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spk14: Thank you for standing by, and welcome to the CHAMP Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jill Hominick.
spk07: Vice President of Investor Relations. Please go ahead.
spk12: Good afternoon, and thank you for joining us on today's conference call to discuss JAMF's fourth quarter and full-year financial results. With me on today's call are Dean Hager, Chief Executive Officer, Ian Goodkind, Chief Financial Officer, and John Strohfeld, 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 fourth quarter and full year financial results. We also published a Q4 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 JAMS performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our 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?
spk11: Thank you, Jan, and thank you everyone for joining us. 2022 was a year of milestones for Jamf as we continue to deliver outstanding solutions for our customers and fulfill our mission to help organizations succeed with Apple. We finished the year serving over 71,000 customers, helping them navigate the challenges and opportunities in today's hybrid work world. by protecting their organizations while empowering their people with the legendary Apple consumer simple user experience. We are pleased to report for the 11th consecutive quarter, Jamf again exceeded expectations in Q4 with year over year revenue growth of 26%, resulting in full year 2022 revenue growth of 31%. We completed the year with 30 million paid devices on our platform, which is remarkable considering we celebrated reaching 20 million devices just two years ago. In 2022, Jamf also achieved the largest year-over-year Mac device growth in our history, for the first time achieving a net addition of over 1 million Macs under management in just one year. During 2022, we significantly enhanced our market-leading platform for managing and securing Apple at work. Jamf's product leadership and continued execution helped Jamf surpass the $500 million ARR mark at the end of Q4, now with over $400 million of device management ARR and over $100 million of ARR from our security solutions, a business that has been almost entirely created in the past three years. Jamf's success in Q4 and throughout 2022 is even more remarkable considering the difficult macro environment. We talked last quarter about device supply chain issues and the challenges we faced recruiting sales talent from earlier in the year. Additionally, in Q3, we highlighted that muted customer hiring expectations and layoffs resulted in lower device growth at renewal, which continued in Q4, normally Jamf's highest quarter for commercial customer renewals. Fortunately, Jamf is well positioned for market challenges, having historically approached growth responsibly and profitably. Last quarter, I explained that because of the challenging hiring environment through most of 2022, we chose to staff short of our new employee onboarding plans for the year. Jamf's prudent approach to compensation and hiring in 2022 along with additional targeted expense actions we took in Q4, led us to exceeding expectations for both non-GAAP operating income and unlevered free cash flow. Additionally, due to our targeted recruiting late in 2022, we were able to achieve our year-end sales headcount goals. We expect these reps will ramp to full productivity in time to meet anticipated demand in the latter part of 2023. We were able to accomplish this balance of slower investment growth with targeted additions while still achieving 90% voluntary employee retention for the full year. We believe the cost measures we put in place, which Ian will provide more detail on later, combined with an expanded differentiated product line and targeted growth in sales headcount will help us achieve strong bottom line results while positioning Jamf for future growth. Despite the challenges the market presents, in many ways, 2022 showed us that Jamf's market and company fundamentals are as strong as ever. Specifically, I would like to comment further on our view of the market, customer acquisition and retention, device growth, and cross-selling of our security solutions. First, I'll address the market. 2022 was not a good year for PC shipments, declining 17% compared to 2021, according to IDC. However, both Mac and iPad shipments grew in 2022, while iPhone grew in market share, overtaking Android in the United States. Specifically regarding the Mac, IDC reports show Mac has significantly outgrown the rest of the PC industry for the past three years, shipping 60% more MAC in 2022 than in 2019, while all other PCs only shipped 6% more over the same period. In 2022, MAC reached double digit market share globally for the first time. And according to Gartner, MAC shipments reached 17% market share in the United States in Q4, three points higher than prior year. The expanding math market share and continued innovation by Apple bodes well for Jamf's total addressable market and long-term growth as we continue to set the standard for managing and securing math at work. Regarding customer acquisition and retention, in Q4, Jamf grew its install base by more than 2,000 customers, resulting in 11,000 active customers added for the full year. Jamf's overall gross and lost-only retention rate for the trailing 12 months at the end of 2022 remain above pre-pandemic levels and were approximately the same as the prior year. As typical in a challenging macro environment, churn is greatest at the low end of the market, in particular with solutions like Jamf Now designed specifically for small businesses with the convenience of monthly renewals. Historically, the SMB market has been the quickest to react to market downturns, but also the quickest to rebound. From an ARR perspective, the small business market is Jamf's largest and fastest growing commercial segment, represented by companies with fewer than 1,000 employees. Additionally, Jamf's emerging MSP channel serves many small businesses and is growing faster than Jamf's direct routes to market. These customers served by our MSP partners are largely additive to Jamf's total of 71,000 customers. Jamf customer loyalty at the high end of the market continues to be world-class. Of Jamf's largest 100 customers measured by ARR at the beginning of 2022, Jamf retained 100% of them. And all of Jamf's top 25 customers grew their annual contract value with Jamf in 2022. The most pressing challenge Jamf has seen over the past two quarters has been in device count growth. Although our top 25 customers all grew with Jamf in 2022, the rate of device growth has been significantly slowed by changes in the employment market and customer tendency to purchase seats only for their current headcount and not for anticipated growth as we've seen historically. This is true both for customer renewals and new logos. Although device count is negatively impacted during periods of slower employee growth, history tells us that device expansion typically rebounds quickly as market dynamics improve. Fortunately, Jamf's business has transformed since going public in 2020 and now includes several other vectors of growth beyond device expansion. Jamf's collection of security products now constitute over $100 million of our ARR, equaling 49% growth year over year. The number of customers running both a Jamf management and security solution has grown to over 13,500, which is over 1,000 more customers than just one quarter ago. This helps drive positive improvements to Jamf's ARR per device, which as of Q4 is now over $17, an increase of $3 in the past two years. Jamf's commitment to expand and enhance our platform through innovation, acquisitions, and partnerships is critical in the accomplishment of our mission to help organizations succeed with Apple and position Jamf for growth in 2023 and beyond. I'll now hand things over to John to highlight areas of Jamf's market momentum and Q4 wins. John?
