Jamf Holding Corp

NASDAQ:JAMF

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by, and welcome to Jamf's Third Quarter 2024 Earnings Conference Call. [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.

[Jennifer Gaumond, executive]

Good afternoon, and thank you for joining today's call to discuss Jamf's Third Quarter 2024 Financial Results. Joining on -- me on today's call are John Strosahl, CEO; Ian Goodkind, Outgoing CFO; and David Rudow, Incoming CFO.

Before we begin, a reminder that shortly after the market closed today, we issued a press release announcing our third quarter financial results. We also published our Q3 investor and earnings presentation, along with an 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 includes forward-looking statements, which involve risks and uncertainties that could cause actual results and trends to differ materially from our forecast. For more details, please refer to the risk factors and other information discussed in our most recent SEC reports, including our most recent annual report on Form 10-K. Jamf assumes no obligation to update forward-looking statements, which speak only as of the date they are made.

We will also reference some non-GAAP measures related to Jamf's performance. Reconciliations to the nearest comparable GAAP measures are available in our earnings release.

To facilitate a full Q&A, please limit yourself to one initial question and one follow-up.

Now, I'll turn the call over to John.

[John Strosahl, executive]

Thanks, Jen. Q3 was another quarter of strong performance with revenue and non-GAAP operating income exceeding the high end of our outlook. Q3 year-over-year revenue growth was 12%, with subscription revenue representing 98% of the total. Non-GAAP operating income reached $27.7 million, representing a non-GAAP operating income margin of 17%, an 800-basis points improvement from the prior year period. ARR grew 12% year-over-year to $635 million, driven by our commercial business and continued demand for our security solutions.

Our platform now supports 33.9 million devices and 76,000 customers. Due to our recent comprehensive systems update, we made a onetime adjustment to reset both our device and our customer counts. The adjustment includes items like updating MSPs to count as a single customer each.

In addition, we recognize revenue for certain licenses that mirrors the expected life of the device or expected usage of the product. Some customers with these licenses are extending the usage of devices past the revenue recognition period. Therefore, as we are no longer recognizing revenues for these licenses, we have removed them from our device and customer counts. Excluding these adjustments, device adds would be similar to Q2 and customer adds would be similar to Q1. 42% of our customers run both a Jamf management and security solution, up from 41% in Q2.

Security ARR reached another milestone, surpassing $150 million of ARR in Q3. We ended Q3 with security ARR of $152 million, representing growth of 26%. Security represented 24% of Jamf's total ARR in Q3, up from 23% in Q2. This growth was driven primarily by demand for Jamf business plan, which saw its largest customer increase in the history of the [ bundle ].

Demand remains strong across a diverse set of industries despite tight customer budgets and extensive approval processes. We're encouraged by growth again in 3 of our top 5 industries: professional services; financial services; and retail; while we continue to see muted growth in tech and K-12.

PC shipment reports showed slightly overall industry declines in Q3 following 2 quarters of growth. Mac shipment data was mixed with IDC showing a decline and Gartner showing growth in Q3. When looking at year-to-date shipments, Apple shipments remained flat. Despite the slowness in the PC market, industry analysts expect a recovery fueled by demand for AI PCs and the end of Windows 10 support in late 2025.

Shipment data and quarterly fluctuations therein do not directly impact our business and are more of a [ barometer ] for the health of the industry. This is even more true in the mobile space due to the large number of overall devices currently in the market that are unmanaged or undermanaged.

I'm especially proud of our strong performance this quarter given the recent go-live of our comprehensive system update, which will enhance both the customer and partner experience. This is a key milestone for our scalability and efficiency initiatives to drive future growth and margin expansion.

We also launched our Jamf Partner Hub and new Partner Program, which will drive more business through our channel partners, increasing the efficiency of our go-to-market organization. We recently brought on a new channel leader to execute our strategy, focusing on ecosystem growth and removing friction from the sales process.

In Q3, we entered into 2 strategic agreements with key partners to help drive additional value for customers. First, a 5-year agreement as part of the Microsoft ISV Partner Program, expanding our existing collaboration with Microsoft with new and innovative Microsoft Cloud and AI-powered solutions for our joint customers. Jamf solutions will be hosted on Azure and available for purchase on the Azure marketplace by late 2024.

