued pursuant or traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things, compensatory damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected consolidated complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company filed a demurrer to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016.

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On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and entered final judgment in the case on October 11, 2017 releasing all parties.  The settlement called for a payment of $7.5 million to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company contributed $1.1 million to the settlement in the three months ending September 30, 2017. This amount represented the remainder of the Company’s retention amount under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability insurance. 

While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid further distractions to management.

We continually evaluate uncertainties associatedclaims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, financial conditions or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and record a charge equal to at least the minimum estimated liability for a loss contingency when bothsettlement costs, diversion of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statementsmanagement resources and (ii) the loss or range of loss can be reasonably estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible lossother factors. See Note 12 in the Notes to the Consolidated Financial Statements. We evaluate,Statements for further information on the lawsuit, MobileIron, Inc. vs. BlackBerry Corp. and BlackBerry Ltd., for patent infringement and other claims that was filed on April 27, 2020. Since the announcement of our pending acquisition (the “Merger”) by Oahu Merger Sub, Inc., a quarterly basis, developmentswholly-owned subsidiary of Ivanti, Inc., three complaints have been filed by and purportedly on behalf of alleged MobileIron stockholders: one in the United States District Court for the District of Delaware, captioned Oliver Watson v. MobileIron, Inc., Tae Hea Nahm, Jessica Denecour, Kenneth Klein, James Tolonen, Simon Biddiscombe, Anjali Joshi and Rishi Bajaj, Case No. 1:20-cv-01418-UNA, filed October 22, 2020, and two in the United States District Court for the Southern District of New York, captioned Quentin S. Nash v. MobileIron, Inc., Simon Biddiscombe, Tae Hea Nahm, Jessica Denecour, Kenneth Klein, James Tolonen, Anjali Joshi and Rishi Bajaj, Case No. 1:20-cv-08767, filed October 21, 2020, and EvanNocks v. MobileIron, Inc., Tae Hea Nahm, Jessica Denecour, Kenneth Klein, James Tolonen, Simon Biddiscombe, Anjali Joshi and Rishi Bajaj, Case No. 1:20-cv-09088, filed October 29, 2020(together, the “Actions”). The Actions each name as defendants the Company and each of the members of our legal mattersBoard of Directors. The Actions allege, among other things, that could affectall defendants violated provisions of the amountExchange Act insofar as the proxy statement preliminarily filed by the Company on October 14, 2020 allegedly omits material information with respect to the transactions contemplated therein that purportedly renders the preliminary proxy statement false and misleading. The complaints seek, among other things, injunctive relief, rescissory damages, declaratory judgment and an award of liability that has been previously accrued, if any,plaintiffs’ fees and expenses. The defendants believe the mattersclaims asserted in these complaints are without merit and related ranges of possible losses disclosed, and make adjustments and changesintend to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss, and such amounts could be material. An estimate of a reasonably possible loss (or a range of loss) cannot be made in our lawsuits at this time.vigorously defend them.

Item 1A. Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including the section of this report titled “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risksrisk described elsewhere in this report occurs,occur, our business, operating results and financial condition could be seriously harmed.harmed and the trading price of our common stock could decline. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.report.

We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2017.

Risks Related to Our Business and Industry

The announcement and pendency of our agreement to be acquired by a wholly-owned subsidiary of Ivanti, Inc. may adversely affect our business, results of operations and share price.

Our pending acquisition (the “Merger”) by Oahu Merger Sub, Inc., a wholly-owned subsidiary of Ivanti, Inc. (“Parent”), could have an adverse effect on our revenue in the near term if our customers delay, defer or cancel purchases pending completion of the Merger. While we are attempting to address this risk through communications with our customers, current and prospective customers may be reluctant to purchase our products due to uncertainty about the direction of our product offerings and the support and service of our products after the Merger is consummated. Additionally, we are subject to other risks in connection with the announcement and pendency of the Merger, including:

the costs involved in connection with completing the Merger and the substantial time and effort of our management team required to consummate the Merger and the related disruptions in the operation of our business;

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the restrictions on the conduct of our business contained in the Agreement and Plan of Merger, dated September 26, 2020, with Parent and Oahu Merger Sub, Inc. (the “Merger Agreement”), which could delay or prevent us from undertaking certain activities and capitalizing on certain business opportunities that may arise prior to the consummation of the Merger;
the difficulty in retaining and incentivizing employees given the announcement of the Merger as a result of, among other things, the fact that not all unvested equity was subject to acceleration and thus certain unvested equity would be cancelled at the effective time of the Merger without any consideration;
pendency of the Merger or failure to complete the Merger may cause harm to relationships with our customers and other business associates and may divert management and employee attention away from the day-to-day operation of our business;
our inability to solicit competing acquisition proposals and the possibility that the $30.45 million termination fee payable by us upon the termination of the Merger Agreement in certain circumstances could discourage other potential bidders from making a competing bid to acquire us;
limits on our ability to seek specific performance to require Parent to complete the Merger, and the limit under certain circumstances of our remedy following termination of the Merger Agreement to a reverse termination fee payable by Parent in the amount of $65.25 million; and
legal proceedings instituted against us, our directors and others relating to the transactions contemplated by the Merger Agreement may divert management time and attention, may require us to incur significant attorneys fees and other expenses, and may result in unfavorable outcomes that could delay or prevent the Merger from being completed.

Any failure of our pending acquisition by Parent to be completed may adversely affect our business, financial condition, results of operations, cash flows and stock price.

We face a risk that the proposed acquisition of the Company by Parent might not be completed or completed on the terms currently agreed to. Each of our and Parent’s obligations, as applicable, to complete the Merger is subject to a number of conditions specified in the Merger Agreement, including, among others: (i) receipt by the Company of the requisite stockholder approval at the special meeting; (ii) the absence of any temporary restraining order, preliminary or permanent injunction or other judgment or order or other legal or regulatory restraint or prohibition preventing the consummation of the Merger, (iii) any waiting periods (and any extensions thereof) applicable to the Merger pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will have expired or otherwise been terminated, or all requisite consents pursuant thereto, and pursuant to any other antitrust laws or investment screening laws, will have been obtained; (iv) the absence of a limitedmaterial adverse effect with respect to us; and (v) performance and compliance in all material respects on the part of each of us and of Parent and Oahu Merger Sub, Inc. with such party’s covenants under the Merger Agreement. There can be no assurance that these conditions to the completion of the Merger will be satisfied in a timely manner or at all. If the Merger is not completed, our stockholders will not receive the proposed Merger consideration.

If the Merger is not completed, we may suffer consequences that could adversely affect our business, results of operations and share price, including the following:

our directors, management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction;
we will have incurred significant transaction costs;
our continuing business relationships with customers, business partners and employees may be adversely affected;
the trading price of our stock could be adversely affected;

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the reverse termination fee of $65.25 million payable by Parent to us under specified circumstances will not be available in all instances in which the Merger Agreement is terminated and may not be sufficient to compensate us for the damage suffered by our business as a result of the pendency of the Merger or of the strategic initiatives forgone by us during this period;
the other contractual and legal remedies available to us in the event of termination of the Merger Agreement may be insufficient, costly to pursue or both;
the potential adverse perception of the market on our prospects; and
the termination fee of $30.45 million that may become payable by us to Parent upon termination of the Merger Agreement under specified circumstances.

The COVID-19 pandemic could adversely affect our business, operating history, which makes it difficult to evaluate our prospectsresults and future revenue.

We are closely monitoring the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of our business. In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant volatility, uncertainty and economic disruption. While the COVID-19 pandemic has not had a material adverse financial impact on our operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may materially and adversely affect our business, operating results and future revenue.

The COVID-19 pandemic may increaseprevent us from conducting business activities at full capacity for an extended period of time, including due to spread of the disease or due to shutdowns that are requested or mandated by governmental authorities. For example, we have taken precautionary measures intended to help minimize the risk of the virus to our employees which may disrupt our operations, including closing our offices and requiring all employees to work remotely until we determine to reopen our offices, canceling marketing events, and suspending all non-essential travel worldwide for our employees. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including, but not limited to, cybersecurity risks, prevent us from expanding or upselling our customer base, and impair our ability to effectively manage our business.

In addition, any economic downturn or recession resulting from the COVID-19 pandemic will likely impact demand for our products and services and adversely affect our operations. We expect there to be volatility in customer demand and buying habits as the pandemic continues and the resulting economic impacts are felt, including the possibilities that our end customers delay, decrease or cancel their planned purchases, or are unable to pay amounts owed to us. Any economic downturn could also adversely impact the overall financial condition of our business partners, including our channel partners, which we depend on in order to operate our business and to provide our products and services.

Further, our management team is focused on addressing the impacts of COVID-19 on our business, which has required and will continue to require, a large investment of their time and resources and may distract our management team or disrupt our 2020 operating plans. For example, in light of COVID-19, our management team is actively evaluating many of the investments and initiatives we had planned for 2020, which could potentially impact our 2020 results.

The extent to which COVID-19 ultimately impacts our results of operations, cash flow and financial position will depend on future developments, which are uncertain and cannot be predicted, including, but not be successful.

Aslimited to, the duration and spread of the outbreak, its severity, the actions taken by governments and authorities to contain the virus or treat its impact, and when and to what extent normal economic and operating conditions can resume. These uncertainties have resulted in volatility in securities and financial markets, which may prevent us from accessing the equity or debt capital markets on attractive terms or at all for a period of time, which could have an adverse effect on our liquidity position. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including as a result of any recession that may occur. The impact

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of the COVID-19 pandemic may also exacerbate other risks discussed in this “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. For these reasons, the current level of uncertainty over the economic and operational impacts of COVID-19 means the impact on our limited operating history, ourresults of operations, cash flows and financial position cannot be reasonably estimated at this time.

We operate in an industry that is rapidly evolving, and we may be unsuccessful in response to these changes.

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;

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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 cloudCloud platform and our new appsmore recently introduced products and services such as MobileIron Access and MobileIron Bridge;Threat Defense;

continue to invest in research and development and bring new products to market;

scale our engineering and internal business operations in an efficient and cost-effective manner;

scale our global Customer Success organization to make our customers successful in their mobile IT deployments;

continue to expand our solutions across mobile and modern operating systems and device platforms;

hire, integrate and retain professional and technical talent.talent;

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

successfully expand our business domestically and internationally; and

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

We have had net losses each year since our inception and may not achieve or maintain profitability in the future.

