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.
spk10: Thank you for standing by, and welcome to the Jamf Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this 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. Now I'd like to introduce your host for today's program, Jennifer Gaumont, Vice President, Investor Relations. Please go ahead.
spk01: Good afternoon, and thank you for joining us on today's conference call to discuss CHAMP's second quarter financial results. With me on today's call are Dean Hager, Chief Executive Officer, Ian Goodkind, Chief Financial Officer, and John Strosaw, 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 second quarter financial results. We also published a Q2 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 JANPS 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?
spk05: Thank you, Jen, and thank you, everyone, for joining us. Jamf delivered strong results again in Q2 with year-over-year revenue growth of 17% and non-GAAP operating margin of 4%. ARR grew 18% year-over-year in Q2 to $547.8 million. We continue to see strong new bookings and customer retention as demand for Jamf's management and security solutions grow, even during this current period of muted hiring and device expansions. Our vision of delivering organizations trusted access, which combines management connection and protection into a single powerful, easy to use platform is resonating with our customers. In Q2, we saw this manifest in our largest commercial bookings quarter ever, our strongest quarter yet for organic security ARR added, 40% of new ARR added came from our security solutions, representing 21% of Jamf's total ARR, as well as 22% of Jamf's total customer base, utilizing both a security and management solution. We ended Q2 adding 1,000 customers and 500,000 devices on our platform since Q1, resulting in more than 73,500 active customers running Jamf on 31.3 million devices. We're pleased with the rate at which we continue to add both net customers and devices to our substantial base, thus gaining market share over alternative providers, even in a challenging selling environment. During the last few quarters, the technology industry has faced macroeconomic challenges. Jamf has not been immune to these challenges, especially considering that the information and communication market, which includes tech, represents Jamf's largest industry measured by ARR, now larger and faster growing than Jamf's K-12 education market. This is in large part driven by the popularity of Apple Mac in the tech sector. Jamf serves seven of the top 10 technology companies in the world, including several companies who run over 100,000 Macs, more than any other solution provider. Despite what we believe is a temporary slowdown of device expansion in the tech sector, Jamf continues to see strong industry growth, largely driven by the adoption of our security solution. As an example, Jamf's largest Q2 win in the tech sector did not include any additional devices, but rather over 10,000 Jamf Protect seeds purchased for their map fleet to replace a less specialized cross-platform security solution. In other industries, with lower penetration of map, we are seeing positive trends. Jamf's second largest commercial industry, professional services, is also one of its fastest growing. Jamf manages MAP for nine of the top ten consulting companies in the world. In Q2, we renewed two of the largest five consulting companies, adding a combined 6,000 MAP seats, growing their total to 30,000 MAP. Seven years ago, these two organizations combined deployed fewer than 1,000 MAP representing nearly a 50 times MAP expansion over that period. Jamf's third largest commercial market is financial services where we manage MAP for 14 of the 15 largest banks in the United States. Although Jamf's market penetration is substantial, the MAC penetration in financial services organizations is lower than in most other industries. But we are also witnessing trends that make this industry one of Jamf's fastest growing. In Q2, Jamf renewed two of the top five banks in the United States, growing their map fleet by 5,000 devices to a combined total of 13,500, representing a 58% map expansion in just one year. We believe momentum in the professional services and financial services markets reflect the growing popularity of map, but also the impact of Jamf's map security solutions. Jamf's largest Q2 win in the global consulting market included 20,000 Jamf Protect seats for one customer. And Jamf's largest Q2 win in the financial services market included 10,000 Jamf Protect seats. Building on Mac's inherent excellent built-in security with a specialized enterprise security solution from Jamf, in addition to efficiently managing Mac, has opened the door for organizations to expand Mac faster, reaching more employees who have expressed their preference to use Mac at work. We believe user preference, coupled with Jamf's management and security solutions, have been the key drivers for Mac market share growth. According to IDC, the overall PC market declined over 13% year-over-year in Q2, representing the sixth consecutive quarter of contraction. Mac, however, was the only PC to show growth in Q2, growing 10% year over year. When looking at the data over the trailing four quarters, although muted in this economic environment, Mac's shipment still grew 1% compared to a PC industry that declined 22%. For the past