This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk11: 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 speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jennifer Gorman, Vice President, Investor Relations. Please go ahead.
spk00: 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 Strothall, 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 JAMS.com. Today's discussion may include forward-looking statements. Please refer to our most recent SEC report, 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 JAMS 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?
spk08: Thank you, Jen, and thank you, everyone, for joining us. We are pleased to report for the 10th 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 represent 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 a 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 shipments experienced a record quarter growing 40% year over year, representing over 13% of all PC shipments, the highest Mac 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's 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 in innovation. John will discuss the increasing demand for Jamf 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's increasing position as market leader. Adding a net of 2,000 new active customers in Q3, growing our active install 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-based 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 24th, the launch day of macOS Ventura, SAP, a longtime Jamf customer with over 35,000 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 maps 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 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 get 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, 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's security portfolio. John?
spk13: 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 cyber threats. It's becoming increasingly critical for InfoSec and IT teams to deploy specialized solutions to keep users, devices, and enterprise resources safe. The need to meet these 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 solutions. In total, Jamf has 12,500 customers who run one of our management solutions in combination with a 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's innovations, that have tackled the primary issue experienced with BYOD devices, which is fully securing the employee's personally owned device while honoring their 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 for BYOD late in Q3. many having implemented policies that require all devices accessing corporate resources to be jam-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 enable 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 employees to carry two 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 multi-product adoption in education. Jamf Safe Internet is our first add-on product sale that Jamf 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. In other exciting security news, in late September, we announced Jamf's 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 through tools like Jamf Protect on Mac or Microsoft Defender for Windows. Xecox takes a unique approach by capturing and analyzing logs 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 ZEC Ops 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 ZEC Ops, Jamf has a comprehensive set of capabilities that allow customers to secure devices, stop threats 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 ZEC Ops 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.
spk09: 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, muted customer hiring expectations, and increased scrutiny in customer approval processes. These factors impacted customer device growth at annual renewal. Additionally, Jamf experienced a unique challenge in Q3 with our Jamf School install 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 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 the 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 months unlevered free cash flow margin was 14% compared to 24% in the prior year. The prior year benefited from a large number of multi-year 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 has 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 to $129.5 million, representing growth of 24% to 25% year over year, non-GAAP operating income in the range of $6.5 to $7.5 million. For the full year 2022, we expect total revenue in the range of $477 to $478 million, representing growth of 30% year over year. Non-GAAP operating income in the range of $23.5 to $24.5 million. Additionally, for modeling purposes, we provide 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 it's 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?
spk11: Certainly. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. One moment for our first question. And our first question comes from the line of Joshua Riley from Needham. Your question, please.
spk02: 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?
spk08: Yeah, 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. We are very pleased that the demand for our overall solution is high. If anything, any of the, you know, concerns that we would have had from an economic perspective to do with the number of devices that were being licensed, in particular, 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 companies to interest in our share of Our logo retention and our new customers with 2000 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.
spk13: 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 that's evaluated heavily. There are some bigger spends in their budgets than us, and so we've enjoyed being in that position and continue to strong focus and the demand that we've seen. So things have been pretty consistent.
spk02: Got it. And then maybe just a quick follow-up. You know, 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?
spk08: Again, I don't know that I would call it shifting our focus. Obviously, I think one of the things that has been changing with Jamf over the last two years is, as you'll recall, Josh, our NRR was almost exclusively dependent on device expansion within the customer base. And over the last few years, a security business from just over 90 million of ARR, it really has 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 device isolation that occurred during COVID.
spk02: Got it. Thanks, guys.
spk11: Thank you. One moment for our next question. Our next question comes to the line. I'm Matt Stotler from William Blair. Your question, please.
spk01: Hey there. Thanks for taking the questions. First, just maybe a follow-up on the headcount dynamic that you mentioned. We'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 fulfilling that capacity.
spk08: Yeah, thanks, Matt. You know, it was a very deliberate decision on our part to be responsible in our spending this year as an account. It was in my 34 years in the industry, probably as tough a hiring environment as I've been. And, you know, 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 approach to onboarding with the people that would stay because as you know, Jamf has very high retention. And as a result, our QBR, our 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 several times that we do not feel like we're market limited at all. Our greater limitation is the ability to be able to onboard that market demand. And we think just numerically, you know, the math just comes out and proves it, that had we been out there going faster, we would have grown faster. Now, the great news is, for a lot of reasons that are apparent in the industry right now, we are seeing a greater availability of talent of late. August was actually our number one hiring month. And so we're seeing that loosen up a little bit.