We have incurred net losses each year since our inception, including net losses of $67.2$48.8 million, $84.5 million and $61.9$43.1 million in 2016, 20152019 and 2014,2018, respectively, and $48.4 million and $57.0$37.4 million for the nine months ended September 30, 2017 and 2016, respectively.2020. As of September 30, 2017,2020, our accumulated deficit was $390.8$490.4 million. Our revenue growth rate has slowed over recent periods, and we may not be able to sustain or increase our growth rate or achieve or sustain profitability in the future. RevenueThe revenue growth rate has slowed, and may additionally slow or revenue may decline, for a number of reasons, including, but not limited to our customers’ and/or prospective customers’ failure to widely deploy mobile apps within their businesses, increasing and entrenched competition, changes in pricing model, customers’ failure to renew or expand their deployments of our software, product and billing model mix shift, a decrease in size or growth of the mobile IT market, or any failure to capitalize on market

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opportunities. In addition, we We plan to continue to invest for future growth, in part by making additional investments in research and development, and as a result, we do not expect to be profitable for the foreseeable future. In addition, we will need to increase operating efficiency, which may be challenging given our operational complexity, the expenses outlined above, and expenses associated with being a public company.company, and increasing sales of subscriptions that bear royalties. 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 Quarterly Report on Form 10-Q.10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2019 that was previously filed with the SEC. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed.

Our operating results may fluctuate significantly, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future. The timing and size of sales of our solutions makes our revenue highlyand ARR variable and difficult to predict and can result in significant fluctuations in our revenue and ARR from period to period. Historically,In addition, a substantial portion of our revenue has beenand ARR is 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.quarter and therefore are difficult to predict. Further, our customers’ and prospective customers’ buying patterns and sales cycles can

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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. Further, we discontinued the sale of on-premise software priced as a perpetual license beginning the third quarter of 2020, which could result in a short-term decline in license revenue and make total revenue difficult to predict for a period of time. If expected revenue and ARR at the end of any quarter is reduced or delayed for any reason, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenue, and even a small shortfall in revenue could disproportionately and adversely affect our operating margin, operating results or other key metrics for a given quarter.

Our operating results may fluctuate due to a variety of other factors, many of which are outside of our control, and any of which may cause our stock price to fluctuate. In addition to other risks listed in this “Risk Factors” section, factors that may affect our operating results include, but are not limited to:

             

the inherent complexity, length and associated unpredictability of our sales cycles for our solutions;

the extent to which our customers and prospective customers delay or defer purchase decisions in a quarter, particularly in the last few weeks of the quarter, which is when we typically complete a large portion of our sales for a quarter;

our ability to develop and release in a timely manner new solutions, features and functionality that meet customer requirements;

changes in pricing due to competitive pricing pressure or other factors;

reductions and reprioritizations in customers’ IT budgets and delays in the purchasing cycles of our customers and prospective customers;

variation in sales channels or in mix of solutions sold, including the mix of solutions sold on a perpetual license basis versus a subscription or monthly recurring contract, or MRC, basis;basis1; considering the discontinuance of the sale of on-premise software priced as a perpetual license beginning in the third quarter of 2020;

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the timing of recognizing revenue in any given quarter as a result of revenue recognition accounting rules, including the extent to which revenue from sales transactions in a given period may not be recognized until a future period or, conversely, the satisfaction of revenue recognition rules in a given period resulting in the recognition of revenue from transactions initiated in prior periods;

changes in our mix of revenue as a result of our different deployment options and licensing models and the ensuing revenue recognition effects;

the effect of litigation;

changes in foreign currency exchange rates; and

general economic conditions in our domestic and international markets.markets; and

other factors such as political unrest, acts of terrorism or war, natural disasters, and public health crises, such as the COVID-19 pandemic.

1In the MRC model, revenue is based on active devices or users of the service provider’s customer based on billings reported to us by the service provider on a monthly basis over time and billed by us one month in arrears. Under the usage-based MRC model, we receive no revenue for MRC at the time the deal is booked, but instead the MRC is billed and revenue is recognized each month based on active usage. Unlike one-year and other term subscriptions, MRC is not reflected in unearned revenue unless the customer commits for a longer period of time.

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

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

In order to increase our revenues we must continually grow our customer base and increase the depth and breadth of the deployments of our solutions with our existing customers. While customers may initially purchase a relatively modest number of licenses, it is important to our revenue growth that they later expand the use of our software on substantially more devices or for more users throughout their business. However, we have experienced a slowdown in new perpetual license orders. We also need to upsell—to sell additional solutions—to the same customers. Our strategy also depends on our existing customers renewing their software support or subscription agreements with us. Because of

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the number of participants, consolidation in the mobile IT market and competing priorities within customers’ IT budgets, customers may delay making initial purchase orders or expanding orders as they take into account the evolving mobile IT landscape. Also, if we do not successfully develop and market new solutions, features and functionality that meet our customers’ needs, they may not place upsell orders or expand orders. The rate at which our customers purchase additional solutions depends on a number of factors, including the relative prioritization of the IT budget allocated to mobile projects versus other IT projects, perceived need for additional solutions, features or functionality, the reliability of our solutions and other competitive factors, such as pricing and competitors’ offerings. If our efforts to sell additional licenses to our customers and to upsell additional solutions to our customers are not successful, our business may suffer. In addition, we have entered into enterprise license arrangements with certain large customers under which they pay an amount up front and in turn can deploy an unlimited number of devices in a certain period, thereby lowering potential future additional orders.orders from those customers.

Further, existing customers that purchase our solutions have no contractual obligation to purchase additional solutions after the initial subscription or contract period, and given our limited operating history, we are unableit is difficult to accurately predict our customer expansion or renewal rates. Our customers’ expansion and renewal rates may decline or fluctuate as a result of a number of factors, including the level of their satisfaction with our solutions or our customer support, customer budgets, and the pricing and

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breadth of our solutions compared with the solutions offered by our competitors, and the impact of our competitors’ selling UEM or mobile security as a component of a broader suite, any of which may cause our revenue to grow more slowly than expected, if at all. Competition from larger companies has in the past and may in the future lengthen the renewal process and require us to recompete for renewal business.

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

We are in a highly competitive market, and competitive pressures from existing and new companies may harm our business, revenues, growth rates and market share. In addition, there has been consolidation in our market, and a number of our current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.

Our market is intensely competitive, and we expect competition to increase in the future from established competitors, consolidations and new market entrants. Our major competitors include BlackBerry, Citrix, IBM, Lookout, Microsoft, Symantec and VMware. A number of our historical competitors have been purchased by large corporations. For example, AirWatch was acquired by VMware, Good Technology was acquired by BlackBerry, and Skycure was acquired by Symantec, which has been acquired by Broadcom. These large corporations have longer operating histories, greater name recognition, larger and better established customer bases, more channel partners, and significantly greater financial, technical, sales, marketing and other resources than we have. Because these competitors possess greater resources, they may be able to adapt more quickly to new technologies and changes in customer requirements, devote greater resources to the promotion and sale of their solutions, purchase companies or new technologies, initiate or withstand substantial price competition, and/or develop and expand their products and features more quickly than we can. In addition, certain of our competitors may be able to leverage their relationships with customers based on an installed base of solutions or to incorporate functionality into existing solutions to gain business in a manner that discourages customers from including us in competitive bidding processes, evaluating and/or purchasing our solutions. They have done this in the past, and may in the future do this, by selling at zero or negative margins, through solution bundling or through enterprise license deals. Some potential customers, especially Forbes Global 2000 Leading Companies, have already made investments in, or may make investments in, substantial personnel and financial resources and established deep relationships with these much larger enterprise IT vendors, which may make them reluctant to evaluate our solutions or work with us regardless of solution performance or features. Potential customers may prefer to purchase a broad suite of solutions from a single provider, or may prefer to purchase mobile IT solutions from an existing supplier rather than a new supplier, regardless of performance or features.

We expect competition to intensify in the future as new and existing competitors introduce new solutions into our market. In addition, some of our competitors have entered into partnerships or other strategic relationships or purchased companies to offer a more comprehensive solution than they individually had offered. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. This competition has resulted in the past and could in the future result in increased pressure on pricing and renewals, increased sales and marketing expenses, or harm to our market share, any of which could harm our business. Competitors’ offerings may in the future have better performance or features, lower prices and/or broader acceptance than our solutions. Competitors’ products could also include new technologies, which could render our existing solutions obsolete or less attractive to customers, or be bundled with legacy enterprise security and management products as a “one-stop-shop” offering, which certain customers with large installed bases of those legacy products may prefer. If we fail to keep up with technological changes or to convince our customers and potential customers of the value of our solutions, our business, operating results and financial condition could be materially and adversely affected.

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We compete in rapidly evolving markets and must develop new solutions and enhancements to our existing solutions. If we fail to predict and respond rapidly to emerging technological trends and our customers’ changing needs, we may not be able to remain competitive. In addition, we may not generate positive returns on our research and development investments, which may harm our operating results.

Our markets are characterized by rapidly changing technology, changing customer needs, evolving operating system standards and frequent introductions of new offerings. To succeed, we must effectively anticipate, and adapt in a timely manner to, customer and multiple operating system requirements and continue to develop or acquire new solutions and features that meet market demands and technology trends. Likewise, if our competitors introduce new offerings that compete with ours or incorporate features that are not available in our solutions, we may be required to reposition our solutions or introduce new solutions in response to such competitive pressure. We may not have access to or have adequate notice of new operating system developments, and we may experience unanticipated delays in developing new solutions and cloud services or fail to meet customer expectations for such solutions. If we fail to timely develop and introduce new solutions or enhancements that respond adequately to new challenges in the mobile IT market, our business could be adversely affected, especially if our competitors are able to more timely introduce solutions with such increased functionality.

We have invested significant time and financial resources in the development of our platforms and infrastructure and believe that we must continue to dedicate substantial resources to our research and development efforts to maintain our competitive position.  Developing our products is expensive, and the investment in product development may not generate additional revenue in the near-term or at all. The research and development of new technologically advanced products is also a complex and uncertain process requiring high levels of innovation and investment, as well as the accurate forecasts of technology, market trends and consumer needs. Our failure to successfully develop new and improved products, services and technologies may reduce our future growth and profitability and may adversely affect our business, results and financial condition.

We have a primary back-end technology platform that can be used as a cloud service or deployed on premiseinvested in MobileIron Access and a second back-end platform that is purpose-built as a cloud-only large scale, multi-tenant platform. We must

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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 andMobileIron Threat Defense but have not yet gained substantialsignificant market traction with the cloud-only platform.in these product lines. Should our MobileIron cloud-only platformAccess or MobileIron Threat Defense fail to achieve substantialsignificant market traction, we would lose the value of our investment and our business and operating results may be harmed.

We recently acquired the incapptic product line with the acquisition of incapptic in April 2020. We do not know at this time whether incapptic will achieve significant market traction.

Further, we may be required to commit significant resources to developing new solutions before knowing whether our investments will result in solutions that the market will accept. We are in the process of phasing out our older cloud-based product in favor of MobileIron Cloud, our newer and more scalable cloud-only platform. The failure to successfully market MobileIron Cloud as a replacement and improvement to our older cloud-based product or the failure of our current on-premise customers and prospective customers to adopt MobileIron Cloud for any reason could result in a decline in our revenue.

