Jamf Holding Corp

NASDAQ:JAMF

Earnings Call Transcript 2022-Q3

[Operator]

Thank you for standing by, and welcome to Jamf’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded.

And now, I’d like to introduce your host for today’s program, Jennifer Gaumond, Vice President, Investor Relations. Please go ahead.

[Jennifer Gaumond, Vice President-Investor Relations]

Good afternoon, and thank you for joining us on today’s conference call to discuss Jamf’s third quarter financial results. With me on today’s call are Dean Hager, Chief Executive Officer; Ian Goodkind, Chief Financial Officer; and John Strosahl, President and Chief Operating Officer.

Before we begin, I’d like to remind you that shortly after the market closed today, we issued a press release announcing our third quarter financial results. We also published a Q3 earnings presentation, along with an updated investor presentation and Excel file containing quarterly financial statements to assist with modeling. You may access this information on the Investor Relations section of jamf.com.

Today’s discussion may include forward-looking statements. Please refer to our most recent SEC reports, including our most recent Annual Report on Form 10-K, where you will see a discussion of factors that could cause actual results to differ materially from these statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Jamf’s performance.

You can find the reconciliation of those measures to the nearest comparable GAAP measures in our SEC reports and earnings release. Additionally, to ensure we can address as many analyst questions as possible during the call, we ask that you please limit your questions to one initial question and one follow-up.

Now, I’d like to turn the call over to Dean Hager. Dean?

[Dean Hager, Chief Executive Officer]

Thank you, Jen, and thank you, everyone, for joining us. We are pleased to report for the 10 consecutive quarter, Jamf again exceeded expectations in Q3 with year-over-year revenue growth of 30%, a $2.1 million increase from the high end of our Q3 outlook.

ARR growth in Q3 was 27% year-over-year to $491 million, we continue to see strong demand for our security products with year-over-year ARR growth of 50%, while growing ARR for our device management products 23% during the same period. Year-over-year ARR growth in commercial markets was 33% and 15% in education markets, maintaining the balance between Jamf’s higher-growth commercial markets, which represents 71% of our business and a healthy education market. The diversity and balance of Jamf’s commercial business continues to provide tremendous strength and resiliency.

In our commercial markets, Jamf achieved at least 25% growth year-over-year across all major geographies, all major industries in both direct and indirect channels and across small, medium and large enterprises. This performance is especially noteworthy considering that Q3 represents the first quarter post the one-year anniversary of Jamf’s acquisition of Wandera.

Therefore, all results are from organic operations. We are also proud we achieved these strong results, having faced a number of market challenges. The most notable has been the recruiting and retaining talent in order to achieve a fully staffed and ramped sales team to meet the market demand for Apple First management and security solutions.

As the destination employer Jamf’s 12-month employee retention for the company and specifically within sales and marketing is approximately 89%, which we believe is excellent in this employment climate compared to other technology companies. Yet due to an incredibly challenging hiring environment throughout most of this year, we have fallen short of our new employee onboarding goals. Heading into Q4, we are beginning to see greater availability of talent and are intensifying our recruiting efforts. We are optimistic that we can increase the pace of our sales onboarding in Q4 as we prepare to enter 2023.

Secondarily, Jamf also experienced market challenges in Q3 due to an uncertain macroeconomic environment. Some customers have taken a more moderate outlook when planning their future hiring and therefore, device growth needs. It has also become clear that the past year of supply chain challenges has impacted customer device growth at their annual renewal.

According to IDC, Mac device shipments significantly declined in Q2 of this year and was approximately flat year-over-year for the four quarters that preceded Q3. However, in Q3, IDC reported that Mac’s shipments experienced a record quarter, growing 40% year-over-year, representing over 13% of all PC shipments, the highest Mac’s share on record.

This is an indication that Mac supply may have normalized, considering the growing demand for Apple Mac computers, a reduction in supply chain friction would bode well for customer growth at renewal in the coming year. Although current macro conditions introduce uncertainties and some short-term device reconciliation by our customers, demand for Jamf solution remains strong, demonstrated by the fact that both Q2 and Q3 were record bookings quarters for Jamf.

Our new customer acquisition was excellent in Q3 with our active customer base growing by over 2,000 organizations and our customer retention remains near its all-time high. Jamf’s business has proven resilient, and we believe we are poised for long-term growth with an expanding addressable market as the consumerization of IT, popularity of remote work and changing workplace demographics continue to drive the popularity of Apple in the enterprise and the need for consumer simple and enterprise secure endpoint technology.

Additionally, Jamf’s addressable market grows as our product platform expands, including security solutions for Android, Chromebook and Windows devices. Going forward, we believe we will continue to grow market share and deliver strong results due to our diverse business model and four key factors: one, our position as the clear market leader in Apple Enterprise Management and Security; two, continued innovation by both Jamf and Apple; three, the increasing demand for enterprise security solutions; and four, Jamf’s philosophy and proven capability to deliver balanced growth and healthy profitability.

I will speak to Jamf’s market leadership position and innovation. John will discuss the increasing demand for Jamf’s security solutions, and then we’ll hand it over to Ian to showcase Jamf’s balance of growth and profitability, along with our results and outlook. I’ll start with Jamf increasing position as market leader.