spk15: Thanks, Dean. In Q4, Jamf took significant strides in expanding our platform, partnering with industry influencers, and executing our strategy to manage and secure Apple at work. In November, we completed our acquisition of ZecOps. This new mobile security capability is extremely unique in the industry and will allow Jamf to identify sophisticated attacks that target high-profile individuals who have access to the most sensitive organizational data. With this technology, Jamf aims to bring iOS security and visibility up to the standard we've already set with Jamf Protect for the Mac. We also continue to enhance our relationship with key industry influencing partners for both our management and security solutions. With several new Q4 product deliveries, Jamf is the only Apple-first management and security solution integrated with Zero Trust Network Access, or DTNA, framework. for all three of the largest cloud providers, Microsoft, Google, and AWS. Jamf's collaboration specifically with AWS is noteworthy. At JNUC in September, we announced that Jamf is the only management solution capable of managing virtual EC2 Macs. Then in Q4, in addition to our ZTNA announcement supporting AWS verified access, Jamf joined AWS's ISV Accelerate program. As a result of this partnership, Jamf is included in the AWS Marketplace, AWS and Jamf sales teams collaborate to best serve customers, AWS sales teams are incentivized to sell Jamf products, and customers can use their AWS credits or committed annual spend to purchase Jamf products. One example of immediate benefit from Jamf's AWS Marketplace listing was with longtime Jamf customer Allegiant Airlines. Allegiant utilizes Jamf for iOS devices in all parts of their flight operations and has more than doubled its iOS fleet over the past year. In Q4, the Jamf team partnered with AWS team to facilitate Allegiant's renewal, growth, and cloud migration using annually committed AWS spend. providing financial benefit for our joint customer and significantly streamlining the procurement process. As we look into 2023, we are cautious given the market dynamics but remain optimistic. Our total addressable market continues to expand and our customer loyalty and market leadership remains strong. I'd like to quickly highlight four areas that illustrate CHAMP's significant market leadership and continued opportunity. First, in education market, Jamf continues to be the market leader, now empowering an estimated 40 million students globally, serving eight of the top 10 school districts in the U.S. and some of the largest government education deployments around the world, including Japan, Taiwan, Germany, and Australia. In July of 2022, Jamf launched a brand new solution for schools, Jamf Safe Internet. Last quarter, we told you that Jamf Safe Internet was the most successful product launch in Jamf's history, measured by sales in the first quarter of availability. Even though Q4 is not a traditionally abiding quarter for schools, momentum of Jamf Safe Internet continues. In Q4, Jamf upsold customers in all major geographies with thousands of safe internet seats. We finished 2022 with over 400 customers having selected Jamf Safe Internet in its first six months of availability. And now that we have extended Jamf Safe Internet support to also include Google Chromebooks, we are excited to reach customers at an accelerated rate and protect more students as we approach spring and schools prepare for the next academic year. Another market where Jamf is the clear leader is Mac at Work. Jamf currently serves 22 of the top 25 global brands and nine of the top 10 largest companies. If MAC market share continues to expand as it did in 2022, we believe Jamf's leadership position and robust complement of management and security solutions will provide a substantial growth driver long into the future. As Dean stated earlier, Jamf continues to grow its MAC footprint, adding over 1 million MAC under management in 2022. One example of growth was longtime Jamf customer Cisco, who renewed their contract with Jamf in Q4, increasing their MAC seat count by 20%. According to Cisco, the key component of this growth has been user preference for Mac, with 59% of new employees choosing Mac. Expanding our Mac presence to also include iPad and iPhone management is Jamf's fastest-growing segment by device count. In 2022, Jamf expanded our product support to provide unique value for both corporate and personally-owned mobile devices. This, combined with market consolidation in the legacy mobile device management market, has created an emerging replacement market for Jamf. In Q4 alone, Jamf replaced 10 different customer implementations of at least 1,000 Apple devices for just one of our competitors. In nine of these 10 customers, the win was driven by both iPhone and iPad seats. One of Jamf's greatest strengths is our unique capability to support shared and one-to-one iPads and iPhones for the purpose of industry transformation. In healthcare, Jamf supports more than 1 million Apple devices with five new wins in Q4 alone for at least 1,000 iPhones and iPads, supporting industry workflows like patient bedside, clinical communications, and home care. Another promising industry where Jamf is rapidly establishing market leadership is transportation. At JNUC in September, American Airlines shared their success using Jamf to deploy 80,000 iPhones and iPads. In Q4, Jamf had five additional airline wins of at least 1,000 mobile devices to be used for