These risks are greater in the mobile IT market because our software is deployed on endpoints (e.g., phones, and tablets or laptops) that run on different operating systems, and these multiple operating systems change frequently in response to consumer demand. As a result, we may need to release new software updates at a much greater pace than a traditional enterprise software company that supports only traditional PCs. We may experience technical design, engineering, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new solutions and enhancements on both of our technology platforms. As a result, we may not be successful in modifying our current solutions or introducing new ones in a timely or appropriately responsive manner, or at all. If we fail to address these changes successfully, our business and operating results could be materially harmed.

Finally, all of our additional solutions require customers to use our MobileIron platform, whether deployed on-premise or through our cloud service. As such, virtually all of our revenue depends on the continued adoption and use of ourthe 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.

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An increasing portion of our sales has been generated from subscription licenses, which involves certain risks.*

An increasing portion of our sales has been generated from subscription licenses.licenses, and we discontinued the sale of on-premise software priced as a perpetual license beginning in the third quarter of 2020. This mix shift towards subscription licensing, presentsand differing revenue recognition patterns between the different types of subscriptions that we offer under the new revenue accounting guidelines, present a number of risks to us. For example, arrangements entered into onWe recognize a substantial portion of our subscription basis generally delayrevenues over the timingterm of the subscription agreement as compared to sales of perpetual licenses, which are recognized up-front at the time of delivery. Under the new revenue recognition and often requireaccounting guidelines, a portion of subscriptions to on-premises software is recognized up-front, while the incurrenceremainder of up-front costs, which can be significant. Subscription revenues arethe subscription is recognized over the subscription period,term. That revenue recognition pattern is different from subscriptions to cloud offerings, for which is typically 12 months. MRCall revenue which is included in subscription revenue in our statements of operations, is recognized monthly onratably over the basisterm of active users or devices and thus will fluctuate from month to month. We receive no revenue or billings on MRC at the time the deal is booked. As a result, even if customer demand increases, our revenues will not increase at the same rate as in prior periods, or may decline.subscription. Customers in a subscription arrangement may elect not to renew their contractual arrangement with us upon expiration, or they may attempt to renegotiate pricing or other contract provisions on terms that are less favorable to us. We recognize a substantial portionMRC revenue, which is currently included in subscription revenue in our statements of our subscription revenues overoperations, is recognized monthly on the termbasis of the subscription agreement; however, we incur upfront costs, such as sales commissions, relatedactive users or devices and thus will fluctuate from month 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.month. Service providers that operate on an MRC billing model typically report to us in arrears on a monthly basis the number of actual users or devices deployed, and then we generate invoices based on those reports. Therefore, invoicing and collection logistics often result in a longer collection cycle, which negatively affects our cash flow.cycle. In addition, under an MRC billing model, the service provider typically has the contractual and business relationship with the customer, and thus we typically depend more heavily on the service provider partner for both customer acquisition and support under this billing model. To the extent that service providers may bundle our solution with their offerings and price aggressively, itwhich could result in an increasea decrease in MRC billings. We have in the past may in the future attempt to mitigate these risks by converting service providers or customers from MRC to perpetual or other licensing arrangements, which may reduce the long term value of the customer relationship.

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We are in a highly competitive market, and competitive pressures from existing and new companies may harmThese factors could negatively affect our business, revenues, growth rates and market share. In addition, there has been consolidation in our market, and a number of our current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.

Our market is intensely competitive, and we expect competition to increase in the future from established competitors, consolidations and new market entrants. Our major competitors include Blackberry, Citrix, IBM, Microsoft and VMware. A number of our historical competitors have been purchased by large corporations. For example, AirWatch was acquired by VMware and Good Technology was acquired by Blackberry. These large corporations have longer operating histories, greater name recognition, larger and better established customer bases, more channel partners, and significantly greater financial, technical, sales, marketing and other resources than we have. Consolidation is expected to continue in our industry. As a result of consolidation, our competitors may be able to adapt more quickly to new technologies and changes in customer requirements, devote greater resourcescash flow to the promotion and sale of their solutions, initiate or withstand substantial price competition, and/or develop and expand their products and features more quickly than we can. In addition, certain of our competitors may be able to leverage their relationships with customers based on an installed base of solutions or to incorporate functionality into existing solutions to gain business in a manner that discourages customers from including us in competitive bidding processes, evaluating and/or purchasing our solutions. They have done this in the past, and may in the future do this, by selling at zero or negative margins, through solution bundling or through enterprise license deals. Some potential customers, especially Forbes Global 2000 Leading Companies, have already made investments in, or may make investments in, substantial personnel and financial resources and established deep relationships with these much larger enterprise IT vendors, which may make them reluctant to evaluate our solutions or work with us regardless of solution performance or features. Potential customers may prefer to purchase a broad suite of solutions from a single provider, or may prefer to purchase mobile IT solutions from an existing supplier rather than a new supplier, regardless of performance or features.extent subscription revenue includes MRC revenue.

We expect competition to intensify in the future as new and existing competitors introduce new solutions into our market. In addition, some of our competitors have entered into partnerships or other strategic relationships to offer a more comprehensive solution than they individually had offered. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. This competition has resulted in the past and could in the future result in increased pricing pressure, increased sales and marketing expenses, or harm to our market share, any of which could harm our business. Competitors’ offerings may in the future have better performance or features, lower prices and/or broader acceptance than our solutions. Competitors’ products could also include new technologies, which could render our existing solutions obsolete or less attractive to customers, or be bundled with legacy enterprise security and management products as a “one-stop-shop” offering, which certain customers with large installed bases of those legacy products may prefer. If we fail to keep up with technological changes or to convince our customers and potential customers of the value of our solutions, our business, operating results and financial condition could be materially and adversely affected.

Changes in features and functionality by operating system providers and mobile device manufacturers could cause us to make short-term changes in engineering focus or product development or otherwise impair our product development efforts or strategy, increase our costs, and harm our business.

Our platform depends on interoperability with operating systems, such as those provided by Apple, Google and Microsoft, as well as device manufacturers. Because mobile and other modern operating systems are released more frequently than legacy PC operating systems, and we typically have limited advance notice of changes in features and functionality of operating systems and mobile devices, we may be forced to divert resources from our preexisting product roadmap in order to accommodate these changes. As a result of this limited advance notice, we also have a short time to implement and test changes to our product to accommodate these new features, which increases the risk of product defects. In addition, if we fail to enable IT departments to support operating system upgrades upon release, our business and reputation could suffer. This could disrupt our product roadmap and cause us to delay introduction of planned solutions, features and functionality, which could harm our business.

Operating system providers have included, and may continue to include, features and functionality in their operating systems that are comparable to certain of our solutions, features and/or functionality, thereby making our platform less valuable. The inclusion of, or the announcement of an intent to include, functionality perceived to be

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similar to that offered by our mobile IT solutions in mobile or other modern operating systems may have an adverse effect on our ability to market and sell our solutions. Even if the functionality offered by mobile operating system providers is more limited than our solutions, a significant number of potential customers may elect to accept such limited functionality in lieu of purchasing our solutions. Furthermore, some of the features and functionality in our solutions require interoperability with operating system APIs, and if operating system providers decide to restrict our access to their APIs, that functionality would be lost and our business could be impaired. Finally, we have entered into contractual arrangements with operating systems providers and/or mobile device manufactures, under which we are obligated to certain development priorities, which can further limit our engineering flexibility.

We have experienced substantial turnover, and the loss of key personnel or an inability to attract, retain and motivate qualified personnel may impair our ability to expand our business.

Our success is substantially dependent upon the continued service and performance of our senior management team and key technical, marketing, sales and operations personnel. Over the last twofive years, we have experienced substantial turnover in our sales, engineering, marketing, product management and executive teams, and this could continue in the future. The replacement of any members of our senior management team or other key personnel likely would involve significant time and costs and may harm our business, operating results and financial condition. Our future success also depends, in part, on our ability to continue to attract, integrate and retain highly skilled personnel, in

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particular engineers and sales personnel. Competition for highly skilled personnel is frequently intense, especially in the San Francisco Bay Area, where we have a substantial presence and need for highly skilled personnel, including, in particular, engineers. We must offer competitive compensation and opportunities for professional growth in order to attract and retain these highly skilled employees. Failure to successfully attract, integrate or retain qualified personnel to fulfill our current or future needs may negatively impact our growth.

A failure of our product strategy could harm our business.

Our product and business strategy is highly dependent on our existingcurrent and potential customers’ continued adoption offuture customers continuing to adopt our solutions, features, and functionality, for not only mobile application and mobile content management, but also ourincluding expanding to newer products, in cloud security (MobileIron Access),such as MobileIron Access and desktop security (MobileIron Bridge).MobileIron Threat Defense, and with existing on-premise customers migrating to MobileIron Cloud. Slow adoption by enterprises of customer-built mobile business applications wouldmay slow the need for and adoption of our platform, for mobile application management and security because if customers who are not deploying business apps other than email they may be content to continue using more basic MDM offerings and not see the value in our more advanced mobile application security and management and data security capabilities. Customers’ preferenceIf customers shift from client-side apps to web apps as the preferred interface for mobile applications could also shift to browser-based applications that can run on any mobile device through a web browser, whichend-users, it would reduce the value of our mobile application containerization solution. In addition, operatingsecurity solution because less confidential data would reside on the endpoint. Operating system providers could act in ways thatand larger software companies could harm our mobile content and apps product strategy.strategy by creating competitive solutions and/or bundling those solutions in a broader portfolio of products. For example, Microsoft released Office 365 and is bundlingbundled certain mobile device managementUEM capabilities with Officeinto Microsoft 365 in an attempt to dissuade customers from using EMM solutions other than Microsoft. If this strategy succeeds, the value of our own mobile content management solution and the value of our ecosystem of collaboration and storage partners may diminish.like MobileIron. If our product strategy around any of these features or new products fails or is not as successful as we hope for these or other reasons, the value of our investment would be lost and our results of operations would be harmed.

If we are not able to scale our business and manage our expenses, our operating results may suffer.