spk01: That's very helpful. Thank you. And then maybe just one 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?
spk08: Again, the situation was slightly different in education and commercial when it comes to device reconciliation. On the commercial side, 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 and between commercial and education, we are quite pleased with. Despite the school reconciliation on devices, we ended up launching Jamf Safe Internet, which, I mean, frankly, it wasn't surprised in that it was the fastest growing product in the first quarter of our launch in our history with over 200 customers. outselling both Jamf Connect and Jamf Protect in their first quarters when we launched those. We thought that they were excellent launches. So it reminds us about, you know, the future and, you know, both device expansion that will come, but even being in a better position for product expansion.
spk11: Great. Thanks again. Thank you. One moment for our next question. And our next question comes from the line of Raymond Lenschild from Barclays. Your question, please.
spk07: Hey, thanks. Thank you. Dean, there are 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 capacity and the issues in the education side in terms of, like, so is this kind of more like a macro-driven, is macro a minor point, and it was more capacity-driven. Can you help us understand that a little bit? Because there were several items that you kind of called out, but I wasn't sure how they kind of connected together.
spk08: Yeah, I mean, the order in which we went was the order in which they had impacts. In my prepared remarks, I said most notably that was actually the headcount growth being a bit slower. That was actually the number one impact, not necessarily on the demand side. But in addition to that, there were three things all to a lesser degree that impacted us. One in education was a bit of You know, some schools realizing that they did some panic buying during the move, and they just realized 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 one-time thing, you know, a year later. We personally have organizations that are, you know, a little bit more muted on their hiring expectations between now and the end of the year, a little bit less, but nevertheless did. And then finally, probably the lowest impact, but yet it did have some, I think, is the supply chain constraints that really now have lasted about a year. So you can imagine since Jamf is, you know, you know, we renew on an annual basis. We 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 growth than we were by the market.
spk07: Okay, perfect. And the follow-up is more for Ian then, is if I think about the like in this sort of environment, you know, demand is something it's difficult. It's not only a mega load control, but cost and profitability is a little bit more under your control. So how do you think about that balance between growth and profitability in this environment, especially, you know, if I talk about the capacity upgrades you want to do on updates you want to do on the field 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.
spk09: Yeah, thanks for the question. You know, you've seen what we've done before. We set our guidance that's achievable. We start with the balance here. We look at pipeline, we look at churn, we look at these macroeconomics, and we take a balanced and prudent approach. We do balance that profitability. 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'll also notice our free cash flow margin. in Q3 of this year is 36% compared to last year at 30%. So we are already pulling to provide more profitability for the business now. Perfect. Thank you.
spk11: Thank you very much. Thank you. One moment for our next question. And our next question comes from the line of DJ Heights from Canaccord. Your question, please.
spk03: Hey, guys. Thanks for taking the question. This may be 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, you know, device management decisions, you're doing quite well, but it'd be great to hear more about like what you're seeing further up market and how that's progressing.
spk13: Yeah. DJ, thanks for the question. So we've already segmented our go-to-market teams. And on the small to medium-sized businesses, that's the same economic buyer across the board. We're having great success there selling business plans. We've got a relationship in there. What we're seeing on the higher end, probably mid-tier and above, when companies start to get an InfoSec team in place, 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 that influence 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 of the security specialists. And we also have different personas that we market to. So we've got sequences that are dedicated to the InfoSec team versus the people in the IT teams. And we're seeing great traction. As I mentioned, we've signed seven, six-figure deals just in the last quarter with security included. So we're seeing good traction in that, and we'll just continue to double down on that.
spk08: And, DJ, if I can pile on here for a moment, that one of the things 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 IT team is the thing that's used to install all security solutions out on the devices that we manage. So we're actually the to install those security solutions. So an IT team who has to ultimately do the deployment of the security solution can increase policies and checks to make sure that the security software is not tampered with or within the product they already own, they can collect the box that says deploy Jamf Protect. So you can imagine just the difference. And that's sort of how they sync together. But it's unique advantage we have. to be offering the solution actually deploys the security solution.