flight-specific use cases like electronic flight bags for pilots and workloads for mechanics, flight attendants, and travelers. Considering the size of the mobile market, the strength of Jamf's solution, and the disruption in the legacy unified device management market, we are bullish regarding Jamf's long-term growth trajectory as we anticipate more organizations will align their management and security requirements with an Apple-first solution. The final opportunity I'll address is Jamf's combination of our industry-leading management solution with our emerging security products, which we believe uniquely positions Jamf to offer the only complete solution that ensures all work access from both corporate and personal Apple devices is trusted. Jamf's capability has been built over the past three years with organic development and several acquisitions. In total, Jamf has acquired less than $30 million of security ARR. Yet, as discussed earlier, Jamf's security ARR in Q4 has now reached over $100 million, growing year-over-year at 49%. We believe we are still in the early stages of growing our security solutions. and will only get stronger and more efficient as we achieve scale and continue to integrate our products into a single platform. A win that showcases our expanding total addressable market is with a global media company. This long-time Jamf Pro customer first expanded to our security solution in December of 2020, then to Jamf Business Plan in December of 2021. And in December of 2022, they expanded their Jamf threat prevention implementation from Apple only to also include their Microsoft Windows devices. Jamf's strength in Apple device management has set the stage for continued product cross-sell and up-sell opportunities that create greater customer value and device expansion for all types of Apple devices and beyond. With that, I'll turn it over to Ian.
spk13: Thanks, John. We ended Q4 with revenue growth of 26% year over year, resulting in fiscal year revenue growth of 31%. Total ARR surpassed the 500 million mark, growing 24% year over year to $512.5 million. We continue to see balanced growth across the many facets of our business, including management and security, commercial and education, major geographies, top commercial industries, channel and strategic partners, and size of enterprise, with many milestones along the way. As a reminder, Our ARR is calculated using an exchange rate estimate for the fiscal year that is held constant throughout the year. If we were to report ARR in actual currency, the impact of 2022 would be immaterial. We saw a decline in total company net retention rate to 113% in Q4, primarily due to continued muted customer hiring expectations. that are impacting device growth at renewal, as well as increased churn at the low end of the market. We believe these declines are temporary and are primarily driven by the difficult macro environment, and we would expect this metric to increase as macro 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 the earnings release. Q4 non-GAAP gross profit margin was 82% and within our expectations. We continue to anticipate gross margins in the low 80% range and expect slight fluctuations each quarter. We improved non-GAAP operating margin in Q4 over the prior year resulting in Q4 non-GAAP operating margin of 7% due to revenue outperformance and proactive cost containment initiatives. Our trailing 12 months unlevered free cash flow margin was 18%, which was flat to the prior year. This result exceeded the expectations we established in Q3, primarily driven by increased collections in Q4. Our annual effective tax rate is 0.2% consistent with our expectations. As a reminder, starting with Q1 2022, for non-GAAP metrics, we will use our domestic 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 pay a negligible amount of cash taxes on a US federal basis and pay an immaterial amount of cash taxes outside the US. Now, turning to 2023. As we continue to navigate the difficult macro environment, we have taken a number of cost initiatives to ensure maximum flexibility and stability for our business in 2023. We slowed our hiring in all areas except sales in the second half of 2022 while accelerating sales onboarding to ensure we have enough fully ramped quota bearing reps to meet anticipated demand in the second half of 2023. These actions resulted in lower than expected headcount expense. Additionally, in Q4, we enacted other cost initiatives in categories such as travel and discretionary spend. As a result, these cost savings, when combined with a revenue outperformance, helped us exceed expectations for both non-GAAP operating income and unlevered free cash flow in Q4. Additionally, given we were prudent and therefore short of our hiring goals, we believe we are in a fortunate position compared to other technology companies that may have overhired and overspent in 2022. Now, for 2023, we are being more aggressive on headcount management given it's our largest expense by eliminating non-critical hiring and work, increasing focus on performance management, and reviewing all backfills. As such, we anticipate ending 2023 with headcount at or below current levels. Outside of headcount, we are working with budget owners to identify and execute cost savings. We're reducing our facility footprint, evaluating all software spend, and ensuring we spend only on value added activities. These activities include investing in projects that will further reduce our cost structure in the