We have expanded, decreased and/or relocated specific functions over time in order to scale efficiently, including Julyrestructurings in 2016, 2017, 2019 and August 2017 restructuringsthe first quarter of 2020, to improve our cost structure and help scale our business. Our need to scale our business has placed, and will continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other resources. Our ability to manage our operations will require significant expenditures and allocation of valuable management resources to improve internal business processes and systems, including investments in automation. Further international expansion may also be required for our continued business growth, and managing any international expansion will require additional resources and controls. If our operations infrastructure and business processes fail to keep pace with our business and customer requirements, customers may experience disruptions in service or support or we may not scale the business efficiently, which could adversely affect our reputation and adversely affect our revenues. There is no guarantee that we will be able to continue to develop and expand our infrastructure and business processes at the pace necessary to scale the business, and our

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failure to do so may have an adverse effect on our business. If we fail to efficiently expand our engineering, operations, customer support, professional services, cloud infrastructure, IT and financial organizations and systems, or if we fail to implement or maintain effective internal business processes, controls and procedures, our costs and expenses may increase more than we planned or we may fail to execute on our product roadmap or our business plan, any of which would likely seriously harm our business, operating results and financial condition.

A security breach of our cloud service infrastructure or a disruption of our cloud service availability for any reason could result in liabilities, lost business and reputational harm.

In connection with providing our cloud service to customers, we obtain access to certain sensitive data, such as employees’ names, registration credentials, mobile device ID, geolocation of last device check-in, business email addresses, mobile phone numbers, business contact information and the list of applications installed on the mobile devices. Any security breach of the systems used to provide the cloud service, whether through third-party action or employee error or malfeasance, could result in damage, loss, misuse or theft of such data. A breach could also give rise to litigation or require us to incur financial and operational expenses in connection with fulfillment of certain indemnity obligations to our cloud service customers, and settling or defending claims made against us.us, or complying with specific laws or regulations such as breach notification requirements.  Techniques used to sabotage or obtain unauthorized access to information processing systems change frequently. In addition, theyfrequently and are generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures in a timely manner. Because our software is designed to enable IT administrators to secure and manage sensitivecustomers’ data transmitted to or stored on employees’ mobile devices, the publicity associated with an actual or perceived breach of our cloud service infrastructure would likely result in particular reputational damage, as well as loss of potential sales and existing

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customers. In addition, unexpected increases in demand at one customer may affect the overall service in unanticipated ways and may cause a disruption in service for other customers of this platform. We have experienced, and may in the future experience, disruptions, outages and other performance problems with our cloud service. These problems may be caused by a variety of factors, including, but not limited to, infrastructure changes, human or software errors, viruses, malicious code, denial of service or other security attacks, fraud, spikes in customer usage and interruption or loss of critical third party hosting, power or Internet connectivity services. If we sustain disruptions of our cloud services for any reason, our reputation, business and results of operations would be seriously harmed.

Defects in our solutions could harm our business, including as a result of customer dissatisfaction, data breaches or other disruption, and subject us to substantial liability.

Because the mobile IT market involves multiple operating platforms, we provide frequent incremental releases of solution updates and functional enhancements. Such new versions frequently contain undetected errors when first introduced or released. We have often found defects in new releases of our solutions, and new errors in our existing solutions may be detected in the future. Defects in our solutions may also result in vulnerability to security attacks, which could result in claims by customers and users for losses that they sustain.

Because our customers use our solutions for important aspects of their business, any errors, defects, disruptions in service or other performance problems with our solutions could hurt our reputation and may damage our customers’ businesses. In certain instances, our customers have stopped using or failed to expand use of, our solutions as a result of defects, and this may happen in the future.  In addition, customers may delay or withhold payment to us, elect not to renew and make warranty claims or other claims against us. In addition, we rely on positive customer experienceexperiences in order to sell additional products to other customers or sell to new customers. Defects or disruptions in our solutionsolutions 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.claims, and negatively impact our stock price.

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Security breaches and other disruptions of our information systems could significantly impair our operations, compromise our ability to conduct our business and deliver our products and services, and result in significant data losses, theft of our intellectual property, significant liability, damage to our reputation, and loss of current and future business.

We rely on our IT systems for almost all of our business operations, including internal operations, product development, sales and marketing, and communications with customers and other business partners. The secure processing, maintenance and transmission of both our own sensitive information and our customers’ data is critical to our operations and business strategy. Despite our security measures, our information technology systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, compromised networks of our third party service providers, malfeasance or other disruptions. AnyWhile we have incurred no material cyber-attacks or security breaches to date, any cyber security attack could result in the damage, loss, theft or misappropriation of our proprietary information or our customers’ data and/or cause interruptions of our internal business operations or the delivery of our solutions to customers. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or readily detect or take remedial action against an attack. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. We also depend on our employees to handle confidential data appropriately and deploy our information resources in a secure fashion that does not expose our network systems to security breaches and the loss of data. Any breach as a result of cyber criminals or employee malfeasance or error could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Our insurance may not be sufficient to cover all of our losses from any future breaches of our systems. We have also outsourced a number of our business functions to third parties, and thuswe rely on distributors, resellers, system vendors, and system integrators to sell our products and services. Thus our business operations also depend, in part, on their cybersecurity measures. Any material cyber-related incident, including unauthorized access, disclosure or other loss of information, could result in legal claims or proceedings, investigations by law enforcement or regulatory bodies, liability under laws that protect the privacyconfidentiality of personal information, regulatory penalties, and could disrupt our operations and the solutions we provide to customers, andcould compromise our ability to protect our intellectual

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property rights, could damage our reputation, which could adversely affect our business, financial condition, and operating results, and could negatively impact our stock price.

We depend and rely upon technologies from third parties to operate our products, and interruptions or performance problems with these technologies may adversely affect our business and results of operations.

We rely on applications from third parties in order to operate critical functions of our products. If these services become unavailable due to extended outages, interruptions, errors or defects or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business.

Real or perceived errors, failures or bugs in our software could adversely affect our business, results of operations, financial condition, and growth prospects.

Our software is complex, and therefore, undetected errors, failures or bugs may occur in the future. Our software is used in IT environments with different operating systems, system management software, applications, devices, databases, servers, storage, middleware, custom and third-party applications and equipment and networking configurations, which may cause errors or failures in the IT environment into which our software is deployed. This diversity increases the likelihood of errors or failures in those IT environments. Despite testing by us, real or perceived errors, failures or bugs may not be found until our customers use our software. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of or delay in market acceptance of our software and harm our brand, weakening of our competitive position, claims by customers for losses sustained by them or failure to meet the stated service level commitments in our customer agreements. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend significant additional resources in order to help correct the problem. Any errors, failures or bugs in our software could impair our ability to attract new customers, retain existing customers or expand their use of our software, which would adversely affect our business, results of operations and financial condition.

Disruptions of the third-party data centers that host our cloud service could result in delays or outages of our cloud service and harm our business.

We currently host our cloud serviceservices from third-party data center facilities operated by several different providers such as AWS, which are located around the world, such as Equinix and Amazon Web Services.world. Any damage to, or failure of, our cloud serviceservices that isare 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 serviceservices and/or the loss of data. While the third-party hostingdata centers host the server infrastructure, we manage the cloud services through our site reliability engineering team and need to support version control, changes in cloud software parameters and the evolution of our solutions, all in a multi-OS environment. As we continue to add data centers and capacity in our existing data centers, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service.services. 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 cannotmay not be able to 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, public health crisis, 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 serviceservices 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 orand subscription programs, renewal programs or bundling arrangements, which may reduce our revenue and adversely impact our financial results.

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

We continually re-evaluate our licensing and subscription programs and subscription renewal programs, including specific license and subscription models and terms and conditions. We have in the past implemented, and could in the future implement, new licensing programs and subscription programs, renewal programs or bundling arrangements, including promotional programs or specified enhancements to our current and future solutions, enterprise licensing arrangements, discounted pricing and/or conversion of service providers or customers from one billing model to another. Depending on the nature of the change, suchSuch billing model, renewal programs or licensing and subscription arrangement changes couldmay result in deferringdelayed 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.recognition.

Our ability to sell our solutions is highly dependent on the quality of our support, which is made complex by the requirements of mobile IT. Our failure to deliver high quality support would have a material adverse effect on our sales and results of operations.

Once our solutions are deployed, our customers depend on our support organization or that of our channel partners to resolve any issues relating to our solutions. Our failure to provide effective support has in the past, and could in the future, adversely affect our ability to sell our solutions or increase the number of licenses sold to existing customers. Our customer support is especially critical because the mobile IT market requires relatively frequent software releases. Mobile IT requires a complex set of features, functionality and controls, which makes support critical and difficult. In addition, we target companies on the Forbes Global 2000 Leading Companies list, many of whom have complex networks and require higher levels of support than smaller customers. As customers deploy more licenses and purchase a broader array of our solutions, the complexity and difficulty of our support obligations increase. If we fail to meet the requirements of the larger customers, it may be more difficult to increase our deployments either within our existing Forbes Global 2000 Leading Companies list or other customers or with new Forbes Global 2000 Leading Companies list customers. We face additional challenges in supporting our non-U.S. customers, including the employment and retention of qualified support personnel and the need to rely on channel partners to provide support.

We rely substantially on channel partners for the sale and distribution of our solutions and, in some instances, for the support of our solutions. A loss of certain channel partners, a decrease in revenues from certain of these channel partners or any failure in our channel strategy could adversely affect our business.

A substantial portion of our sales are through channel partners – either telecommunications carriers, which we call service providers, or other resellers – and thus we depend on our channel partners and on our channel partner strategy for the vast majority of our revenue. Our international resellers often enter into agreements directly with our mutual customers to host theour 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 theour 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

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relationships, and thus our business may not be significant to them in the overall context of their much larger enterprise. These partnerships may require us to adhere to outside policies, which may be administratively challenging and could result in a decrease in our ability to complete sales. 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.

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Thus, any loss of a major channel partner or failure of our channel strategy could adversely affect our business. AT&T, as a reseller, is our largest service provider partner and was responsible for 15%9% of our total revenue for the year ended December 31, 2016.in 2019.

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

We have made a variety of changes to our North American channel strategy which can cause confusion among our existing resellers. In addition, we have sold and may in the futurewill sell directly to end-user customers, which may adversely affect our relationship with our channel partners.

Our sales cycles for large enterprises are often long, unpredictable and expensive. As a result, our sales and revenue are difficult to predict and may vary substantially from period to period, which may cause our operating results to fluctuate significantly.

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

We seek to sell our solutions to large enterprises. Sales to and support of these types of enterprises involve risks that could harm our business, financial position and results of operations.

Our growth strategy is dependent, in part, upon increasing sales of our solutions to large enterprises. Sales to large customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller entities. These risks include:

             

more complicated network requirements, which result in more difficult and time-consuming implementation processes;

more intense and time-consuming customer support practices;

increased purchasing power and leverage held by large customers in negotiating contractual arrangements with us;

more customer-favorable contractual terms, including penalties;

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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;

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closer relationships with, and dependence upon, large technology companies that offer competitive solutions;

an RFP process that may favor incumbent or larger technology companies;

increased reputational risk as a result of data breaches or other problems involving high profile customers; and

more pressure for discounts.