Adding a net of 2,000 new active customers in Q3, growing our active installed base to over 69,000 customers running 29.3 million total devices clearly demonstrates that Jamf has become an enterprise standard and one of the most used device management solutions in the world.

We believe Jamf’s market leadership is a result of our unique focus on creating an Apple First, Apple Best enterprise solution. Jamf has a proven track record competing with other Apple-focused solution providers as well as cross-platform mobility management solutions. As we discussed last quarter, the majority of cross-platform software providers that were considered leaders in the enterprise mobility management market just five years ago have been consolidated into other organizations, leading to uncertainty regarding continued support of Apple innovations.

One of the most critical ingredients to serving the Apple market well is innovating at the pace of Apple. Unlike with other computing platforms, the Apple market expects Apple innovations to be supported same day by both management and security providers. Jamf’s commitment to provide customers with certainty and uninterrupted workflows while closing security gaps created when solutions don’t support the latest Apple technology has been a critical component of Jamf’s success.

In Q3, consistent with past years, Apple announced new operating systems for all platforms with significant new capability. As a result of Jamf’s consistent same-day support, we saw increased interest from a growing replacement market, which resulted in Jamf again displacing thousands of device seats previously managed by less specialized cross-platform providers.

As Apple continues to innovate and evolve their frameworks with Apple-only capabilities like account-based user enrollment and declarative management, managing and securing Apple at work will require greater specialization in the coming years, not less. Recently, one of Jamf’s customers highlighted the power of our same-day Apple support.

Early in the day on October 24, the launch day of macOS Ventura, SAP, a long-time Jamf customer with over 36,000 MAC and 90,000 iOS devices announced their full internal support of macOS Ventura and encouraged their employees to upgrade. SAP’s IT Director posted the announcement on LinkedIn, listing several employee benefits of upgrading right away, which resulted in 37% of their Mac users upgrading in the first week. It’s rare for a solution provider to announce same-day operating system support, but it’s nearly unheard of with any system other than Jamf for customers who have already tested that support prior to the operating system being generally available.

When achieving this same-day readiness, Jamf customers eliminate upgrade projects, reduce support costs and improve their security posture. Accomplishing this feat for an implementation of over 36,000 Mac’s would be extremely difficult to do without Jamf. Jamf’s position as the market leader for managing and securing Apple at work was showcased in September at the 13th Annual Jamf Nation User Conference in San Diego.

Joining us during the keynote presentation, which was viewed by thousands were representatives from Apple there to showcase continued advancement of Apple-only frameworks for work and school. Okta to discuss collaboration with Jamf for enrollment and platform single sign-on, Google to demonstrate co-development with Jamf on Chrome browser or cloud management and their Google BeyondCorp zero trust security framework.

Amazon to present a brand-new partnership between our companies where Jamf is the only solution to manage virtual AWS EC2 maps and Microsoft to promote integration between our management, connection and protection platforms. These five partners represent the top three endpoint operating system providers, the top three cloud identity providers and the top three cloud infrastructure providers in the world, bringing together these industry leaders sharing the same stage demonstrates Jamf’s market leadership and our commitment to collaborate with the industry’s best to provide a stronger whole solution for customers.

I know some of you were able to join JNUC in person, while others joined virtually. I want to thank you for taking time to learn more about Jamf. I hope you were able to see some of the exciting innovations firsthand and give a sense for the truly unique Jamf Nation community, which we believe is the tightest community in high tech.

For those of you who didn’t attend, we focused our new innovations on helping customers accomplish the most important goal for IT and InfoSec teams, providing technology that users love because that makes them better at their jobs and access to corporate resources in a manner that organizations trust.

I will now hand things over to John to take you through the increasing demand for Jamf’s unique security solutions and our most recent addition to Jamf security portfolio. John?

[John Strosahl, President and Chief Operating Officer]

Thanks, Dean. As Apple continues to grow market share in the enterprise, combined with a more mobile workforce, there is a corresponding greater need for protection from a new class of fiber threat. It’s becoming increasingly critical for InfoSec and IT teams to deploy specialized solutions to keep users, devices and enterprise resources state. The need to meet the security requirements while creating an excellent consumer-like user experience is driving increased demand for Jamf security solutions.

In Q3, we saw this momentum continue with 18% of our Q3 ARR coming from our security products, resulting in Jamf security business now surpassing $90 million in ARR, which represents 50% organic growth year-over-year. We closed seven six-figure deals, which included one or more of our security products with several flagship names across a number of industries. And while demand for our security products has been growing in large corporations, we’ve seen significant penetration in small and medium-sized businesses where a single economic buyer chooses Jamf’s full management and security solution.

In total, Jamf has 12,500 customers who run one of our management solutions in combination with the Jamf security solution. That number grew by over 900 customers in Q3 alone, which demonstrates the attractiveness of combining a security solution that identifies potential risk with a management solution that can automatically take action to mitigate risk. Since JNUC, many customers have taken interest in Jamf and Apple innovations that have tackled the primary issue experienced with BYOD devices, which is fully securing the employees personally owned device while honoring the right to personal privacy.