spk03: Yeah, yeah, that's helpful color. And then, Dean, maybe kind of a related question. 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 as to kind of where the future of the company is?
spk08: Yeah, well, I mean, right now where our security ARR is about 18% of our total and, of course, growing. We believe ultimately that the TAM long-term is going to be important for the growing family of security solutions that we have. With that said, it is Jamf's leadership mission in Apple management that really sets the stage for everything else we do. So we absolutely have to be an innovator on the management side and be just flat out the market leader in new capabilities. So, you know, 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 do that. As I mentioned, 2,000 customers being added in a quarter.
spk03: Yeah, yeah, makes perfect sense. Very helpful. Thank you, guys.
spk11: Thank you. One moment for our next question. And our next question comes from the line of Matt Hedberg from RBC. Your question, please.
spk04: Great. Thanks for taking my question. Just one for me, Dean. You know, 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, you know, are you seeing any benefits of that? You know, I have to imagine you're not assuming anything in guidance, but just sort of curious if, you know, if that's sort of the show up yet in win rates or anything of that nature.
spk08: Thanks, Matt. And as you know, I tend to resist talking about any one specific competitor. What we have noticed consistently is, when cross-platform, less specialized management providers get acquired by that market as a consolidated holiday type of employer, that if there isn't any indication of the future, that those providers then will frequently fall behind keeping pace with Apple. It only takes about a year, you know, and once you're behind, you're back. I think that next fall is going to be a really telling period when it comes to that. And even this last fall, you know, Apple had a boatload of new capabilities like declarative device management, which really just, almost read how MDM works completely, you know, different in some ways than Android and Windows. And if you don't support it, you're already behind on the app. And I will tell you that we've had numerous calls from customers who have not historically been Jamf customers, just asking us for reports of that because they were worried that their less specialized cross-platform provider was not. So, yes, we see several wins. due to that. But I think the real potential opportunity is going to occur perhaps around this time. Thanks, Dean. Thanks, everybody.
spk11: Thank you. One moment for our next question. And our next question comes from the line of Koji Akita from Bank of America.
spk14: Hey, guys, thanks for taking the questions. I kind of wanted to go back to the ARR and the impacts the education space had on growth. And, you know, 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. You know, was it a couple million in ARR? You know, that could help frame the growth of the ARR for the quarter X educations.
spk08: Well, I mean, our ARR growth year over year was about 15%. We've mentioned before that we would anticipate both markets sort of getting into where you have a education growth that perhaps about half what our commercial growth is going to be, or a little bit less, actually. So actually, you know, where it all settled in at is about what we've been, you know, saying is going to happen from markets perspective. And again, while there has been, keep in mind the way that renewals work in particular with our Jamf School product, those renewals don't necessarily happen by somebody calling up a Jamf person and renewing. It's actually e-commerce built into the product itself. We have a very elastic, you know, base of devices that are being used. So if 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. You know, it had an impact on the quarter, but to some extent it was made up for with the launch of the safe internet solution. So sort of in the wheelhouse of where we expected it.
spk14: 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 but think there are closets full of 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?
spk08: I was going to make a comment about perhaps, you know, users of Apple are, I won't make a comment on that. The bottom line, I mean, what we're seeing is that in addition to, of course, we're seeing some of the layoffs 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 recent according to D.C., you had a 40% growth of Mac and you had a decline for the rest of the PC space. So I don't think a 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 in spite of this environment. because as organizations are looking for creating a great employment environment, we don't require employment to grow out there in order for Mac devices to grow. The share shift is going to do that.
spk14: Got it. Got it. Thanks, Dean. Thanks so much for taking the questions.
spk11: Thank you. One moment for our next question. And our next question comes from the line of Chad Bennett from Craig Hallam. Your question, please.
spk06: Great. Thanks for putting me in. So just in terms of how you're thinking about with 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?