If we are unable to increase sales of our solutions to large enterprises while mitigating the risks associated with serving such customers, our business, financial position and results of operations may suffer.

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

Personal privacy and data protection have become significant issues in the United States, Europe and elsewhere where we offer our solutions. We collect contact and other personal or identifying information from our customers, and our customers increasingly use our cloud services to store and process personal information and other regulated data. We also maintain personal data of our employees in connection with our HR and benefits administration and share that information with third party payroll and benefits providers.

Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, disclosure and retention of personal information, with which we must comply. The variety, complexity and changing nature of the privacy law landscape worldwide is challenging. If our solutions fail to adequately separate personal information and to maintain the security of enterprise applications and data, the market perception of the effectiveness of our solutions could be harmed, employee adoption of mobile initiatives could be slowed, we could lose potential sales and existing customers, and we could incur significant liabilities.

If any of our customers or prospective customers decide not to purchase our software as a result of this regulatory uncertainty, our revenues could decline and our business could suffer. Any inability to adequately address privacy concerns, whether valid or not, or to comply with applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability to us, damage our reputation, inhibit sales of our solutions and harm our business. Furthermore, the attention garnered by the National Security Agency’s bulk intelligence collection programs may result in further concerns surrounding privacy and technology products, which could harm our business.

The European Union data protection law, the General Data Protection Regulation (“GDPR”), which became enforceable in May 2018, is wide-ranging in scope. To adapt to these new requirements, we have invested and will continue to invest resources necessary to enhance our policies and controls across our business units, products and services relating to how we collect and use personal data relating to customers, distributors, resellers, personnel and suppliers. Additionally, we expect that the international transfer of personal data will present ongoing compliance challenges and complicate our business transactions as we negotiate and implement suitable arrangements with international customers and international and domestic suppliers. Failure to comply may lead to fines of up to €20 million or up to 4% of the annual global revenues of the infringer, whichever is greater. EU data protection laws and their interpretations continue to develop, and may be inconsistent from jurisdiction to jurisdiction, which may further impact our information processing activities. Further, laws such as the EU’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking of individuals’ online activities. In addition, certain countries outside the EU are considering or have passed legislation that requires local storage and processing of data, which could increase the cost and complexity of delivering our products and services. Our current arrangements for the transfer of personal data will need to continue to adapt to future judicial decisions and regulatory activity as laws on privacy and the protection of personal data continue to evolve in the countries in which we and our customers do business. If we do not adapt to such changes in the laws or regulations, our business and reputation could be harmed.

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The implementation of GDPR has led other jurisdictions to enact, amend, or propose legislation to amend their existing data privacy and cybersecurity laws to resemble the requirements of GDPR. For example, the California Consumer Privacy Act of 2018 (“CCPA”) came into effect on January 1, 2020 and began being enforced on July 1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors a number of the key provisions in the GDPR. California Attorney General (“AG”) Xavier Becerra submitted final proposed regulations on June 1, 2020 to guide covered businesses’ implementation of the CCPA. The regulations address several CCPA provisions that explicitly call for the AG’s input, as well as others that have been the subject of confusion, criticism, or discussion. Because of this, we will need to engage in additional, ongoing compliance efforts, including data mapping to identify the personal information we are collecting and the purposes for which such information is collected and enhanced consumer rights with respect to their data. If we are unable to meet these standards, our business could be harmed.

The failure of third parties to comply with privacy and data security laws could harm our business.

The regulatory framework for privacy and data security issues worldwide is currently evolving and is likely to remain uncertain for the foreseeable future, in particular as it relates to cloud computing vendors. Our existing contractual provisions may not protect us from claims for data loss or regulatory noncompliance made against cloud computing providers with whom we contract. Any failure by us or our channel partners or cloud computing vendors to comply with posted privacy policies, other privacy-related or data protection laws and regulations, or the privacy and security commitments contained in contracts could result in legal or regulatory proceedings and/or fines, which could harm our business and reputation.reputation could be harmed. Our implementation of, and ongoing compliance with, the GDPR, the CCPA and other legislation that has been or may be enacted in the future, may be costly and distracting to management.

Employee adoption of mobile initiatives depends on the credible and clear separation of enterprise applications and data from personal applications and personal informationdata on the device, as well as the privacy of such data.employee’s data privacy. 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 toand otherwise comply with applicable law regarding the processing of personally identifiable information that the employer may access, we do not control whether they in fact do so, and in some jurisdictions such employee consent may not be enforceable.so. Any claim by ana customer’s employee that his or her employer had not complied with applicable privacy

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and data security laws in connection with the deployment and use of our software on the employee’s mobile device could harm our reputation and business and subject us to liability, whether or not warranted.

We may acquire other businesses which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.

As part of our business strategy, we may make investments in complementary companies, solutions or technologies. We may not be able to find suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. If we do complete acquisitions, such as the acquisition of incapptic Connect GmbH that we announced on April 29, 2020, we may not ultimately strengthen our competitive position or achieve our goals. In addition, if we are unsuccessful at integrating such acquisitions, fail to properly identify issues or liabilities in the business and assets we may acquire or are unsuccessful in developing the acquired technologies, the revenue and operating results of the combined company could be adversely affected. We have in the past and could in the future record impairment losses in connection with acquisitions. Further, the integration of an acquired company typically requires significant time and resources, and we may not be able to manage the process successfully.successfully and such activities could be distracting to management. 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 acquisitionsacquisition 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.

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We have indemnity obligations under our contracts with our customers and channel partners, which could have a material adverse effect on our business.

The mobile industry has been characterized by substantial patent infringement lawsuits. In our agreements with customers and channel partners, in the indemnification provisions we typically agree to indemnify them for losses related to, among other things,defend and settle claims by third parties of intellectual property infringement and sometimes data breaches resulting in the compromise of personal data.other third party claims. 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. If we are unable to gain any required federal clearance or certificate in a timely manner, or at all, we would likely be prohibited from selling to particular federal customers. In addition, government demand and payment for our solutions and services may be impacted by public sector budgetary cycles and funding authorizations, particularly in light of U.S. budgetary challenges, with funding reductions or delays adversely affecting public sector demand for our solutions. The additional costs associated with providing our solutions to governmental entities and highly regulated customers could harm our margins. Moreover, changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently provide our solutions to them and to grow or maintain our customer base.

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

Our solutions need to interoperate with our customers’ existing IT infrastructures, which have varied and complex specifications. As a result, we must attempt to ensure that our solutions interoperate effectively with these different, complex and varied back-end environments. To meet these requirements, we have and must continue to undertake development and testing efforts that require significant capital and employee resources. We may not accomplish these development efforts quickly or cost-effectively, or at all. If our solutions do not interoperate effectively, orders for our solutions could be delayed or cancelled, which would harm our revenues, gross margins and reputation, potentially resulting in the loss of existing and potential customers. The failure of our solutions to interoperate effectively within the enterprise environment may divert the attention of our engineering personnel from our development efforts and cause significant customer relations problems. In addition, if our customers are unable to implement our solutions successfully, they may not renew or expand their deployments of our solutions, customer perceptions of our solutions may be impaired and our reputation and brand may suffer.

Although technical problems experienced by users may not be caused by our solutions, our business and reputation may be harmed if users perceive our solutions as the cause of a device failure.

The ability of our solutions to operate effectively can be negatively impacted by many different elements unrelated to our solutions. For example, a user’s experience may suffer from an incorrect setting in his or her mobile device, an issue relating to his or her employer’s corporate network or an issue relating to the underlying mobile operating system, none of which we control. Even though technical problems experienced by users may not be caused by

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our solutions, users often perceive the underlying cause to be a result of poor performance of our solution. This perception, even if incorrect, could harm our business and reputation.

Our customers may exceed their licensed device or user count, and it is sometimes difficult to collect payments as a result of channel logistics, which could harm our business, financial position and results of operations.

Our customers license our solutions on either a per-device or per-user basis. Because we sell the vast majority of the sales of our solutions are through channel partners, and in some cases multiple tiers of channel partners, the logistics of collecting payments for excess usage can sometimes be time-consuming. We may also encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. Economic conditions may impact some of our customers’ ability to pay their accounts payable. If we are unable to collect from our customers for their excess usage or otherwise or if we have to write down our accounts receivable, our revenues and operating results would suffer.

If the market for our solutions shrinks or does not continue to develop as we expect, our growth prospects may be harmed.

The success of our business depends on the continued growth and proliferation of mobile and other modern IT infrastructure as an increasingly important computing platform for businesses. Our business plan assumes that the demand for mobile and other modern IT solutions and the deployment of business apps on mobile devices will increase. However, the mobile IT market has slowed and may not develop as quickly as we expect, or at all, and businesses may not continue to elect to utilize mobile IT solutions as an advanced business platform. This market for our solutions may not develop for a variety of reasons, including that larger, more established companies will enter the market or that mobile operating system companies will offer substantially similar functionality or that companies may not deploy business apps at scale and thus may be satisfied with less advanced technologies. Accordingly, demand for our solutions may not continue to develop as we anticipate, or at all, and the growth of our business and results of operations may be adversely affected. In addition, because we derive substantially all of our revenue from the adoption and use of our platform, a decline or slowing growth in the mobile IT market would harm the results of our business operations more seriously than if we derived significant revenue from a variety of other products and services.

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Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates, which may not prove to be accurate. Forecasts relating to our market opportunity and the expected growth in the mobile IT market and other markets may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth will be affected by many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

Seasonality may cause fluctuations in our revenue.*

We believe there are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. We believe this variability is largely due to our customers’ budgetary and spending patterns, as many customers spend the unused portions of their discretionary budgets prior to the end of their fiscal years. For example, we have historically recorded our highest level of total revenue in our fourth quarter, which we believe corresponds to the fourth quarter of a majority of our customers. In addition, the type of budget (operating versus capital) available to a customer may affecthas affected its decision to purchase a perpetual license or a subscription license. In addition,license but we expect the type of budget available to be a less significant factor going forward as we have discontinued our rapid growth rate in 2012 through 2014 may have made seasonal fluctuations more difficult to detect.sales of perpetual licenses beginning the third quarter of 2020. As our rate of growth has slowed, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may be adversely affected.

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Economic or political uncertainties or downturns could materially adversely affect our business.

Economic downturns or uncertainty could adversely affect our business operations or financial results. Negative conditions in the general economy and political sphere both in the United States and abroad, including conditions resulting from changing tariff and trade policies, financial and credit market fluctuations, public health crises and terrorist attacks on the United States, Europe, Asia Pacific or elsewhere, could cause a decrease in corporate spending on enterprise software in general and negatively affect the rate of growth of our business.Economic downturns or economic and/or political uncertainty make it difficult for our customers and us to forecast and plan future business activities accurately, and they could cause our customers to reevaluate their decision to purchase our products, which could delay and lengthen our sales cycles, or to deprioritize the portion of their IT budget focused on mobility. We cannot predict the timing, strength or duration of any economic slowdown, economic or political instability or recovery, generally or within any particular industry or geography. If the economic conditions of the general economy or industries in which we operate worsen from present levels, our business operations and financial results could be adversely affected.