The Apple and Jamf approach is completely unique compared to all other platforms on the market. Customers and prospects are in the early stages of taking notice with JNUC having taken place late in Q3. Dozens of prospects already chose Jamf per BYOD late in Q3, many having implemented policies that require all devices accessing corporate resources to be Jamf enrolled.

Using prior methods of implementing BYOD, employee devices were either left unmanaged, which is a security risk or fully managed, which violates employee privacy. According to IDC, prior to 2020, the lack of adequate BYOD security led to corporate-liable mobile devices gaining favor over BYOD programs. However, out of necessity in 2021, U.S. organizations dramatically expanded the scope of their mobile BYOD programs in order to able employees to work at home. We believe this trend will continue as hybrid work is here to stay with organizations looking for new BYOD solutions that balance privacy and security and therefore, eliminate the need for employee security to mobile phones.

In today’s challenging economic environment, having a secure BYOD program can also be used to reduce an organization’s IT spend. For these reasons, since JNUC, our pipeline for BYOD has been building, and we believe it represents a significant new opportunity for us in 2023.

Next in security is Jamf Safe Internet, which provides the only Apple First education-focused cybersecurity solution to ensure students can navigate the Internet safely with content filtering and network threat prevention technologies. Made generally available to all markets in Q3, Jamf Safe Internet integrates with Jamf School and Jamf Pro, providing a seamless experience for both management and security and allows for multiproduct adoption and education.

Jamf Safe Internet is our first add-on product sale that Jamf’s developed specifically for education. We believe the timing of this product is perfect after the greatest device expansion that has ever occurred in education during the heart of the pandemic. In Q3, its first quarter of availability, over 200 customers chose Jamf Safe Internet, surpassing the first quarter booking stats of both Jamf Connect and Jamf Protect, making it Jamf’s strongest performing product launch to date. Another exciting security news, in late September, we announced Jamf Intent to acquire ZecOps, a leader in mobile detection and response.

Today’s mobile security solutions often have a limited visibility when compared to what’s possible on computers for tools like Jamf Protect on Mac or Microsoft Defender for Windows. ZecOps takes a unique approach by capturing and analyzing laws and other system data to provide deeper visibility into the presence of threats. This new mobile security capability will allow Jamf to identify sophisticated attacks that target individuals with access to the most sensitive data.

This capability is extremely unique and will allow us to bring iOS security and visibility standard up to the standard we already set with Jamf Protect for Mac. With the inclusion of ZecOps in the portfolio, we will also add more telemetry and data sources to an already rich set that includes endpoint data network data, mobile data and application data. We have an opportunity to have the largest subset of Apple-focused data in the world, creating the ability to make work more secure and privacy centric.

With ZecOps, Jamf has a comprehensive set of capabilities that allow customers to secure devices, stop press on device and in network, stream telemetry, compliance and threat hunting and remediate across Mac and mobile devices. We couldn’t be more excited about the opportunities this acquisition provides Jamf, and we look forward to welcoming the ZecOps team to the Jamf family after the acquisition closes, which is currently expected in the fourth quarter, pending satisfaction of standard closing conditions.

Now I’ll hand it over to Ian to cover Jamf’s balanced growth and healthy profitability as well as our financial results and outlook.

[Ian Goodkind, Chief Financial Officer]

Thanks, John. Jamf’s philosophy of balanced growth and profitability provides us with the financial flexibility and stability to weather uncertainty related to rapidly changing market and economic conditions. For example, during the pandemic, we were able to continue to invest in innovation to drive sustainable top line growth while pivoting some of our spend to our education go-to-market to meet unprecedented demand.

Going forward, we will continue to be prudent with our expense structure, while reinvesting in areas with the highest expected return and continuing to drive strong, consistent cash flow generation. We believe our cash flow generation profile continues to differentiate Jamf from many other high-growth tech companies. And now for our results and outlook.

We ended Q3 serving more than 69,000 customers with more than 29.3 million total devices on our platform. Q3 revenue growth is 30% year-over-year, and total ARR growth is 27%, driven primarily by device expansion, new logo acquisition and upsell and cross-sell efforts. We saw balanced growth across many facets of our business, including management and security, commercial and education, major geographies, top commercial industries, channels and size of enterprise. It should be noted that our ARR is reported on a constant currency basis. If we were to report ARR in actual currency, the year-to-date impact would be less than 1% of the total.

As Dean mentioned, we continue to navigate an uncertain macro environment with hardware supply issues now for an entire year having led up to Q3, net to customer hiring expectations and increased scrutiny and customer approval processes. These factors impacted customer device growth at annual renewal. Additionally, Jamf experienced a unique challenge in Q3 with our Jamf School installed base. The month of August represents the largest renewal month for the Jamf School product, while our customer retention for Jamf School and all Jamf products remained very strong. Some schools reconciled the number of devices they needed to support their students now that they are all back in the classroom. All of these factors had an impact on total company net retention, lowering it slightly to 115% in Q3.

If device supply chain issues continue to ease as the IDC numbers may suggest, and now that we have gone through an entire year of students being back in the classroom, some of these challenges will subside as we progress into 2023. Additionally, with the increasing popularity of Jamf security products, we believe Jamf’s net retention will become less dependent on device expansion over time.