future, and provide scalability and increase operational excellence. Jamf has historically operated in a prudent manner with respect to cost, so this is not new to us. Our philosophy of balanced growth and profitability has not changed, and we will continue to be judicious with our expense structure while reinvesting in areas with the highest expected return and continuing to drive strong, consistent cash flow generation. We remain committed to managing the business towards the rule of 40. With respect to our financial outlook for 2023, due to continued macroeconomic uncertainty, we remain cautious with our outlook. However, we believe the underlying fundamentals of our business remain intact and we expect continued demand for Jamf's innovative solutions. Our outlook assumes muted bookings growth for the first six to nine months of the year due to macroeconomic conditions with improvements thereafter. We have also tightened our expectations around a beat and raise. We believe these factors combined with cost containment measures as described will help us deliver on our outlook. As such, our outlook for the first quarter and full year 2023 is as follows. For the first quarter of 2023, we expect Total revenue in the range of $128.5 to $130.5 million representing growth of 19 to 21% year over year. Non-GAAP operating income in the range of $3 to $4 million. For the full year 2023, we expect total revenue in the range of $559 to $563 million representing growth of 17% to 18% year over year, non-GAAP operating income in the range of $37.5 to $40.5 million. As we did in 2022, we anticipate non-GAAP operating income margins throughout 2023 as we continue to pursue cost initiatives. Additionally, while we don't provide an ARR growth outlook we anticipate our ARR growth rate and revenue growth rates will be similar in 2023. We provide estimates for amortization, stock-based compensation-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. And now, Dean, John, and I will take your questions. Operator?
spk14: Certainly. Ladies and gentlemen, if you have a question at this time, simply press star one, one 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.
spk05: All right. Thanks guys for taking my questions. Nice execution and a tough macro here. If you look at the macro, you know, maybe can we get some more color on how much of a headwind is the slower customer expansions to growth this year and Can you just review in a typical year how much growth or bookings is from expansions versus net new customers and how that might be different in 2023? Yeah.
spk10: Hey, thanks a lot for joining us, Josh. Why don't you want to grab that one?
spk13: Yeah, sure. Hey, Josh, good to hear from you. Yeah, the macro environment is impacting us really on both fronts, right? On customer expansion, new logos, bookings. We allocate resources where demand is strongest. And, you know, for example, we saw We had 2,000 new customers in Q4, and so we were able to allocate resources that way. So we were looking at the combined portfolio. We did factor these macroeconomics into our guidance for the first six to nine months, as we'd mentioned. And then in the fourth quarter of 2023, we have some increased bookings due to the returning of the economy. Long-term, our fundamentals remain intact, and we expect our business to return as the economy returns. Got it.
spk05: I think if I remember correctly, you guys have a pretty strong pipeline of education renewals here in 2023. Will these be renewed as three-year deals again as they were in 2020? And how do you expect pricing to be relative to the original deal structure?
spk11: Yeah, so thanks for the question. Our largest renewal quarters for education are Q2 and Q3. In the U.S., June is the end of the fiscal year in education. Of course, July being then beginning of the next fiscal year. As such, a lot of our buying in education was concentrated around those two months. And as a result, those are pretty high renewal months. It is quite common when a renewal is due within education that they may renew for three years. The reason for that is Apple will frequently provide leases to schools for devices for three years and schools will just take the Jamf solution for the same three years for what their lease may be. So I would expect a normal buying pattern this upcoming year. The one advantage that we have this upcoming year is this will be the first education buying season that we have the Jamf Safe Internet solution also now with support for Chromebook. So that's going to allow us to have a significant sellback and hopefully grow some of those renewals by adding another solution into the mix.
spk05: Got it. Thanks, guys. You bet.
spk14: Thank you. Once again, if you have a question at this time, please press star 1-1 on your telephone. One moment for our next question. And our next question comes in the line of DJ Hines from Canaccord. Your question, please. Hey, guys.
spk06: Dean, maybe I could just pick up on that last thread, which maybe is a two-part question on Safe Internet. So the value prop there seems pretty obvious to me. Right. But it is nearly a doubling of the base jam school ASP. Right. So I guess the question kind of gets that price sensitivity in the education space. I know it's super early, but like any observations on attach rates at renewals. And I guess the second part of that question is just with the expansion, the Chromebook, like how material is that in terms of cam expansion for device count potential?