The UK’s exit from the EU may have a negative effect on global economic conditions, financial markets and our business.

The United Kingdom’s (UK) formal exit from the European Union (EU) on January 31, 2020, commonly referred to as “Brexit,” has created significant uncertainty concerning the future relationship between the UK and the EU and the impact on global markets. It is unclear what financial, trade, regulatory and legal implications the withdrawal of the UK from the EU will have and how such withdrawal will affect us. Economic and political uncertainty stemming from Brexit may cause our enterprise customers to freeze or decrease their spending on our products. Brexit may also adversely affect and delay our ability to market and sell our products in the UK or may increase our costs of doing business in the UK due to risks such as regulatory uncertainty. In particular, for UK personal data we process, we remain subject to the requirements of the GDPR during the post-Brexit transition period under the EU Withdrawal Agreement. Subsequently, we will be subject to UK data protection legislation. The UK is expected to transpose the protections of the GDPR into UK law after the Brexit transition period, which will end on December 31, 2020. Furthermore, withdrawal of the UK from the EU may also adversely affect European and global economic and market conditions, which may cause our customers outside of the UK to closely monitor their costs and reduce their spending budgets. Any of these effects of Brexit, among others, could have a material adverse impact on our business, financial condition and results of operations.

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, public health crises, acts of terrorism or war could cause disruptions in our or our customers’ businesses or the economy as a whole. We also rely on information technology systems to communicate among our workforce and with third parties. Any disruption to our communications or systems, whether caused by a natural disaster or by manmade problems, such as power disruptions, could adversely affect our business.

If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we furnish a report by management on, among other things, the effectiveness of our internal controlcontrols over

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financial reporting. Management’s assessment needs to include disclosure of any material weaknesses identified in our internal controls over financial reporting. Our independent registered public accounting firm will not beis required to attest to the effectiveness of our internal controls over financial reporting until our first annual report required to be filed with the Securities and Exchange Commission, or SEC, following the date we are no longer an “emerging growth company,” as defined in the JOBS Act. We continued to qualify as an “emerging growth company,” as defined in the JOBS Act, and our independent registered public accounting firm was not required to attest to the effectiveness of our internal controls over financial reporting for the year ended December 31, 2016. Implementationreporting. Maintenance of internal controls over financial reporting

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can be time-consuming costly and complicated.costly. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock could be negatively affected. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

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

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock-based compensation and income taxes. Moreover, the revenue recognition guidance, Topic 606 – Revenue from Contracts with Customers, requires significant judgments that we must apply when accounting for revenue.

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

We have in the past and may in the future acquire intangible assets. Current accounting rules require that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events and circumstances considered in determining whether the carrying value of amortizable intangible assets and goodwill may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, or a significant decline in our stock price and/or market capitalization for a sustained period of time. To the extent such evaluation indicates that the useful lives of intangible assets are different than originally estimated, the amortization period is reduced or extended and the quarterly amortization expense is increased or decreased. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results.

Risks Related to Our Intellectual Property

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

There is considerable patent and other intellectual property development activity in our industry. Our success depends in part on not infringing the intellectual property rights of others. From time to time, our competitors or other third parties have claimed, and we expect they will continue in the future to claim, that we are infringing their intellectual property rights, and we may be found to be infringing such rights.

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For example, in December 2015, we and Good Technology announced the settlement of our three year mutual global patent litigation between us. The settlement included a narrow, non-material license agreement between us and Good Technology and a mutual dismissal of claims.

In the future, we may receive additional claims that our solutions infringe or violate the claimant’s intellectual property rights. However, weWe 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

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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.

We received a letter in August 2019 from BlackBerry Corp. asserting that our products and software infringe BlackBerry’s patents, and that we should license its portfolio. We retained counsel and evaluated BlackBerry’s letter, as well as potential counterclaims against BlackBerry. BlackBerry sent a second letter in March 2020 asserting that our products and software infringe additional BlackBerry patents, although BlackBerry did not specify its infringement theories or make a demand for damages in the March 2020 letter. The parties have attempted to negotiate, and we have accrued an immaterial amount related to the matter. However, through the date of the filing of this Quarterly Report on Form 10-Q, these discussions have not been resolved. To protect our rights, we filed a lawsuit against BlackBerry in the United States District Court for the Northern District of California on April 27, 2020. The case is MobileIron, Inc. v. BlackBerry Corp. and BlackBerry Ltd. The lawsuit asserts that BlackBerry’s products infringe MobileIron patents, that MobileIron’s products and software do not infringe BlackBerry’s patents, and that BlackBerry has engaged in certain unlawful activities related to its licensing program for its patent portfolio. We intend to vigorously assert our claims and defend against any claims or lawsuits that BlackBerry may assert against us. The amount of damages that could be awarded in the lawsuit is unknown at this time.

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.

We rely on third party software and intellectual property licenses and if we are unable to obtain or renew software or licenses on commercially reasonable terms, it could harm our business.

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Our solutions are designed to include software and other intellectual property licensed from third parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our solutions, we have the expectation, based on experience and standard industry practice, that such licenses generally can be obtained on commercially reasonable terms. However, there can be no assurance that the necessary licenses would be available on commercially reasonable terms, if at all. Our inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms could have a material adverse effect on our business, operating results, and financial conditions. Moreover, inclusion in our products or software or other intellectual property licenses from third parties on a nonexclusive basis could limit our ability to protect our proprietary rights in our products.

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

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with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary solutions to the public or offer our solutions to users at no cost. This could allow our competitors to create similar solutions with lower development effort and time and ultimately could result in a loss of sales for us.

The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-engineer our solutions or to discontinue the sale of our solutions in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our business and operating results.

Risks Related to Our International Operations

Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our international revenue.

We derive a significant portion of our revenues from customers outside the United States. For the nine months ended September 30, 20172020 and for the years ended December 31, 2016, 20152019 and 2014 54%2018, 57%, 53%, 50%,58% and 45%58% of our revenue, respectively, was attributable to our international customers, primarily those located in Europe. As of December 31, 2016,2019, approximately 42%46% of our employees were located abroad.

We expect that our international activities will be dynamic over the foreseeable future as we continue to pursue opportunities in international markets, which will require significant management attention and financial resources. Therefore, we are subject to risks associated with having worldwide operations.

We have a limited history of marketing, selling and supporting our solutions internationally. As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining an international staff, and specifically staff related to sales and engineering, we may experience difficulties in foreign markets. In addition, business practices in the international markets that we serve may differ from those in the United States and may require us to include non-standard terms in customer contracts, such as extended warranty terms. To the extent that we may enter into customer contracts in the future that include non-standard terms related to payment, warranties or performance obligations, our operating results may be adversely affected. International operations are subject to other inherent risks, and our future results could be adversely affected by a number of factors, including:

difficulties in executing an international channel partners strategy;

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burdens of complying with a wide variety of foreign laws, including heightened concerns and legal requirements relating to data security and privacy;

economic or political instability and security concerns in countries outside the United States in which we operate or have customers;customers;

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

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

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

difficulties and costs of attracting and retaining employees and managing foreign operationsoperations;

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import restrictions and the need to comply with export laws;

difficulties in protecting intellectual property;

difficulties in enforcing contracts and longer accounts receivable payment cycles;

the effect of foreign exchange fluctuations on the competitiveness of our prices;

potentially adverse tax consequences;

the increased cost of terminating employees in some countries; and

variability of foreign economic, political and labor conditions.conditions; and

the impact of natural disasters and public health epidemics on our employees, channel partners and the global economy, such as the COVID-19 pandemic.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and manage effectively these and other risks associated with our international operations. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, operating results and financial condition.

We rely on channel partners to sell our solutions in international markets, the loss of which could materially reduce our revenue.

We sell our solutions in international markets almost entirely through channel partners. We believe that establishing and maintaining successful relationships with these channel partners is, and will continue to be, critical to our financial success. Recruiting and retaining qualified channel partners and training them to be knowledgeable about our solutions requires significant time and resources. In some countries, we rely on a sole or very few channel partners and thus the loss of the channel partner could have a significant impact on our sales and support in those countries. To develop and expand our distribution channel, we must continue to scale and improve our processes and procedures that support our channel, including investment in systems and training. In particular, foreign-based service provider partners

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are large and complex businesses, and we may have difficulty negotiating and building successful business relationships with them.

In addition, existing and future channel partners will only partner with us if we are able to provide them with competitive offerings on terms that are commercially reasonable to them. If we fail to maintain the quality of our solutions or to update and enhance them or to offer them at competitive discounts, existing and future channel partners may elect to partner with one or more of our competitors. In addition, the terms of our arrangements with our channel partners must be commercially reasonable for both parties. If we are unable to reach agreements that are beneficial to both parties, then our channel partner relationships will not succeed. In addition, international channel partners often rely on business models that favor our on premiseson-premise product over our cloud product because in the former, the channel partner may host and manage the software for, and provide additional administrative, support, training and other services to, the mutual customer for additional fees. This situation could impede sales of our cloud product in certain international markets.

If we fail to maintain relationships with our channel partners, fail to develop new relationships with other channel partners in new markets, fail to manage, train or incentivize existing channel partners effectively, or fail to provide channel partners with competitive solutions on terms acceptable to them, or if these partners are not successful in their sales efforts, our revenue may decrease and our operating results could suffer.

We have no long-term contracts or minimum purchase commitments with any of our channel partners, and our contracts with channel partners do not prohibit them from offering solutions that compete with ours, including solutions they currently offer or may develop in the future and incorporate into their own systems. Some of our competitors may have stronger relationships with our channel partners than we do, and we have limited control, if any, as to whether those partners sell our solutions, rather than our competitors’ solutions, or whether they devote resources to market and support

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our competitors’ solutions, rather than our solutions. Our failure to establish and maintain successful relationships with channel partners could materially adversely affect our business, operating results and financial condition.

Failure to comply with the U.S. Foreign Corrupt Practices Act and similar laws associated with our activities outside the United States could subject us to penalties and other adverse consequences.

A significant portion of our revenues is and will continue to be from jurisdictions outside of the United States. As a result, we are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies and their intermediaries from making payments to corrupt foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, we may be held liable for actions taken by strategic or local partners or representatives. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies that we acquire.