Therefore, we believe Jamf is in an excellent position to continue growing through a period where customer hiring may slow. Ultimately, we believe all these concerns to be short-term issues, and the market presents an excellent opportunity for us to succeed despite macroeconomic challenges and accelerate as conditions improve.

The remainder of my remarks on margins, expense items and profitability will be on a non-GAAP basis. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP are found in our earnings release. Q3 non-GAAP gross profit margin was 82%, which is slightly higher than both Q2 and the prior year. We continue to anticipate gross margins in the low 80% range and expect slight fluctuations each quarter. We saw an improvement in non-GAAP operating margin in Q3 over the prior year resulting in Q3 non-GAAP operating margin of 6% compared to 2% in the prior year quarter.

Non-GAAP operating income was $6.9 million, exceeding our expectations due to revenue outperformance. Our trailing 12-month unlevered free cash flow margin was 14% compared to 24% in the prior year. The prior year benefited from a large number of multiyear education deals where the full amount is typically paid up front. We anticipate unlevered free cash flow margins to improve slightly from this 14% for the full year. Our annual effective tax rate is 1.4%, consistent with our expectations.

As we indicated during our last two calls, starting with Q1 2022 for non-GAAP metrics, we will use our statutory rate for calculating tax impacts, which is currently 24%. We have included calculations using this updated methodology for current and prior periods in the Excel file containing our quarterly financial statements that have been posted to our IR website. Please note that we do not pay cash taxes on a U.S. federal basis.

Now I’ll provide thoughts on our financial outlook for the fourth quarter and full year 2022. Due to continued macroeconomic uncertainty, we remain cautious with our outlook. However, we believe demand for Jamf’s innovative solutions will remain solid. This coupled with our continued strong performance and the factors we’ve outlined on today’s call will help us deliver on our outlook.

For the fourth quarter of 2022, we expect total revenue in the range of $128.5 million to $129.5 million, representing growth of 24% to 25% year-over-year. Non-GAAP operating income in the range of $6.5 million to $7.5 million. For the full year 2022, we expect total revenue in the range of $477 million to $478 million, representing growth of 30% year-over-year. Non-GAAP operating income in the range of $23.5 million to $24.5 million.

Additionally, for modeling purposes, we provided estimates for amortization, stock-based compensation and related payroll taxes annual effective tax rate and basic and diluted weighted average shares outstanding in the earnings presentation as part of the webcast and also posted on our Investor Relations website.

In closing, I’ve now been in the CFO seat for just over two months, but I have played a key role in Jamf’s finance team since 2019, including our IPO. I believe we have the right balance of growth and profitability and when coupled with our commitment to innovation and doing the right thing for our customers, we are well positioned to continue to deliver for our stakeholders. I’ve had the pleasure of meeting a lot of you so far, and I look forward to getting to know you better. And for those that I haven’t met, I hope we can meet in the future.

And now Dean, John and I will take your questions. Operator?

[Operator]

Certainly. [Operator Instructions] And our first question comes from the line of Joshua Reilly from Needham. Your question please.

[Joshua Reilly, Needham]

All right. Thanks for taking my questions. Nice job on execution here in a challenging quarter. Maybe starting off on the macro. Can you give us a sense of how the quarter developed in terms of sales cycle elongation and demand trends early in the quarter versus late in the quarter? And where do we stand today in terms of demand trends? Have customers become incrementally cautious here in Q4?

[Dean Hager, Chief Executive Officer]

Yes. Thanks for the question, Josh. And maybe I’ll start out on this, and then John can chime in a little bit. Overall, I don’t know that there was a significant change in the rhythm of the quarter throughout Q3 for the most part [Technical Difficulty] we are very pleased that the demand for our overall solution is in high – if anything, any of the concerns that we would have had from an economic [Technical Difficulty] do with the number of devices that were being licensed in particular, [Technical Difficulty] organizations are a little bit more cautious on how many people they expect to hire in the future.

But overall, from an activity perspective, interest leads company’s interest – our logo retention and our new customers with 2,000 customers joining us during the quarter, that all remained very strong and really had more to do with the number of devices that were being licensed. John, did you notice anything as with the rhythms of the quarter as the quarter progressed.

[John Strosahl, President and Chief Operating Officer]

In fact our ASP and our sales cycle hasn’t changed significantly over the past several quarters. So that remains pretty strong. We are a lower average sales price for a company for an IT department or for a security team. So we’re not the first one evaluated heavily. There are some bigger spends in their budgets than us. And so we’ve enjoyed being in that position and continue with strong growth and the demand that we’ve seen. So things have been pretty consistent.

[Joshua Reilly, Needham]

Got it. And then maybe just a quick follow-up. We saw the NRR move down to 115% here in the quarter. Do you guys shift your focus a bit more towards new customer growth with some of the commentary here versus upsell, cross-sell in the current environment?

[Dean Hager, Chief Executive Officer]

Again, I don’t know that I would call it shifting our [Technical Difficulty] obvious. I think what the thing that has been changing with Jamf over the last two years, as you’ll recall, Josh, we – our NRR was almost exclusively dependent on device expansion within the customer base. And over the last three years [Technical Difficulty] security business from just over $9 million to over $90 million of ARR, it really is offered a whole new trajectory for us for expanding NRR. And I think that we would have seen that continue to expand had we not seen some [Technical Difficulty] during Q3.