spk11: Yeah, great question. And so, first of all, just to give some specifics, you're right that when we add Jamf Safe Internet into the mix, I'll call it about a 70% uplift on the price per device within education. However, we were priced or have been priced attractively for that market. We feel we're about right priced. Generally speaking, organizations or schools are going out there and buying their device management from one provider and their internet filtering or safe internet from another provider. So by getting it all from Jamf, it's actually, you know, advantageous to them financially. We mentioned in the first couple of quarters that there were 400 customers that selected it. That's mostly from our base. So we've done a good job going back and upselling them. And you can imagine when you launch a new solution, I mean, you start with no referenceability, no buzz. And so that builds over time. So us having some 400 new customers in the first six months is We're pleased with that. And we just announced Jamf Safe Internet, gosh, I think yesterday. And we have already, I'm already aware of a dozen or so sales of Jamf Safe Internet for Chromebook, which is what I meant by yesterday, has already been closed. So we're pretty optimistic for the potential of that. And as you know, Chromebook is actually by market share, the most frequently used devices in American schools. And so it's actually a pretty big uplift from a TAM perspective.
spk06: Yeah, super helpful. The follow-up question, and it's something I got asked by investors, so I figured I'd just put it out to you. But when Okta's at-work report came out, and let's get that competitive dynamics a bit, I got questions around Candy's growth, right? And Granted, it was presented on a customer count basis, not user devices. But can you just help investors kind of with where they're positioned in the market versus Jamf and how that might impact kind of the growth metrics we're seeing in that report? Any competitive observations you'd make there?
spk11: Oh, sure. And first of all, just to set the stage, that's a report that's been used for a number of years. Frankly, when Jamf was roughly the size of some of our competitive solutions, we were number one growth company on that report every single year. We were proud to be so. In that same report, it's worth noting that Okta cites that Jamf has had a 428% customer growth over the last four years. And the words used in the report are that Jamf now is in the dominant position, having three times as many customers as any other tool. So the combination of what that report had to say about Jamf's dominance in the market and then also Kanji's growth, bodes pretty well for the attractiveness of the Apple management space. So we see it as pretty positive sign for the market overall. But generally speaking, to answer your specific question, Since Jamf runs 22 of the top 25 global companies, generally speaking, that means that Kanji and most competitors are going to attempt to come at Jamf from the lower end of the market. With that said, the SMB market, or really the S market of 1 to 1,000 employees, That commercially is actually Jamf's fastest growing segment right now. So we've been doing pretty well in that segment despite there being new competitors in the space.
spk14: Yeah, very helpful and very clear. Thank you. Thank you. One moment for our next question. And our next question comes from the line of Rob Owens from Piper Sandler. Your question, please.
spk09: Great. Good afternoon. Thanks for taking my questions. First off, just unpacking the Q1 guidance being down sequentially, I guess, even at the high end of the range. Help us understand what's embedded in there. Is that a function of some of the churn that you guys have been talking about or maybe the mix you saw here in the fourth quarter with on-premise subscription? Just help us understand in a dominant subscription business why that might be down quarter over quarter. Thanks.
spk11: Why don't I jump in here quick and I'll kick it off to Ian. Your second comment there, Rob, and thanks for the question, because it allows us to provide some clarity. You're spot on there. It has more to do with the timings on some one-time revenue than with commercial markets and just kind of how Q4 plays out from a timing perspective with some large on-premise deals. And by the way, on-premise for Jamf means anything other than our Jamf cloud. There are some fairly large Jamf customers that run, and I put in, if you could see me, there'd be quotation marks saying on-premise, which means they actually run in their own cloud. But we end up recognizing the revenue as on-premise revenue. And that did affect Q4 versus Q1 a little bit. Ian, do you want to chime in with any commentary on that?
spk13: Yeah, that's right, Dean. I mean, it is really the on-prem. I mean, remember, you know, from a seasonality perspective, our Q4 is a high commercial perspective and Q1 is actually our lowest. So, but if you looked at just the recurring revenue piece alone that excludes the on-prem, that is actually increasing. And so it really is some of that one-time revenue that makes it or distorts that number.
spk09: great as a follow-up have you seen any opportunities shake loose from the vmware customer base or is that still much a wait and see is that acquisition isn't done and maybe something that's back half of this year first half of next thanks excuse me um yeah i think that as the market and customers get clarity on what's going to happen there as that acquisition closes i
spk11: I've been pretty open that I believe that's going to create quite a large replacement market opportunity for us. And we did cite in our script, although we didn't call out a competitor specifically, we cited out that with one organization, we had replaced 10 implementations in Q4 of greater than 1,000 devices. That's the organization we were referring to. And I think that type of opportunity will grow as we proceed through 2023. Thanks for the color.
spk14: Thank you. One moment for our next question. And our next question comes from the line of Remo Lenzschau from Barclays. Your question, please.