spk08: Well, just as a reminder, of course, you know, ARR is actually an annual metric. There isn't, you know, any one quarter that's going to, you know, significantly change that. When I think of seasonality, I think a little bit more on the smoke front. But we don't see anything different. seasonality-wise from a bookings perspective than what you would expect. Really the only difference right now is, as I mentioned, I think some organizations eyeing perhaps, you know, in the past an organization might say, well, hey, I'm going to estimate how many devices 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 to. And organizations are just very hesitant to 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 their devices or reduce their number of devices. That's sort of the benefits of a subscription. But one of the things that we've noticed in the past is You know, the organizations that are really nimble that might be 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 project to do it.
spk06: Got it. And then maybe one quick follow-up, Dean. So just in terms of as much as you can tell us, in this world we live in, just in terms of, you know, the expectations for commercial growth. And I think you indicated, obviously, you know, the, you know, split, you know, we think, you know, 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 to six months?
spk08: I don't, 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 over the 20 to 23. So we are clearly mindful of it. And as I've mentioned, we have seen some moderation on expectations from a 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-term it's going to be. But what we're pleased in is that the demand for us and our solutions remains high if just the device count might get a little lower than what it would have been a year ago.
spk06: but you're going to lean in on hiring in fourth quarter on the sales side. That's what you said.
spk08: Yeah, we are going to take advantage of a bit more of a tractive employment environment on the market side, and we think we're going to be able to – we're pleased at what we believe we will do in order to set ourselves up for future growth in 2023 versus how challenging it was I'll say between January and July of earlier this year.
spk11: Got it. Thanks much.
spk07: Yep.
spk11: Thank you. One moment for our next question. And our final question for today comes from the line of Michael Romanelli from Mizzou. Your question, please.
spk12: yeah hey guys mike on here for greg moskowitz um thanks for squeezing me in and uh perhaps just one quick one um just sort of just wondering what the current penetration rate for uh jam fundamentals within the uh champ now basis i believe there's 60 last quarter thanks yeah we're whispering here just make sure we have the right number uh if you recall uh in our earlier call i think we had already gotten to
spk08: So, again, what we, I believe Ian had mentioned it in his commentary or content, I forget now, that we have 12,500 customers running at least one of our solutions and one of our security solutions. And, of course, Fundamentals is a package management and security solution. So, in the we actually saw that number grow by 900, which is really an excellent number, showing that we're really leading with the combination of management and security, which we consider to be two sides of the same coin, both being able to detect threats and automatically mitigate those threats, just completely unique in the industry. And, you know, we're sort of setting a new standard, and I believe that as the market that there will be increasing demand for that full solution as we head into next year.
spk11: Thank you. One moment for our next question. And our next question comes in the line of Joey Marachek from JMP Securities. Your question, please.
spk05: Hi, team. Thanks so much for the question. You know, on employee retention, can you talk about the culture of Jamf? Why do you think you have such high employee retention? And, you know, how do you expect to maintain that Jamf culture as you continue to grow? Thank you.
spk08: Boy, I kind of want to camp out the rest of the call here and just talk about this. I'll tell you, you know, 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 is, and we get a really high participation in our employee engagement survey. And the question is, does my manager genuinely care about my well-being? And over 90% of jams are every single 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 every single first line manager within this organization that genuinely cares about the people flexible and remote, largely remote environment. people feel connected and they feel cared for. The result of that is we've even seen, you know, that retention 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 starts with caring about one another and really being excited about inventing and creating solutions for our customers. We had We're here in Minneapolis today, and we had our SE meeting where our assistant engineers from the world came in and gathered to learn best practices from each other. And the excitement that I see in them 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. That's why engagement scores continue to be high every year. Thank you for that question.
spk05: It's 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.
spk08: Yeah, you bet, Joy. I'll answer that and then I'll just make some parting remarks and we'll wrap it up. Okta is a terrific partner of ours. As we mentioned during JNUC, we're each other's customers. Because we're each other's customers, And because we really wanting to implement internally first what we end up offering to our customers, it means that we don't collaborate with all the identity providers out there. We have integrations with Google and 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, you know, a conditional, you know, and also onboarding for BYOD devices, we have got some joint projects going on right now. As a matter of fact, one of our key members is Oxane, sent me a picture just last night of how jam-packed standing room only his session is. 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. You know, I'm glad you mentioned Okta. 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 and 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, it's really easy to love technology that is not secured or to trust technology that is not easy to use, but accomplishing the mission 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 and cued through our results and we're bullish on the future. Thank you very much.
spk11: Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.
Disclaimer