[Joshua Reilly, Needham]

Got it. Thanks guys.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Matt Stotler from William Blair. Your question please.

[Matt Stotler, William Blair]

Hey. Thanks for taking the questions. First, just maybe a follow-up on the headcount dynamics that you mentioned. I’d love to kind of get a sense from you of the impact on the limited capacity or the less than expected capacity when you think about growth going forward and then your hiring plans from here and expectations for filling that capacity.

[Dean Hager, Chief Executive Officer]

Yes. Thanks, Matt. And I’ll tell you that this – it was a very deliberate decision on our part to be responsible in our spending this year as [Technical Difficulty] it was – in my 34 years in the industry, probably as tough a hiring environment [Technical Difficulty] and – as you well know, we could have solved that with overspending. If we would have wanted to say we’re going to get headcount on board at all costs. But we just thought that was unwise for the organization. And so we kept disciplined in our product [Technical Difficulty] people that would stay because, as you know, Jamf has very high retention.

And as a result, our QBR or quota-bearing rep growth was slower this year than it has in past years. And that probably more than anything had an impact on the pace at which ARR grew for instance. And I’ve mentioned on several has that we do not feel like we’re market limited at all or greater limitation is the ability to be able to onboard into as that market demand. And we think just numerically, the math just comes out and proves it that have – grown faster, we would have grown faster. Now the great news is, for a lot of reasons that our apparent – entering the industry right now, we are seeing a greater availability of talent of late. August was actually our number one hiring month [Technical Difficulty] and so we’re seeing that loosen up a little bit.

[Matt Stotler, William Blair]

That’s very helpful. And then maybe just one follow-up. Follow-up on the macro point, good to hear some of the data points in terms of activity leads, et cetera. You mentioned a little bit of kind of tough results in the education end market specifically due to seasonality there. How about – any color on the commercial side of the business? Any particular areas of strength or weakness when you look at that end market or that set of end markets?

[Dean Hager, Chief Executive Officer]

Again, on – the situation was slightly different in education and commercial when it comes to device reconciliation on the commercial side, [Technical Difficulty] expectations. And on the education side, it was more just kind of reconciling the number of devices that they purchased when they were going through the whole distance learning a year earlier. Once again, I mean, the balance of all of our offers together in between our commercial and education, we are quite pleased with, despite the Jamf School reconciliation on devices, we ended up launching Jamf Safe Internet, which I mean, frankly, it doesn’t comprise in that it was the fastest-growing product in the first quarter of our launch in our history with over 200 – outselling both Jamf Connect and Jamf Protect in their first quarters when we launched those, and we thought that they were excellent launches. So [Technical Difficulty] about the future and both device expansion that will come, but even being in a better position for product expansion.

[Matt Stotler, William Blair]

Great. Thanks again.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Raimo Lenschow from Barclays. Your question please.

[Raimo Lenschow, Barclays]

Hey, thanks. Thank you. Dean, there is a couple of things you mentioned on the call, but I’m still slightly confused in terms of the magnitude of the impact from all of them. Could you just try to separate a little bit between like the macro, the field capacity and the issues in the education side in terms of like – so is this kind of more like a macro driven? Is macro miner point and it was more capacity-driven, can you help us understand that a little bit because there are several items that you kind of called out, but I wasn’t sure how they kind of connect to each other.

[Dean Hager, Chief Executive Officer]

Yes. I mean we – the order in which we went was the order in which they had impact. In my prepared remarks, I said most notably, was actually the headcount growth being a bit slower than [Technical Difficulty] number one impact, not necessarily on the demand side. But it is in to that.

There were three things all to a lesser degree, that impacted us. One in education – was a bit of some schools realizing that they did some buying during the outstanding move, and they just realize they didn’t need quite as many devices at renewal. Those schools didn’t leave us. They just reconciled the number of devices that’s kind of a onetime thing a year later. First, we have organizations that are a little bit more muted on their hiring expectations for between now and the end of the year that a little bit less, but nevertheless did.

And then finally, probably the lowest impact. But yes, it did have some – because the supply chain constraints really now have lasted about a year. So you can imagine, since Jamf is – we renew on an annual basis, we come [Technical Difficulty] have a little bit less of a seat count that they’ll renew to or not as rapid a growth. So we listed them in the order of their impact. So at the end of the day, we really – our view is that we were more constrained by our internal pretty low than we were by the market.

[Raimo Lenschow, Barclays]

Okay. Perfect. And the follow-up is more for Ian then if I think about the like in this sort of environment, demand is something it’s difficult, it’s not fully a macular control, but cost and profitability is a little bit more in your control. How do you think about that balance between growth and profitability in this environment, especially if I talk about the capacity upgrades you want to do on – updates you want to do on the sale side. Like how do you think about protecting margins in this environment, which seems to be on the mind of many investors? Thank you and congrats from me as well.