Second, we joined the Okta Elevate Partner Program to drive further go-to-market alignment and accelerate our product innovation between our 2 companies. This partnership will enhance our cloud identity solutions for Apple devices, providing a seamless secure login experience for shared customers. We're excited to see the benefits of these initiatives to our business as we continue to progress toward our goal of achieving the Rule of 40, as outlined at our Investor Day.

We capped off a busy Q3 with our premier customer event, the 15th Annual Jamf Nation User Conference, or JNUC. Under the theme go further, we highlighted innovations, making management and security simpler for Apple-driven teams. Key announcements included enhancements to compliance features, our new AI assistant and insights from partners like Apple.

We also hosted an investor product session led by our Chief Innovation Officer, Jason Wudi, showcasing our latest innovations and how each drives value for our key buyer personas, which are: Mac Enterprise; Enterprise Mobile; SMB; and K-12. Moving forward, we will be focusing on these buyer personas as we refine our go-to-market approach.

For the remainder of my remarks, I'd like to use the strategic growth drivers we discussed during our Investor Day: Mac leadership; mobile expansion; management plus security and international expansion, to highlight some of the successes we saw in Q3.

In Mac leadership, we continue to demonstrate our ability to support Mac in any business setting. A clinical healthcare company that leverages AI to automate their patient journey recently expanded from Jamf Pro to Jamf Business Plan, adding nearly 1,000 devices. The company is a long-time Jamf customer who previously utilized Jamf Pro through an MSP, but has now moved IT entirely in-house. Key to this win was our ability to demonstrate the value of our trusted access platform for a seamless user experience and vendor consolidation.

Second, mobile expansion saw a number of large deals in Q3 with 7 of the top 10 including the mobile component. Our largest deal was one of the world's largest biotech companies that expanded with Jamf for their 30,000 iOS devices.

Customers are not only expanding with mobile for their deskbound workers, but also in the deskless space. Jamf's deskless workflows continue to provide unique solutions for use cases across transportation, health care and many other industries. We believe the deskless opportunity is significant and will continue to grow as companies look to manage and secure all devices in their fleet regardless of location.

In Q3, we saw a number of customers in the emergency care space choose Jamf. A U.S.-based air ambulance service provider was struggling with iPads updating mid-flight, creating safety issues along with slow performance and decreased reliability of their solution. An upcoming device refresh gave our team the opportunity to showcase Jamf Pro as well as introduce our new mobile security SKU. This new SKU was the perfect solution, providing a cost-effective way to solve these pain points. We've seen great traction with this solution since its launch in August.

The power of [ Jamf's ] management and security delivered seamlessly on one platform, continues to resonate with our customers as they heighten their security posture and look for ways to reduce overall vendor spend. The number of deals we saw with both the management and security component continues to grow with 16 of our top 20 deals in Q3, including a security component. Currently, approximately 40% of our overall commercial pipeline is made up of security opportunities.

Investments in strategic geographies with growing Apple adoption is a key area of focus given the growth opportunities we see outside the United States. In Q3, a leading public IT service provider in Germany serving over 270 schools purchased 18,500 seats of Jamf Safe Internet after facing a youth protection case when a student accessed a violent website from a home network. Our teams were able to provide a long-term solution that not only covered the customer's immediate issue, but equipped them with a solution to potentially deploy across their entire customer set.

In Q3, a military organization purchased Jamf Executive Threat Protection for its executives and VIPs in an effort to improve their security posture and reduce administrative workload. As a reminder, JETP is a one-of-a-kind solution that provides deep analysis of mobile security threats that's easy to use, scalable and privacy-centric and it looks for indicators of attacks as well as indicators for compromise on mobile devices. JETP opens up additional opportunities for Jamf with high-profile global organizations and further cements Jamf as a leader in security.

Before I hand it over to Ian, I'd like to thank him for his contributions over the last 5 years, and wish him the best. I'd also like to welcome David Rudow as our new CFO. David will say a few words at the end of our prepared remarks.