In many foreign countries, particularly in countries with developing economies, including many countries in which we operate, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other similar laws and regulations. Although we have contractual provisions in our agreements with channel partners that require them to comply with the FCPA and similar laws, we have not engaged in formal FCPA training of our channel partners. Our channel partners could take actions in violation of our policies, for which we may be ultimately held responsible. Our development of infrastructure designed to identify FCPA matters and monitor compliance is at an early stage. If we or our intermediaries fail to comply with the requirements of the FCPA or other anti-corruption laws, governmental authorities in the U.S. or elsewhere could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows.

We are subject to export controls, and our customers and channel partners are subject to import controls.

Certain of our solutions are subject to U.S. export controls and may be exported to certain countries outside the U.S. only by first obtaining an export license from the U.S. government, or by utilizing an existing export license exception, or after clearing U.S. government agency review. Obtaining the necessary export license or accomplishing a

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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.

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.

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Risks Related to Ownership of Our Common Stock

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.

The price of our common stock has been and may continue to be weak, and you could lose all or part of your investment.

The trading price of our common stock has declined since our Initial Public Offering,initial public offering, and the shares are thinly traded. The trading price of our common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.

Since shares of our common stock were sold at our initial public offering, our stock price has ranged from as low as $2.56 to as high as $12.96 through September 30, 2017.2020. These fluctuations could cause you to lose all or part of your investment in our common stock, because you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following:

             

failure to meet quarterly guidance with regard to revenue, billings,ARR, cash flow breakeven or other key metrics;

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

volatility in the market prices and trading volumes of high technology stocks;

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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;

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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, public health crises (such as the COVID-19 pandemic) or responses to these events.

In addition, broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigation has often been instituted against these companies. Litigation of this type has been instituted against us, and could result in substantial costs and a diversion of our management’s attention and resources.

On August 5, 2015, August 21, 2015 and August 24, 2015, purported stockholder class action lawsuits were filed in the Superior Court of California, Santa Clara County against the Company, certain of its officers, directors, underwriters and investors, captioned Schneider v. MobileIron, Inc., et al., Kerley v. MobileIron, Inc., et al. and Steinberg v. MobileIron, Inc., et al, which were subsequently consolidated under the case caption In re MobileIron Shareholder Litigation. The actions are purportedly brought on behalf of a putative class of all persons who purchased the Company’s securities issued pursuant or traceable to the Company’s registration statement and the June 12, 2014 initial public offering. The lawsuits assert claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The complaint seeks among other things, compensatory damages and attorney’s fees and costs on behalf of the putative class. On April 12, 2016, Plaintiffs filed a corrected consolidated complaint, which no longer names the underwriters or investors as defendants. On August 8, 2016 the Company filed a demurrer to the corrected consolidated complaint. The court overruled the demurrer on October 4, 2016. 

On March 8, 2017, the Company reached an agreement in principle to settle the above-described actions and the court granted preliminary approval of that settlement on June 9, 2017. The court approved the settlement on August 21, 2017 and entered final judgment in the case on October 11, 2017 releasing all parties.  The settlement called for a payment of $7.5 million to the plaintiffs in resolution of all claims against the Company, its officers, directors and the other defendants. The Company contributed $1.1 million to the settlement in the three months ending September 30, 2017. This amount represented the remainder of the Company’s retention amount under its Director & Officer liability insurance policy. The balance was paid by the Company’s Director & Officer liability insurance. 

While the Company and the other defendants continue to deny each of the plaintiffs’ claims and deny any liability, the Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation and to avoid further distractions to management.

If financial or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included

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in their reports. If any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely decline. Financial analysts have in the past ceased coverage of our stock or published adverse reports, and this may recur in the future. Any cessation of coverage or adverse reports would likely cause our stock price or trading volume to decline.

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Insiders continue to have substantial control over our company, which could limit your ability to influence the outcome of key transactions, including a change of control.

Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 40%38% of the outstanding shares of our common stock as of September 30, 2017.2020. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deter certain public investors from purchasing our common stock and might ultimately affect the market price of our common stock.

We have in the past failed, and may in the future fail, to meet our publicly announced guidance or other expectations about our business and future operating results, which has in the past caused, and would in the future cause, our stock price to decline.

We have provided and may continue to provide guidance about our business and future operating results as part of our press releases, conference calls or otherwise. In developing this guidance, our management must make certain assumptions and judgments about our future performance. Our business results may vary significantly from such guidance due to a number of factors, many of which are outside of our control, and which could adversely affect our operations and operating results. Furthermore, if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock would decline.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we are or will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NASDAQ Global Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations may further increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results.

Being a public company has made it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These and other factors, including the decline in our stock price and the other risks described in this “Risk Factors” section, could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit committee and compensation committee.

We are an “Emerging Growth Company,” and any decision on our part to comply only with certain reduced disclosure requirements applicable to Emerging Growth Companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the year in which we have more than $1.0 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the year ending after the fifth anniversary of the completion of our initial public offering. We

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cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile. For the year ending December 31, 2017, we continued to qualify as an “emerging growth company” as defined in the JOBS Act.

Our future capital needs are uncertain, and we may need to raise additional funds in the future. If we require additional funds in the future, those funds may not be available on acceptable terms, or at all.

We may need to raise substantial additional capital in the future to:

             

fund our operations;

continue our research and development;

develop and commercialize new solutions; or

acquire companies, in-licensed solutions or intellectual property.

Our future funding requirements will depend on many factors, including:

             

market acceptance of our solutions;

the cost of our research and development activities;

the cost of defending and resolving litigation or other legal disputes;

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

the cost and timing of establishing additional technical support capabilities;

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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, 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 ofAt September 30, 2017,2020, we have 96,048,823118,560,029 shares of common stock outstanding, excluding any potential exercises of our outstanding stock options and vesting of RSUs.restricted stock units (“RSUs”).

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In the future, we may issue additional shares of common stock, or securities with convertible features into our common stock, from time to time in connection with our employee equity plans, financings, acquisitions and investments or otherwise.

In February 2016, our Compensation Committee approved the issuance of 1,653,371 shares of common stock under our 2015 Non-Executive Bonus Plan. No shares were issued under our 2015 Executive Bonus Plan. For 2016, we implemented two stock-settled bonus plans, one for executives and one for non-executives, which resulted in the issuance of additional 1,010,550 shares of common stock in the first quarter of 2017. On June 14, 2017, our shareholders approved in a proxy vote the amendment and restatement of our 2014 Employee Stock Purchase Plan, or ESPP, to provide for a one-time increase of 1,200,000 shares of common stock available for issuance under the ESPP. In February of 2018, we issued 1,220,822 shares of common stock under our 2017 Executive and Non-Executive Bonus Plans. In February of 2019, we issued 1,338,220 shares of common stock under our 2018 Executive and Non-Executive Bonus Plans. In February 2020, we issued 1,061,165 shares of common stock under our 2019 Non-Executive Bonus Plan. The issuance of shares of common stock under RSUs, PSUs, future bonus programs, or our ESPP could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

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

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

             

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

our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at

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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 acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and

our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of our company.

Our executive officers are entitled to accelerated vesting of their stock options pursuant to the terms of their employment arrangements under certain conditions following a change of control of the Company. In addition to the arrangements currently in place with some of our executive officers, we may enter into similar arrangements in the future with other officers. Such arrangements could delay or discourage a potential acquisition of the Company.

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Our financial results may be adversely affected by changes in accounting principles applicable to us.*

U.S. GAAP are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. For example, in May 2014, the FASB issuedfirst quarter of our fiscal year 2018, we adopted accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly all existingmost significantly changed the timing of revenue recognition guidance under U.S. GAAP. We willfor on-premise subscriptions. There could be requiredadditional changes to implement this guidanceaccounting principles in the first quarter of our fiscal year 2018. While we are continuing to assess all potential impacts of the standard, we believe the most significant impact relates to our accounting for subscriptions to our on-premise licenses, specifically, as under the new standard we expect to recognize revenue from those subscriptions predominantly at the time of billing rather than ratably over the license term, potentially making revenue more volatile and difficult to predict. In addition, we expect accounting for commissions to be impacted significantly as we will capitalize and amortize most commissions under the new standard instead of expensing commissions as incurred. Due to the complexity of certain of our contracts, the revenue recognition treatment required under the new standard will be dependent on contract-specific terms.future. Any difficulties in implementing these pronouncements or adequately accounting after adoptionnew accounting standards could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. In addition, to adopt the new standard we have had to implement a new revenue recognition module in our accounting system, hire consultants and increase our spending on audit fees, thereby increasing our general and administrative expense. That increased spending will continue through at least our first quarter of 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

DuringRepurchase Program

In October 2018, the Company’s Board of Directors approved a common stock repurchase program (“Repurchase Program”) whereby the Company is authorized to purchase up to a maximum of $25 million of its common stock, subject to compliance with applicable laws and the limitations in the Company’s credit facilities on stock repurchases.

The authorization allows repurchases from time to time in the open market or in privately negotiated transactions. The amount and timing of repurchases made under the Repurchase Program will depend on a variety of factors, including available liquidity, cash flow and market conditions. Shares can be purchased through the Repurchase Program through October 2020, unless extended or shortened by the Company’s Board of Directors. The Repurchase Program does not obligate the Company to acquire any particular amount of common stock and the program may be modified or suspended at any time at the Company’s discretion. The repurchases would be funded from available

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working capital and are subject to compliance with the terms and limitations of the Company’s credit facilities. Our Board of Directors has not extended the program as of the date of the filing of this quarterly report on Form 10-Q.

All shares repurchased in the current period under the Repurchase Program are made in the open market. We did not repurchase any shares of common stock under the Repurchase Program in the three months ended September 30, 2017, we did not repurchase any2020.

Net Settlement of the shares subject to repurchase.Equity Awards

The majority of restricted stock units are subject to vesting. The underlying shares of common stock are issued when the restricted stock units vest. The majority of participants choose to participate in a broker-assisted automatic sales program to satisfy their applicable tax withholding requirements. We do not treat the shares sold pursuant to this automatic sales program as common stock repurchases (see Note 9 torepurchases.

In the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q).

Throughthird quarter of September 30, 2017,2020, we have used proceeds from our IPO to fund our operations, including hiring employees in all major functional areas. We maintainwithheld shares through net settlements (where the remaining cash received from our IPO in cash and cash equivalents and short-term investments. Asaward holder receives the net of September 30, 2017, nothe shares vested, after surrendering a portion of the proceeds from our IPO have been paid by us directly or indirectlyshares back to anythe Company for tax withholding) for all restricted stock units that vested.