[John Strosahl, President and Chief Operating Officer]

Yes. Thanks for the question. You’ve seen what we’ve done before. We set our guidance that’s achievable. We start with the balance sheet. We look at pipeline, we get churn. We look at these macroeconomics and we take a balance and prudent approach we do balance that [Technical Difficulty] stability. And what you’ll see in the last quarter and this quarter and in our guidance, we’ve actually reflected more profitability on the bottom line. You also note our [Technical Difficulty] free cash flow margin in Q3 of this year is 36% compared to last year at 30%. So we are already [Technical Difficulty] provide more profitability for the business now.

[Raimo Lenschow, Barclays]

Perfect. Thank you.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of DJ Hynes from Canaccord. Your question please.

[DJ Hynes, Canaccord]

Hey guys, thanks for taking the question. This maybe for John, but I’d love to hear you guys talk a little bit about what you’re doing and the success you’re seeing in terms of getting in front of the right security buyers in the enterprise? I mean, it sounds like where that’s the same person who makes device management decisions you’re doing quite well. But it would be great to hear more about like what you’re seeing further upmarket and how that’s progressing.

[Dean Hager, Chief Executive Officer]

Yes, DJ, thanks for the question. So we’ve already segmented our go-to-market teams. And on the small and medium-sized businesses, that’s the same economic buyer across the board. We’re having great success there selling this business plan – relationship in there. What we’re seeing on the higher end, probably mid-tier and above, when company’s starting to get an Infosec team in place, then by that then does shift to the InfoSec team, but we’ve got such strong relationships in the IT group and good credibility there that we can leverage into the InfoSec organization.

What we’ve done is we’ve hired in some of our recent hirings and we’ll continue to do this, really focusing on some [Technical Difficulty] and we also have different personas that we market to. So we’ve got sequences that are dedicated to fleet team versus the people in the IT teams. And we’re seeing great traction. As I mentioned, we signed seven six-figure deals just in the last quarter will be secure concluded. So we’re seeing good traction in that, and we’ll just continue to double down on that.

[John Strosahl, President and Chief Operating Officer]

And Dig, if I can pile on here for a moment, that one thing – the thing that needs to be remembered is not only does Jamf have a solution for the IT team, but the solution that we have for the team is the thing that’s used to install all security solutions out on the devices that we manage. So we’re actually to install those security solutions. So an IT team who has to ultimately do the deployment of the security solution can increase fees and checks to make sure that the security software is not tampered with or within the product they already own because they can act that says to deploy Jamf Protect. So you can imagine just the difference, and that’s sort of how they sync together, but it’s united we have to be offering the solution that actually deploys the security solutions.

[DJ Hynes, Canaccord]

Yes. Yes. That’s helpful color. And then Dean, maybe kind of a related question. Just I’m curious how you’re thinking about kind of the relative R&D allocation between core Jamf Pro and then your newer security products, right? I mean any signals we can take there is to kind of where the future of the company is.

[Dean Hager, Chief Executive Officer]

Yes. Well, I mean that was flat now, where our security ARR is about 18% of our total and of course, growing we believe ultimately that the TAM long term is [Technical Difficulty] for the growing family of security solutions that we have. With that said, it is a Jamf [Technical Difficulty] in Apple management that really sets the stage for everything else we do. So we absolutely – opinion innovator on the management side and we just let out the market leader in new capabilities. So it’s a balancing act but we should not in any way nor do we ever intend to send the impression that an exaggerated dollar is going to the security solutions because our entire strategy hinges on our continued leadership with management, and we are continuing to as I mentioned, 2,000 customers being added in the quarter.

[DJ Hynes, Canaccord]

Yes. Makes perfect sense. Very helpful. Thank you guys.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Matt Hedberg from RBC. Your question please.

[Matt Hedberg, RBC]

Great. Thanks for taking the question. Just one for me. Dean, we continue to think that the VMware replacement opportunity could be significant. From a share shift perspective and just you guys gaining just broader market share awareness, can you talk about – are you seeing any benefits of that? I have to mention you’re not assuming anything in guidance, but just sort of curious if that’s sort of to show up yet in win rates or anything of that nature?

[Dean Hager, Chief Executive Officer]

Thanks, Matt. And as you know, I tend to resist talking about any one specific competitor. I would have said that what we have noticed consistently when cross-platform less specialized management providers get acquired by of – that market as a consolidated type of vertical, that is any indication of the future, that – those providers then will frequently fall behind keeping pace with Apple. And it only takes about a year. And once you’re behind [Technical Difficulty]

I think that next ball is going to be a really telling period when it comes to that. And even this last fall, Apple had both loaded new capabilities like declarative device management, which really just almost really been how MDM works completely different in some ways than Android and Windows. And if you don’t support it, you’re already behind on the Apple [Technical Difficulty] And I will tell you that we’ve had numerous calls from customers who have not historically been Jamf customers just asking a lateral rewards with that because they were worried that there less specialized cross-platform provider was not. So as we have seen several wins due to that, but I think the real potential opportunity is going to occur perhaps around this time [Technical Difficulty]

[Matt Hedberg, RBC]

Thanks, Dean. Thanks, everybody.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Koji Ikeda from Bank of America.

[Koji Ikeda, Bank of America]

Hey guys, thanks for taking the questions. I kind of wanted to go back to the ARR and the impacts of the education space had on growth. And apologies if you guys answered this, but I just wanted to maybe ask it a different way. If you could maybe provide the magnitude of the impact to ARR growth due to the education side. Was it a couple of million in ARR, that could help frame the growth of the ARR for the quarter ex-education?