spk08: Hey, thank you. If you think about the NRR number and slightly down ticking, you mentioned on the script that it's based on people not buying as much new seed expansions. What do you see on renewals? Is there also a case of down renewals happening, and how long will that be a headwind for you as you go through the year? And then I have one follow-up.
spk11: Yeah, I heard the bulk of your question, Ramo, until you got to renewals, and you just blanked out there for a second. Could you repeat that?
spk08: Oh, yeah, yeah. So I was just wondering if you see anything around down renewals that, you know, as people have less employees that they're is like maybe on the renewal side that you have down renewals and obviously that could be a headband as the year progresses, you know, as different kind of cohorts come up for renewal. Is there anything that you see in there or is it really just the new or the customers not buying the expansions?
spk11: Yeah, and so one of the things that we found and let's say that Jamf is actually very, very heavily used in the tech industry. And as you've seen, of course, tech has been rather active in the area of resource reductions of late. And a lot of the headline stories that you hear are from Jamf customers, of course, just because we run most companies within tech. But what we have found is because tech also hired really, really heavily before some of that layoff activity, that to Jamf, it actually just looks like slower growth at renewal, because they might have hired a lot of people, say, from the beginning of the year, you know, up through September. And then even if they did do layoffs, their headcount is still higher than it was at their last renewal. So it isn't like it doesn't impact us, but it's rarely down. For us, it just looks like slower growth. Does that make sense?
spk08: Yeah. Yeah. No. Okay. Makes sense. And then if you think about the cost containment efforts that you have this year, like, can you talk a little bit about, yeah, I think your margins are coming up by my mouth about 200 bits. Um, is that like, given all the kind of noise you made around, uh, controlling cost, controlling projects. There seems to me that there could be more room, but maybe I'm missing something here. Can you expand on that, please?
spk11: Yeah, Ian and I will kind of ham and egg that a little bit. First of all, yes, you're right. We do have a margin expansion of nearly 200 basis points. And this has been a part of our long-term plan. We had always planned on doing that. And just like Jamf has always said, we will grow our revenue responsibly. We will also grow our margins responsibly as well because we ultimately, if it wasn't clear in the prepared remarks, we believe that the market is actually very attractive and actually getting more attractive for us. But we are in a short-term window of a macroeconomic challenge. And of course, we will expand margins within that window. But we believe on the other side of that is going to be great opportunity. So we do not want to sacrifice continued market share expansion for the long term because of a short-term macroeconomic challenge. Do you want to make more comments on that, Ian?
spk13: Yeah, what I would add there too, just as a reminder, we talked about this in Q3 as well. You know, we said, you know, hey, we're not going to go and overpay and pay expensive talent. We actually did things, we've commented on it earlier this year, so what, earlier in 2022, and so those things are bode well for us as we go into 2023. You've heard we're taking a look at all our big costs and making sure that we can manage them appropriately. We're not going to do anything knee-jerk to damage our long-term know uh business but we are increasing profitability you know it's around that seven percent number compared to uh the prior year so we are taking steps we've already taken steps and and it's going to bode well for us long term and it'll help us achieve some of those long-term targets that we have out there okay perfect thank you thank you one moment for our next question and our next question comes from the line of matt hebert from rbc your question please
spk04: Great, guys. Thanks for taking my questions. You know, in 2022, it looked like the growth of both device ads and ARPU slowed on a year-on-year basis. And it looks based on kind of revenue and what you said ARR should grow similar to revenue, maybe about 17%. It looks like both device ads and ARPU growth could slow again in 2023. I guess I'm wondering, between those two variables, device ads and ARPU, which do you suspect will be the bigger driver of ARR growth in 2023?
spk13: Yeah, Dean, I can go first, and feel free to jump in. I mean, devices, you know, we've talked about where our major growth is, right? It's on upsell from, you know, additional devices. It's been on new logos, and it's really on the cross-sell. And on the device expansion, that's where we've seen the biggest impact. That's where we've factored in our guidance. But we have continued to see really good growth with new customers. Again, we had 2,000 here. And then On the security side, I just mentioned we actually have 49% growth, right, year over year, and now that's up to 20% of our portfolio. We have 13,500 customers on it. So that actually is we're starting to build the muscle there, and we're starting to gain momentum there.
spk11: Yeah, and as I mentioned in my prepared remarks that our ARR per device has grown to $17 now. We expect that that's going to continue to expand. likely at a somewhat similar rate as it has been expanding. And as far as our device growth goes, of course, we'll continue to grow. But I think our device growth will mirror what Ian talked about in his prepared remarks that the first half of this year will likely not look completely dissimilar to the last half of last year. But You know, as you look at the macro economic environment, there are some that believe that there will be a bit of a recovery in the latter half of this year, considering, you know, who our customers are. And as we watch carefully, you know, those that are, you know, slowing down their hiring or evening and living needing personnel. We think that it could have a positive impact on the latter half of the year when it comes to device growth, but we're prepared to deliver on the bottom line even if that doesn't happen.