The following table provides a summary of our directors or officers (or their associates) or persons owning ten percent or more of any class ofshares surrendered back to the Company for tax withholding on restricted stock units that vested under our equity securities or to any other affiliates, other than paymentsincentive programs in the ordinary coursethree months ended September 30, 2020:

Period

Total Number of Shares Repurchased

Average Price Paid per Share

Total Number of Shares Purchased As Part of a Publicly Announced Program

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Program

 

July 1, 2020 through July 31, 2020

$

9,175,044

August 1, 2020 through August 31, 2020 (1)

490,420

$

6.00

$

9,175,044

September 1, 2020 through September 30, 2020

$

$

9,175,044

Total shares repurchased

 

490,420

$

6.00

$

9,175,044

(1)Represents shares repurchased through net settlements of business to officers for salaries and bonuses, and payments torestricted stock units that vested under our directors for service on our Board of Directors or on committees of our Board of Directors.equity incentive programs.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

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Table of Contents

Item 5. Other Information

Retention Bonus AgreementNot applicable.

On October 31, 2017 the Company entered into a Retention Bonus Agreement (the “Retention Agreement”) with Daniel Fields, Senior Vice President, Engineering and Chief Software Development Officer, in the aggregate amount of $300,000, provided that Mr. Fields remains employed with the Company through October 31, 2018. Pursuant to the Retention Agreement, Mr. Fields will receive an initial payment of $150,000 on November 15, 2017 and the remaining payment of $150,000 on April 30, 2018. Mr. Fields is required to repay all of the retention bonus if he resigns for any

71


reason or is terminated for Cause (as defined in the Retention Agreement) before October 31, 2018. Mr Fields will be required to repay a pro-rated portion of the retention bonus if he is terminated without Cause or in the event of his death or disability before October 31, 2018.

The foregoing summary of the Retention Agreement does not purport to be a complete description and is qualified in its entirety by reference to the complete text of the Retention Bonus Agreement, which is filed herewith as Exhibit 10.4.

Salary Change and Equity Award

On October 31, 2017, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) approved an increase in the annual base salary of Mr. Shawn Ayers, Interim Chief Financing Officer, to $275,000. The increase in annual base salary was effective as of November 1, 2017. On October 31, 2017, the Compensation Committee granted Mr. Ayers an award of 37,500 restricted stock units (the “CFO RSU Award”). 1/2 of the shares subject to the CFO RSU Award will vest and be issuable on each of May 20, 2018 and November 20, 2018, subject to Mr. Ayers’ continued service with the Company as of each vesting date. The CFO RSU Award is subject to the terms of the Company’s 2014 Equity Incentive Plan and applicable RSU award agreement.

Executive Employment Agreement 

On November 1, 2017, the Company entered into an executive employment agreement with Mr. Biddiscombe (the “Employment Agreement”), effective October 16, 2017 Mr. Biddiscombe will be paid an annual base salary of $485,000 (the “Base Salary”). He will also be eligible to receive a performance bonus of up to 100% of his Base Salary based upon the attainment of the Company’s and his personal objectives and milestones as determined by the Company’s Board (the “Annual Bonus”). For the fiscal year ending December 31, 2017, the Annual Bonus will be pro-rated for the time he served as Chief Financial Officer at 45% of his base salary immediately prior to the effective daet of the Employment Agreement and 100% of his base salary as of the time he serves as Chief Executive Officer in 2017. Mr. Biddiscombe will be entitled to the standard benefits available to the Company’s employees generally, including health insurance.

In addition, the Compensation Committee granted Mr. Biddiscombe an award of 425,000 restricted stock units (the “CEORSU Award”).  1/16 of the shares under the CEO RSU Award will vest and be issuable on each of the Company’s standard quarterly vesting dates commencing with February 20, 2018 (May 20, August 20, November 20 and February 20) subject to Mr. Biddiscombe’s continued service with the Company as of each vesting date. The CEO RSU Award will be subject to the terms of the Company’s 2014 Equity Incentive Plan and applicable RSU award agreement.  

The Compensation Committee also granted Mr. Biddiscombe an option to purchase 100,000 shares of the Company’s Common Stock with an exercise price equal to the fair market value of a share of Common Stock on the date of grant (the “Option”). 1/48 of such shares will vest and become exercisable at the end of each one-month period measured from October 31, 2017, subject to Mr. Biddiscombe’s continued service with the Company as of each vesting date.  The Option is subject to the terms of the Company’s 2014 Equity Incentive Plan and applicable option agreement.

All of Mr. Biddiscombe’s other outstanding equity awards will continue to vest in accordance with their terms.

Mr. Biddiscombe is also eligible for certain severance and change in control benefits, as set forth in his Employment Agreement. If Mr. Biddiscombe is terminated for any reason, he shall receive (a) earned but unpaid Base Salary, (b) any Annual Bonus that is earned, but unpaid, (c) any accrued, but unpaid vacation, and (d) payment for unreimbursed business expenses. If Mr. Biddiscombe is involuntarily terminated as an employee without Cause or he resigns for Good Reason, unrelated to a Change In Control (as each term is defined in his Employment Agreement), he will be entitled to receive (a) cash severance in an amount equal to 12 months of his then-current Base Salary, less standard payroll deductions and withholdings, and a pro rata portion of his Annual Bonus, which shall be a minimum of 50% of his Base Salary, and (b) payment of (i) health insurance premiums pursuant to the Company’s group health insurance plans as provided pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) until the earlier of (y) 18 months after termination (the “COBRA Premium Period”), or (z) such time as he is eligible for health insurance coverage with a

72


subsequent employer (the “Health Coverage”), or (ii) alternatively and in the Company’s sole discretion, a fully taxable cash amount equal to 150% of Mr. Biddiscombe’s applicable COBRA premiums for the applicable COBRA Premium Period. Additionally, if Mr. Biddiscombe is involuntarily terminated as an employee without Cause or he resigns for Good Reason, unrelated to a Change In Control, within the first year following the Start Date, then all RSU Awards and the Options will be 25% accelerated as set forth in the Employment Agreement.

In addition to the benefits set forth above, if Mr. Biddiscombe is involuntarily terminated without Cause or resigns for Good Reason, during a Change in Control  Period (as defined in his Employment Period), he will be entitled to receive (a) cash severance in an amount equal to 12 months of his then-current Base Salary, less standard payroll deductions and withholdings and 100% of his Annual Bonus, and (b) payment of (i) his COBRA premiums until the earlier of the COBRA Premium Period or such time as he is eligible for Health Coverage, or (ii) alternatively and in the Company’s sole discretion, a fully taxable cash amount equal to 150% of Mr. Biddiscombe’s applicable COBRA premiums for the applicable COBRA Premium Period, and (c) the full acceleration of all unvested equity awards then held by Mr. Biddiscombe as set forth in his Employment Agreement.

Furthermore, in the event that Mr. Biddiscombe’s employment with the Company terminates as a result of his death or Disability (as defined in his Employment Agreement), then Mr. Biddiscombe or his estate will be entitled to receive (a) a pro rata portion of his Annual Bonus, and (b) the full acceleration of all unvested equity awards then held by Mr. Biddiscombe as set forth in his Employment Agreement.

The foregoing summary of the Employment Agreement does not purport to be a complete description and is qualified in its entirety by reference to the complete text of the Employment Agreement which is filed herewith as Exhibit 10.3.

Item 6. Exhibits

The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX

Incorporated by Reference

Exhibit

Number

    

Description

    

Exhibit
Number

    

Filing

    

Filing   
Date

    

File No.

    

Filed  
Herewith

2.1*

Agreement and Plan of Merger, dated as of September 26, 2020, by and among MobileIron, Inc., Ivanti, Inc. and Oahu Merger Sub, Inc.

2.1

8-K

September 28, 2020

001-36471

3.1

Amended and Restated Certificate of Incorporation of MobileIron, Inc.

3.1

8-K

June 17, 2014

001-36471

3.2

Amended and Restated Bylaws of MobileIron, Inc.

3.4

S-1/A

May 29, 2014

333-195089

4.1

Reference is made to Exhibits 3.1 and 3.2 above

4.2

Amended and Restated Investors’ Rights Agreement, dated August 29, 2013

4.2

S-1

April 7, 2014

333-195089

10.1(1)

Amended Form of performance stock unit award agreement pursuant to the MobileIron, Inc. Amended and Restated 2014 Equity Incentive Plan

X

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1(2)

Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

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EXHIBIT INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

Number

    

Description

    

Exhibit
Number

    

Filing

    

Filing   
Date

    

File No.

    

Filed  
Herewith

3.1

 

Amended and Restated Certificate of Incorporation of MobileIron, Inc.

 

3.1

 

8-K

 

June 17, 2014

 

001-36471

 

 

3.2

 

Amended and Restated Bylaws of MobileIron, Inc.

 

3.4

 

S-1/A

 

May 29, 2014

 

333-195089

 

 

4.1

 

Reference is made to Exhibits 3.1 and 3.2 above

 

 

 

 

 

 

 

 

 

 

4.2

 

Amended and Restated Investors’ Rights Agreement, dated August 29, 2013

 

4.2

 

S-1

 

April 7, 2014

 

333-195089

 

 

10.1 

 

Lease Deed between MobileIron, Inc. and RMZ Ecoworld Infrastructure Private Limited, dated July 27, 2017

 

 

 

 

 

 

 

 

 

X

10.2 

 

Offer Letter between the Company and Greg Randolph, dated October 29, 2017

 

 

 

 

 

 

 

 

 

X

10.3 

 

Offer Letter between the Company and Simon Biddiscombe, dated November 2, 2017

 

 

 

 

 

 

 

 

 

X

10.4 

 

Bonus Retention Agreement between the Company and Daniel Fields, dated October 31, 2017

 

 

 

 

 

 

 

 

 

X

10.5 

 

Separation Agreement between the Company and Barry Mainz, dated October 31, 2017

 

 

 

 

 

 

 

 

 

X

31.1 

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

31.2 

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

32.1(2)

 

Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

 

X

EX—101.INS

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

EX—101.SCH

XBRL Taxonomy Extension Schema

74


EX—101.CAL

XBRL Taxonomy Extension Calculation Linkbase

84

EX—101.DEF

XBRL Taxonomy Extension Definition Linkbase

EX—101.LAB

XBRL Taxonomy Extension Label Linkbase

EX—101.PRE

XBRL Taxonomy Extension Presentation Linkbase

(1)

EX—104

XBRL for cover page of the Company’s Quarterly Report on 10-Q, included in Exhibit 101 Inline XBRL Document Set

(1)Management contract or compensation plan or arrangement.

(2)

(2)

The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

*Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Agreement and Plan of Merger have been omitted and MobileIron, Inc. agrees to furnish supplementally a copy of any such omitted schedules to the SEC upon request.

7585


SIGNATURES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MOBILEIRON, INC.

By:

/s/ Simon Biddiscombe

Simon Biddiscombe

President and Chief Executive Officer

(Principal Executive Officer)

By:

/s/ Shawn AyersScott D. Hill

Shawn AyersScott D. Hill

Interim Chief Financial Officer

(Principal Financial Officer and Accounting Officer)

Dated: November 3, 2017October 30, 2020

7686