[Dean Hager, Chief Executive Officer]

Well, I mean our ARR growth year-over-year was about 15%. We’ve mentioned before that we would anticipate both markets sort of [Technical Difficulty] have an education growth that perhaps about half what our commercial growth is going to be or a little less than that actually, so actually where it all settled in at is about what we’ve been saying is going to happen from a market perspective.

And again, while there has been can you remind the way that renewals work, in particular with our Jamf School product renewals don’t necessarily happen by somebody calling up a Jamf person and renewing. It’s actually e-commerce built into the product itself. So we have a very elastic base of devices that are being used [Technical Difficulty] so a school comes up upon a renewal and they’re going to have 20 fewer devices. They will just renew automatically to 20 fewer devices. It had an impact on the quarter, but to some extent, it was made up for with the launch of the safe Internet Solutions, so sort of in the wheelhouse of where we expected it.

[Koji Ikeda, Bank of America]

Got it. Got it. Thanks, Dean. And I guess that’s a good segue into my follow-up. I wanted to ask, with all these layoffs going on, especially in tech, I just can’t help us think there are closets full Apple notebooks and iPads and phones just sitting around now. So how should we be thinking about the potential shelfware attached to these unused devices? And what it could potentially mean for renewal cycles?

[Dean Hager, Chief Executive Officer]

I’m – I was going to comment on perhaps users of Apple are – I won’t make a comment. The bottom line is that what we’re seeing is that in addition to, of course, we’re seeing some of the labs that are out there, but at the same time, the percent of PCs that are being shipped are actually greater on the Mac and the most [Technical Difficulty] you had a 40% growth of Mac and you had the decline for the rest of the PC space.

So I don’t think what we’re – I don’t think they gave overall reduction in employment necessarily means a drop in the number of Apple devices. As a matter of fact, because of the share shift that is going to occur, I for one think that the Mac is actually going to continue to grow despite of this environment, because as organizations are looking for creating a great employment environment while [Technical Difficulty] So we don’t require employment to grow out there in order for Mac devices to grow. The share shift is going to do that.

[Koji Ikeda, Bank of America]

Got it. Got it. Thanks, Dean. Thanks so much for taking the questions.

[Dean Hager, Chief Executive Officer]

Yes.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Chad Bennett from Craig-Hallum. Your question, please.

[Chad Bennett, Craig-Hallum]

Great. Thanks for fit me in. So just in terms of how you’re thinking about with every – all the different things you guys talked about macro and otherwise, how you’re thinking about at least seasonality in ARR for this quarter? I think seasonal strength is typically kind of up sequentially high-single digits. Is that kind of how you’re thinking about ARR – overall ARR should perform in the December quarter?

[Dean Hager, Chief Executive Officer]

Well, just as a reminder, of course, ARR is actual an annual metric. There isn’t any one per quarter that’s going to significantly change that. When I think of seasonality, I think a little bit more on the store front. But we don’t see anything different seasonality wise from a bookings perspective than what you would expect [Technical Difficulty]. Really, the only difference right now is, as I mentioned, I think some organizations eyeing perhaps.

In the past, an organization might say, well, hey, I’m going to estimate [Technical Difficulty] I’m going to have six months from now. And that’s what I’m going to contract to or that’s what I’m going to renew it to. And organizations are just very hesitant to [Technical Difficulty] project what they might have in six months, they’re more renewing what they have right now.

And that’s okay by us. Again, we offer elasticity for our customers to grow other devices or reduce their number of devices sort of the benefits of a subscription. But one of the things that we’ve noticed in the past is the organizations that are really nimble that we might lowering a device count, they’re also the very first to grow it right back up again. So this isn’t the first time that we’ve seen this type of thing historically. We saw it in Q2 of 2020 as well, but then we saw a rebound from that. So it’s one of the values that we deliver to our customers and probably we’ll continue to do it.

[Chad Bennett, Craig-Hallum]

Got it. And then maybe one quick follow-up, Dean. So just in terms of as much as you can tell in this world we live in, just in terms of your the expectations for commercial growth. And I think you indicated, obviously, the split, we think education grows half of what commercial grows, and that’s kind of been playing out. I mean, have your expectations for commercial growth rate moderated in the last three months to six months?

[Dean Hager, Chief Executive Officer]

I don’t know any company in the world who hasn’t had their expectations of what’s happening on the commercial side be a touch moderated in the last six months. And a lot of that is simply the unknown. I think we’re all sort of curious of what’s going to happen economically [Technical Difficulty] 2023. So we are clearly mindful of it.

And as I’ve mentioned, we have seen some of moderation on expectations from hiring. That’s just the reality of what we’ve seen. But all of that, ultimately, we believe to be a short-term phenomenon. We just can’t say how short permit is going to be. What we’re pleased in is that the demand for us and our solutions remains high if just the device count might be a little lower than what it would have been a year ago.

[Chad Bennett, Craig-Hallum]

But you’re going to lean in on hiring in fourth quarter on the sales side. That’s what you said.