spk04: Got it. No, thanks for that clarification, Dean. And then maybe just sort of that's a dovetail to maybe just one other clarification on the guide. So just to be clear, you're basically assuming that the first nine months sees kind of muted pressure, but that there's some sort of economic recovery or buying recovery in kind of Q4 is sort of what the baseline assumption is.
spk11: Yeah, that's basically the way that we're approaching the year again, but anticipating that in the second half and therefore wanting to be in position to take advantage of that, but also being in position to do what we need to do should that recovery not happen.
spk14: Got it. Thanks a lot, guys. Thank you one moment for our next question. And our next question comes from the line of Matt Stoepler from William Blair. Your question, please.
spk01: Hey, guys. Thank you for taking the questions. Maybe just one on kind of Mac device growth. I mean, you mentioned best device growth for Mac that you've seen in 2022, which was good to hear. Can you maybe just bifurcate the trends that you're seeing? You mentioned a lot of, you know, the Mac remote back to here, but maybe bifurcate between what you're seeing with Mac and iOS, iPadOS, and any key differences there?
spk11: Yeah, so the iOS market for us is more of an existing market that doesn't require the cam to grow in order for us to grow. In other words, as you all know, we have a smaller share of the iOS market, so there's more available for us to take. As a matter of fact, in John's remarks where he talked about the 10 replacement deals that we had in Q4, nine of those 10 deals were driven by iPad and iPhone. No, that wasn't because the iPad and iPhone growth. That was because it was a replacement deal. The Mac is different because we, frankly, run the majority of Macs that are out there. So our Mac growth generally comes with Mac market growth. And so we mentioned specifically that growth in devices as another proof point to what I had commented on earlier regarding our, from our vantage point, we're seeing just Mac market share rise. So it's a little bit more about being the leader in Mac and seeing that TAM rise versus in iOS, you know, having lower market share and it being more replacement opportunities that we're winning. Does that make sense?
spk01: Yeah, no, it's very helpful. Thank you. And then maybe just as a follow-up on the security product portfolio, you know, helpful the, I guess, attach rate there, right, between 13,000 and 14,000 customers. What are you seeing in terms of dollar penetration within those customers, right? Like, as you think about, you know, number of security dollars spent per dollar management spend, it would be interesting to get your thoughts there. And then are you still seeing – security deals as mostly being expansion deals, or are you starting to see maybe security-led or bundled initial deals with those products?
spk11: Yeah, I think that I'll answer the second part of that first. Because Jamf is so established in the management space, that continues to be the easiest area to land for us. And so therefore it is typically more of a organization looking at us for management and then expanding to security. And the way that we've priced our solution is if you go with Jamf for management only, we are a premier solution in that space. But if you go with Jamf for management and security, the price of the entire bundle ends up being very attractive compared to an organization needing to buy those solutions from multiple providers. I just read a win report of an example of a customer feeling pressure from a price perspective using Jamf for only management. And rather than going out there and, you know, lowering our management fees, we actually raised the deal to include our security solutions and showing the customer that if they consolidated on a platform of Jamf, they could actually save money. And indeed, they did that. We had several of those types of deals in Q4. And frankly, that provides a whole new sales vector that jamf has never had historically we've been the point solution that's competing with more platform players all of a sudden for apple we are the platform player that can have identity solutions security solutions and management solutions all as one price and save the customer money in the process got it very helpful thank you
spk14: Thank you. One moment for our next question. And our next question comes from the line of Greg from Mizzou. Your question, please.
spk02: Okay. Thank you for taking the questions. Maybe I'll take the other side of Raimo's question on margins. Dean, you know, you mentioned or you mentioned that you expect 2023 headcounts at or below current levels. But can you speak a little more to your confidence level that Jamf is properly positioned to reaccelerate later in 2023 or in 2024 once demand does improve?
spk11: Yeah, if you go back, thank you. It's good to hear from you, Greg. You know, you can almost play Jamf's last few earnings calls and each one builds on the next, right? If you go back a couple of quarters, we talked about the really tough employment market and getting enough of our quarter bearing reps on board. and how we specifically decided not to go out and overspend to bring QBRs on, because we believed that the market was really getting skewed with too rapidly rising compensation plans for those reps, and we saw organizations overpaying for those. And we made that comment again in Q3, but we said we saw that the market was starting to you know, be a little bit more attractive for employers later in the year. And we were going to take advantage at that time to bring sales reps on board so that we could be prepared by the beginning of this fiscal 2023 for the recovery that we talked about a little earlier that we expect could happen in Q4 of this year. And of course, it takes six to nine months to properly wrap a rep up to full productivity. So we started the year with the reps that we need in order to be fully ramped nine months from now. Yet we dialed back spending everywhere else, which is why we were able to finish the year beating our pre-cast flow and our non-GAAP OI guidance.