[Ian Goodkind, executive]

Thanks, John. Q3 year-over-year revenue growth was 12%, exceeding the high end of our revenue outlook. SaaS recurring revenue remained strong in Q3, growing 13%. Less strategic revenue sources like license, services and on-premise revenues continued to experience year-over-year declines. We ended Q3 with total ARR of $635 million, representing year-over-year growth of 12%. Jamf's commercial ARR was 75% of Jamf's total ARR and security ARR was 24% of the total. Net retention remained flat at a 106% when compared to Q2.

The remainder of my remarks on margins, expense items and profitability will be on a non-GAAP basis. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP are found in our earnings release.

Q3 non-GAAP gross profit margin was 82%, flat with Q2 and within our expectations. We continue to expect gross margins in the low 80% range and expect slight fluctuations each quarter. Non-GAAP operating income exceeded the high end of our Q3 outlook at $27.7 million or 17% margin due to cost-saving initiatives and increased revenues. The 17% margin represents an 800-basis point improvement over Q3 2023.

Our trailing 12 months unlevered free cash flow margin was 13% compared to 11% in the prior year. Our effective tax rate for Q3 was negative 12%, consistent with our expectations. As a reminder, for non-GAAP metrics, we use our domestic statutory rate for calculating tax impacts, which is currently 24%. Please note that we pay a nominal amount of cash [ tax ].

During our Investor Day in March, we outlined some key milestones that will help you track our progress against our goals in 2024. One, meet our quarterly financial outlook. In Q3, we exceeded the high end of both our revenue and non-GAAP operating income guidance ranges. Two, achieve at least 25% growth in security ARR. Q3 year-over-year growth of security ARR was 26%. Three, decrease G&A expense as a percent of total revenue. Q3 non-GAAP G&A margin was 14%, similar to Q1 and Q2 and an approximate 100 basis point improvement from Q4 2023. Four, decreased sales and marketing expense as a percent of total revenue. Q3 non-GAAP S&M margin was 32%, improving 200 basis points from Q2 and improving approximately 400 basis points from Q4 2023.

Now turning to our outlook for Q4 and full year 2024. We continue to expect softness in device upsell through the remainder of 2024, while driving new logo growth and cross-sell in the areas John highlighted. With respect to profitability, we continue to see the cost savings benefits of our efficiency efforts. Based on these factors, for the fourth quarter of 2024, we expect total revenue of $161.9 million to $162.9 million, representing year-over-year growth of 7% to 8%. Non-GAAP operating income of $25.5 million to $26.5 million, representing a non-GAAP operating income margin of 16% at the midpoint.

For the full year 2024, given our continued strong performance in Q3, we are increasing our expectations as follows, reflecting another [ beat-and-raise ] quarter. Total revenue of $626.3 million to $627.3 million, representing year-over-year growth of 12% at the midpoint. This reflects a midpoint increase of $2.8 million from our previous outlook. Non-GAAP operating income of $98.8 million to $99.8 million, representing a non-GAAP operating income margin of 15.8% at the midpoint, an approximate 780 basis point improvement over fiscal year 2023. This also reflects a midpoint increase of $2.3 million from our previous outlook.

We also provide estimates for amortization, stock-based compensation and related payroll taxes and other metrics to assist with modeling in the earnings presentation as part of the webcast and also posted on our Investor Relations website.

I'll now hand it over to David to say a few words.

[David Rudow, executive]

Thanks, Ian. I'm delighted and honored to join the talented team at Jamf. The company has the market leadership position, a proven strategy of success, significant market opportunity and a clear and attractive financial road map. I'm excited to work with the entire team to continue and expand on Jamf's success. I look forward to connecting with all of you in the coming weeks.

Now we will take your questions. Operator?

[Operator]

And our first question for today comes from the line of Joshua Reilly from Needham.

[Joshua Reilly, analyst]

Nice job on the quarter here. I guess maybe, as we're kind of looking to close out the year here, do you have any updated thoughts on the full year ARR growth? And maybe what are some of the puts and takes we should be considering that could influence or swing the exit year ARR growth?