[Dean Hager, Chief Executive Officer]

Yes. We are going to take advantage of a bit more of attractive employment in requirement to the go-to-market side, and we think we’re going to be able to – we’re pleased at what we believe we will [Technical Difficulty] in order to set ourselves up for future growth in 2023 versus how challenging it was, I’ll say, between January [Technical Difficulty] earlier this year.

[Chad Bennett, Craig-Hallum]

Got it. Thanks so much.

[Dean Hager, Chief Executive Officer]

Yes.

[Operator]

Thank you. [Operator Instructions] And our final question for today comes from the line of Michael Romanelli from Mizuho. Your question, please.

[Michael Romanelli, Mizuho]

Yes. Hey guys, Mike on here for Gregg Moskowitz. Thanks for squeezing me in and perhaps just one quick one. I was sort of just wondering what the current penetration rate for Jamf Fundamentals within the Jamf Now basis, I believe it was 60% last quarter. Thanks.

[Dean Hager, Chief Executive Officer]

Yes, we’re whispering here, just make sure how the right number, if you recall in our earlier call, I think we had already gotten [Technical Difficulty] So again what we – I believe Ian had mentioned it in his commentary or John, I forget now that we have 12,500 customers running at least [Technical Difficulty] and one of our security solutions.

And of course, fundamentals is a packaged management and security solution. So in three, we actually saw that number grow by 900, which is really an excellent number showing that [Technical Difficulty] with the combination of management and security, which we consider to be two sides of the same coin, both being able to detect that thread and actually mitigate those threats, just completely unique in the industry. And we’re sort of setting a new standard and believe that as the market will be able to see that that there will be increasing demand for that full solution as we head into next year.

[Michael Romanelli, Mizuho]

Thanks.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Joey Marincek from JMP Securities. Your question, please.

[Joey Marincek, JMP Securities]

Hi Dean, thanks for the question. On employee retention, can you just talk about the culture of Jamf. Why do you think you have to employ your attention? And how do you expect to maintain that Jamf culture as you continue to grow? Thank you.

[Dean Hager, Chief Executive Officer]

[Technical Difficulty] Joey, I kind of want to camp out the rest of the call here and just talk about this. I’ll tell you, we do an annual engagement survey and the question, every single year, we just did it in September. The question every single year that I’m most proud of and we get a really high participation in our employee engagement today.

And the question is my manager genuinely care about my well-being and over 90% of Jamf [Technical Difficulty] year. I think at the end of the day, that is it. I think that we have a leadership team here. And I’m not just talking about [Technical Difficulty] talking about every single first line manager within this organization that genuinely cares about the people [Technical Difficulty] flexible and remote largely – impairment people feel connected and they feel cared for.

The result of that is we’ve even seen that [Technical Difficulty] from those end of September numbers that I mentioned on the call. So it’s been remarkably high. It’s always been real high retention. It’s starts with caring about one another and really being excited about [Technical Difficulty] and creating solutions for our customers.

We had – we’re here in Minneapolis today, and we had our SE meeting where our system engineers from around the world came in and gathered to learn best practices from each other. And the excitement that I see in them [Technical Difficulty] is just inspiring. So I think it’s about solving problems and caring about one another. I think that’s the core of our strategy is supply and engagement scores continue to be high every year. Thank you for that question.

[Joey Marincek, JMP Securities]

That was great to hear. That culture was definitely on display at JNUC. And then last question here. Can you talk about the Okta partnership? Just love to hear more about that relationship and sort of how you see that progressing. Thank you, again.

[Dean Hager, Chief Executive Officer]

Yes, you bet, Joey. I’ll answer that, and then I’ll just make some closing remarks, we’ll wrap it up. Okta is a terrific partner of our – as we mentioned during JNUC, were each other’s customers because we’re each other’s customers and because [Technical Difficulty] a really wanting to implement internally first what we end up offering to our customers.

It means that we [Technical Difficulty] that doesn’t mean that we also don’t collaborate with all the identity providers out there. We have integrations with Google and with Microsoft Azure AD and with our friends at Ping. But Okta and Jamf very frequently will sort of start the seeds of an innovative new solution.

And right now, between conditional [Technical Difficulty] and also onboarding for BYOD devices, we have got some joint projects going on right now. As a matter of fact, our key members is that Okta sent me a picture just last night of how Jamf Pac standing remotely. So there’s just a lot of interest in Okta and Jamf working together, and we’re pretty committed to each other.

So thank you for that final question, and thank you all for joining us here today. I’m glad you’ve been to mention [Technical Difficulty] I think our culture was on display there. But most excitingly is the fact that we’re here to innovate on behalf of our customers to make sure Apple at work so that every single user of technology in the workplace just loves the technology they use. But also that the organization trusts that access to every corporate resource they have.

And I’ll tell you, that is the [Technical Difficulty] really easy to love technology that is not secured or to trust technology that is not easy to use, but accomplishing the question is what Jamf is uniquely focused on. So again, thank you for taking the time to learn a little bit more about our story and how we delivered in Q3 of our product results and we’re bullish in the future. Thank you very much.

[Operator]

Thank you, ladies and gentlemen, for your participation in today’s conference, this does conclude the program. You may now disconnect. Good day.