spk02: Okay, terrific. And then just as a follow-up and on another note, we heard that you recently implemented a price increase for Jamf Pro. Can you walk through the rationale for the increase? And then also, what has the reaction been thus far from customers?
spk11: Thanks. Yeah. So, thanks. We have one of the things we're very proud of in 2022 is going into 2023, our competitiveness of our solutions are substantially better than entering into 2022 when they were excellent as well. Because we added a lot of new capability, like for instance, app installers as part of app catalog. We just announced a really attractive new feature called remote access built right into Jamf Pro. And the last time we've done a significant price increase on Jamf Pro was back in 2016. So customers do expect it occasionally. And when they're getting much more value for the solution that they purchased, it's something that they, you know, understand and move forward with. Thus far, we haven't seen any significant blowback from it, and customers are renewing in 2023 as we would have expected.
spk07: Super helpful. Thank you, Dean. Thank you. One moment for our next question.
spk14: And our next question comes in line of Koji Akaeda from Bank of America. Your question, please.
spk03: Hey, Dean. Hey, Ian. Thanks for taking the questions. I wanted to go back to a previous question and dig in a little bit more. And you actually mentioned it in the prepared remarks a couple of times, too, about anticipated growth in the latter part of 23. I guess the question is, you know, are you hearing it from customers, too? And if you are, you know, about this anticipated growth, maybe you could talk a little bit about a certain size of customer or a certain specific type of customer, you know, where customers are talking about, hey, get ready for the second half, and that's actually contributing to your, you know, kind of outlook of this anticipated growth later this year.
spk11: Well, if you take a look at, for instance, I used an example earlier of just tech, you Clearly, as we approach through the fall, there were a fair number of hiring freezes and resource reductions that occurred in tech. Well, for those of us that have been in tech for a lot of years, we know that tech is very elastic in terms of responding quickly to market changes and so uh lapping what happened this fall or a year later next year i think most of those tech organizations and as we speak to our customers i think they're anticipating that they'll be in more of a normal hiring environment later in the year not nobody can predict the future perfectly which is why we say that we will both be ready um with ramped reps should that employment market uh come back to a little bit more of a normal environment um but we will also be ready in managing our costs to deliver on the bottom lines that we're committed to even if that doesn't occur dean maybe i just answered answer one other thing on there i had one thing on the smb side right we we talked about remarks too
spk13: fastest to move, and they've just been a little bit of volatility. But even anecdotally, in the first quarter, we've talked to some of our sales folks, and they've talked about some customers already coming back from the standpoint, hey, we tried something that we thought was cheaper, but we found it didn't have the functionality, and we can't already come back. And we've had some of those discussions as well. But To Dean's point, we've built an elastic model where we'll be able to improve and improve hard throughout the year and deliver on those results throughout the year.
spk03: Got it, Dean Ian. Thank you. That's super helpful. And just one follow-up here. I wanted to ask about free cash flow generation. I know you guys don't guide to it. You guide to operating margins. But when I look at the past two years, fiscal 22, operating margins of 5%. 70% free cash flow margins, 2021 operating margins of 6%, free cash flow margins of 15%, and you just guide it to 7% operating margins. So just how should we be thinking about free cash flow generation in 2023? Is there anything we should be really thinking about that could alter that type of cadence?
spk13: Yeah, thanks for the question. I think you're thinking about it, right? As our operating margin goes up, we would expect our unlevered free cash flow margin to go up at similar rates for 2023. But what I would talk about is seasonality, right? Quarter one is typically our low watermark. And so you should expect over there because we have year-end payments. We did have some increased collections this year, so that will impact you one, but you'll see that increase throughout the year, similar to what we're getting from GAAP operating income standpoint.
spk03: Super clear. Thank you, and thanks, guys. Thanks for taking the questions.
spk14: Thank you. This does conclude the question and answer session of today's program. I'd like to turn the program back to Dean Hager for any further remarks.
spk11: Thank you very much, and thank you, everybody, for joining us today. We feel great at Jamf about completing a tough 2022 with outstanding top line and bottom line results. As we look forward to 2023, we believe that our products are stronger than when we entered in 2022. We believe our competitiveness is better than when we entered 2022. We see opportunities that are very unique to 2023 in front of us. And we plan to expand our profitability, continue to grow, and most important for our long-term future, continue to win market share. And that will put us in an excellent position to capitalize on an improving macroeconomic environment in the future when it comes back to us. So thank you very much. Have a great evening. And we appreciate your following us.
spk14: Thank you, ladies and gentlemen, for your participation in today's conference. This does include the program. You may now disconnect. Good day.
spk01: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.
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