[Ian Goodkind, executive]

It's Ian here. I'll take that question. As you know, we don't guide to ARR, but I'm going to give you the puts and takes like you suggested. I'll maybe talk a little bit about them on Q3 and then how they roll [ on the ] Q4. But during the quarter, some of the things that were headwinds for us, education was a headwind. We saw a little -- continue to be tough [ sledding ] there. The new logos, device expansion was tough [ sledding ]. What we did see in education, though, we actually saw our education bundle was pretty [ darn ] successful during the quarter, which gets us excited about the security side there, and we are looking forward to doing more with that in the future.

And then, on the commercial side, we saw great -- really good growth rates just on commercial in general. We saw growth rates very strong for security. And we released a mobile security SKU this quarter, which was one of our most successful launches for a product. And those are the things we factored in for Q4 as we've thought about it, and we believe that ARR growth rate will be similar to what we've seen from a revenue perspective for the year.

[Joshua Reilly, analyst]

Got it. That's helpful. And then, maybe just more broadly, it seemed like the attendance was pretty strong at JNUC. I was there. I talked to a number of customers. It seemed like the dynamic was a little more positive versus the prior year. I guess I'm just curious, more broadly, what's the feedback you heard from customers at the event in terms of their confidence to buy more products and maybe get back to a device expansion cadence in 2025?

[John Strosahl, executive]

Yes, Josh, John Strosahl here. I'll take your call -- or your question. And you were there. You really heard the applause that we got during the keynote and we started talking about some of our new product enhancements, Blueprint, for example, Self-service Plus, which gives us a common dashboard for both management and security, our compliance benchmarks, really -- the capability of using our scale to the benefit of our other customers really resonated with them. And just walking the halls, there was even -- it's always been a good feel. But certainly, this year there was really a [ PEP ] [ and ] people step walking around. Very excited about some of the things that they've asked for, that we've delivered, and we're excited about that and how it's going to carry us forward.

[Operator]

And next question comes from the line of Hamza Fodderwala from Morgan Stanley.

[Jonathan Eisenson, analyst]

This is [ Jon ] Eisenson on for Hamza. So for John, can you talk a little bit more about how the data points have looked for the Apple refresh across all devices?

And then just for a follow-up, on top line, can you -- Ian, can you help us kind of frame expectations for next year's ARR growth? I don't know if there's any puts and takes you can provide on this call. And if there's any change from the prior guidance given at the Analyst Day earlier this year?

[John Strosahl, executive]

Yes, John, I'll answer the first part, and we can have one of our CFOs in the room talk about the second part of that. But certainly, we're still awaiting a refresh in the rest of the market in a couple of our largest industries. And we've mentioned before, both tech hiring has been muted as well as education refresh, we're still anticipating that. We're starting to see little bits of that, especially outside the U.S., but we haven't seen that come in full force yet.

If you look at the reports, the year-over-year increase in devices, we've had a couple of years of declines. And then this first 2 quarters of the year, there were increases with this last quarter showing a slight decline overall and a mixed bag on Apple. One agency will have Apple slightly down, the other will have them slightly up.

So we're not seeing that come back in full force yet. Just in speaking to customers, some of the things that we've heard that there is an anticipation of some more devices coming out, with more powerful devices with Apple Silicon to help really address some of that onboard AI processing. And so, we believe in times of tight budgets, especially on the commercial side, some of these are waiting -- waiting for some of these more powerful machines to come out. But some are going along as the refresh cycle happens, but certainly, that's something that we see that's still in front of us.

[David Rudow, executive]

Yes. And then -- John, this is David Rudow, the incoming CFO. I'll answer your question on ARR. We are in the process of building out our plan for next year. So hold tight. We will disclose details when we report our Q4 numbers, which will probably be February at some point.

[Operator]

And our next question comes from the line of Jake Roberge from William Blair.

[Jacob Roberge, analyst]

Great to hear that Jamf Business Plan had the largest customer increase in its history. Was there anything specific on the product front that helped drive that uptick? Or was that more of just a maturity of the go-to-market motion and that team becoming more comfortable selling the product?

[John Strosahl, executive]

Yes, Jake, I'll take that one. It's -- quite honestly, it's both. The management and security together really has resonated with our customer base. And in fact, we've known, or we've seen through the data that we have less churn and we have more upsell with those customers that actually buy the business plan. So we know that, that's something that's doing really well.

And at the same time, as we talked about before, our go-to-market teams are really getting their arms around how to work into -- how to lean heavily into the security. And the fact that they're becoming better at selling it and the fact that those 2 products work together so seamlessly, that's really helped us benefit in the business plan. And as Ian mentioned, in our mobile security solution, that also has really, really done well. The fact that they get multiple security solutions in one SKU that they can put in, that's helped us lean into security as well.

[Jacob Roberge, analyst]

Helpful. And then, great to hear that 7 of the top 10 deals during the quarter include mobile. Curious if you're starting to see those opportunities ramp up just following the acquisition of Workspace ONE, maybe customers being frustrated by those changes of control? Or is it kind of just steady execution of mobile versus seeing those opportunities ramp up?

[John Strosahl, executive]

The replacement market has been really good for us. And we've mentioned in the last couple of quarters that some of our largest deals have come from that replacement market, and we continue to execute on that. The fact that we have spent 2 decades working with Apple and innovating along with Apple at the pace of Apple, has not gone unnoticed by our customer base. And if there's any hesitance or lack of confidence in your -- in the customers' minds that their next solution isn't going to be as -- innovated as fast as Apple is going to do it, then obviously, that presents an opportunity for us, and we've leveraged that opportunity very well.

[Jacob Roberge, analyst]

Congrats on the results.

[Operator]

And our next question comes from the line of Raimo Lenschow from Barclays.

[Raimo Lenschow, analyst]

Can you address the Microsoft relationship a little bit? Like on the one hand, like you're partnering up, but like it's obviously a different ecosystem. On the other hand, they're also like a competitor to some degree. Like how do we have to think about it? And what's the opportunity there?

[John Strosahl, executive]

Thanks, Raimo, for the question. This is John. Microsoft and Jamf is much more of an and, than it is an or. And the fact that we already have several integrations today with Microsoft, really, we just help continue to progress that relationship even up until now into the go-to-market motion. We have -- we've historically worked with AWS and selling our product to the AWS marketplace, and that has gone really, really well, and we're going to continue to do that and lean into AWS.

But we also wanted to offer our customers that have a Microsoft footprint, an opportunity as well or an option as well in that area. So we've deployed a multi-cloud strategy that has allowed us to have our products hosted in the Azure cloud as well. And because of that, and part of the ISV program, we're actually working with Microsoft [ in ] going to market. So their sales team can co-sell along with our sales team.

And that's really been something we're excited about. We're going to actually officially launch that at Ignite here in November and this quarter. And we've got some great plans working with Microsoft really that both companies can benefit. There's very slight overlap in that area, but there's a wild amount of collaboration that we can do, and we have a lot of mutual customers.

[Raimo Lenschow, analyst]

And then one follow-up. I know you addressed it in the footnote, and I only saw it later, so I apologize for that. But like can you talk a little bit about the customer -- the total customer count, what you do -- what you did there? And is that -- was that a one-off thing? Or are you still looking through that and there's kind of more changes coming?

[Ian Goodkind, executive]

It's Ian. I'll take that question. So there was 2 aspects to it, and you definitely touched on one. Anytime you have any type of comprehensive system update, you look at different metrics within your system. We did have kind of a onetime as you talked about there, and that is truly just taking -- and a good example of that is looking at an MSP that maybe we count as multiple [ customers ] before, now it's one customer. So that's definitely more of a onetime nature.

There was also -- we recognize revenue for certain licenses over the period -- over an estimated period of the life of the device in education. And some of those educators came back and actually didn't refresh at the end of the quarter, but they're still using the device. But our revenue ran off. So we took -- not only do we take the revenue off, i.e. the numerator, we took off the denominator too. We do think that's a little bit more contained within the quarter and everything else that could come from that is factored in within our guidance. So that is something that we've already contemplated within the numbers that we've provided you.

[Operator]

And our next question comes from the line of Patrick Walravens from JMP.

[Patrick Walravens, analyst]

Both of mine are going to be for David. David, I'm really glad to see you took this job. So question number one is just, what made this opportunity stand out? So why did you want the role at Jamf?

And then question number two is, I mean, I checked the investor deck to see if the 3-year model was still on Slide 50. And obviously, it's awkward to come into a new role with a 3-year model sitting out there. But if you could just give us your thoughts on that, I think everyone would really appreciate it.

[David Rudow, executive]

Yes. Great. Great. Nice to speak with you again, Pat, after all these years. Yes. No, I think, when I got the call on Jamf and I did some initial research and I had the opportunity to meet with John and the management team, what really stood out is the dominance on the Apple ecosystem. I mean it's a market leader. I think it's a great story. We have international expansion. We have expansion into security. We've got a awesome customer base. And I think the opportunity is quite impressive from here. So that's the reason why I came here. Looking forward to filling the big shoes that Ian leaves behind. But I'm very excited to be here, and I think it's going to be a great run that we're going to have in the coming years.

And on a 3-year model, of course, coming in somewhere new. I took a look at the 3-year model. I studied the investor deck. I think it was a great set of information. We are currently building out the plan for next year. I think it seems reasonable, but we will update everybody as we look to provide guidance for fiscal '25 next year as we do that when we report Q4. But everything I'm seeing now seems that the model is reasonable.

[Operator]

And our next question comes from the line of Matt Hedberg from RBC.

[Matthew Hedberg, analyst]

Ian, first of all, best of luck in your next role. And David, congrats from me as well. John, obviously, you're not going to guide to 2025 yet. But I'm kind of curious, when you sit here and you look at some of the puts and takes to this year and you kind of think about sources of upside, obviously, security is becoming a bigger part of the mix and it's growing a lot faster than the base business. Bundle seem to be doing well, channel, et cetera. I mean, how would you sort of rank some of the most important growth drivers that could maybe become even a bigger deal next year?

[John Strosahl, executive]

Yes. Well, thanks, Matt. I mean we've got several -- if we just look at the environment, we've got several tailwinds that are helping us. We've got an anticipated refresh cycle that we haven't seen yet. We believe that tech hiring is going to come back. We believe also that education is going to, at some point, refresh those devices that they have. Those [ kidWdos ] are only going to keep those iPads for so long before they need to refresh them. We're -- The security is getting a lot of traction. As you see, we got over $150 million in ARR in security this quarter. We've surpassed that, and it continues to grow in the mid-20s. And it's not only resonating with our customers, but our go-to-market motion is getting a lot more [ efficient ] as well.

And some of the things that we talked about, that comprehensive system update, gave us the capability to do things like leverage our channel more. And we spoke about this before, but it gives us an opportunity to have a partner portal where channel partners can come in and actually register their own deal as opposed to having to call a Jamf salesperson, which is very inefficient on our side, very inefficient on their side. So we've had that. We've had hundreds of transactions already go through that model just in the first quarter of actually releasing it. So that's going to help us quite a bit as well.

I think I mentioned already the expansion of Apple in the marketplace. If you look at the choice programs out there, 2/3 of the people will choose a Mac according to the studies that we have seen, that have been published in a couple of different companies. And more and more companies are offering that choice program. So we have every reason to believe that Apple will continue to expand in the enterprise, has been their stated intention, that they have noted on their earnings calls as well.

We've got a great opportunity in mobile. We've talked about that before as well. This deskless opportunity is tremendous. And we haven't even talked about the international expansion, which international continues to grow at a faster pace than our domestic sales too, even though the sales in the U.S. are growing as well, there's just a great opportunity out there. Just -- especially when we look at education, we've had a lot of international deals in education in Japan and Germany, in Taiwan. And not only, as I mentioned earlier, we're getting some precursors of that refresh cycle going to happen, but there's also additional markets that we're working with Apple and leading into those as well. And so those are really coming well in the pipeline. So all of those things together give us confidence.

[Operator]

This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.