three years, Mac has shown consistent growth much faster than the rest of the PC industry. IDC is forecasting a return to growth for industry PC shipments towards the end of this year and continuing into 2024, as much of the install base, which was purchased at the beginning of the pandemic, is reaching time for refresh. We believe both Mac and iPad, which have grown in market share over the past four years, will play a significant role in the replacement cycle, driven by employee choice, continued consumerization of IT, hybrid work, and hardware innovation from Apple, like the new 15-inch MacBook Air with Apple Silicon, making the price-performance ratio for the Mac much more attractive versus alternative PCs. While demand for Apple is a key tailwind for Jamf, there are other dynamics that give us confidence in Jamf's ability to continue to perform, not only in the current environment, but over the long term. We've talked about consolidation of legacy unified management vendors, which open up opportunities for Jamf. John will provide you more details on the traction we're seeing in a little bit. We are also seeing a growing number of organizations consolidating their Apple Mac and mobile teams together as Apple continues to differentiate their management and security frameworks versus other platforms. And we are seeing a growing number of organizations consolidating their InfoSec and IT departments, thereby bringing together the key decision makers for both Jamf's management and security solutions. Jamf is well positioned to benefit from all this consolidation with strong relationships in IT departments and developing relationships and references at the CISO level. The only way to ensure trusted access within an enterprise is to combine threat identification and prevention, access policies and governance, and device automation and remediation into a single integrated solution. In most cases, these products are provided by different vendors and must be integrated by the customer. Jamf's vertical approach of building the entire solution designed for a fast-growing enterprise ecosystem is proving to achieve our customers' desired outcome. Jamf's management and security solutions, delivered as an integrated platform, reduces exposure and risk for organization, and increases automation to achieve the goals of both IT and InfoSec teams. We've seen this come to life over the last two quarters, which John will soon highlight. When it comes to innovation, Jamf is busy adopting and expanding upon the Apple innovations showcased at this year's Worldwide Developer Conference, or WWDC, in June. We believe many of the advancements highlighted represent not only the future of work, but the future of computing. And Jamf will take these advancements the final mile to ensure enterprise and education customers can use them to better achieve their mission. The three primary innovation categories I'd like to highlight from WWDC are, one, expansion of Apple's enterprise platform. Two, the convergence of management, security, and identity. And three, a unique, differentiated approach to the enterprise. First, the expansion of Apple's enterprise platform. One of the reasons we believe Apple will be the endpoint leader in the enterprise is because the iPhone is already the leading enterprise mobile phone. iPad is the leading tablet. And the Mac, as we've already highlighted, is the fastest growing computer. But it doesn't stop there. More enterprise features are arriving for tvOS, specifically video conferencing and secure VPN access. While not often highlighted, Jamf manages over 300,000 Apple TVs today and growing rapidly. Also at WWDC, Apple introduced for the first time Apple Watch management and security capabilities, opening the door for secure, mobile, hands-free workflows in the future. And of course, we can't leave out Vision Pro, although not yet available, has tremendous potential once capable of adopting Apple's management and security framework. Apple is the only provider offering a competitive enterprise device to put in front of every use case. And Jamf keeps pace with Apple to ensure secure workflows are ready at the same time as new device capabilities. But devices are only part of the overall platform. With advances in managed Apple IDs, federated with more cloud identity providers, the introduction of account-driven device enrollment, and advancing pass keys for work, Apple continues their focus on the individual while empowering organizations like Jamf to build differentiated enterprise solutions. The convergence of Apple's management, security, and identity frameworks is consistent with JAN's approach to provide a single platform designed to achieve a trusted access outcome for customers, reducing costs in three ways. One, on the original software purchase versus buying from three different vendors. Two, on integrating solutions together to achieve the desired outcome. And three, on recovering from potential failure when the desired outcome is not achieved. Finally, at WWDC, we saw Apple continuing to take a specialized and differentiated approach to the enterprise versus other ecosystems. Major strategic shifts like declarative management and device attestation turned previous processes upside down. Instead of a server-centric approach to device management and security, Apple processes start natively on the device by self-identifying status in inventory. Likewise, instead of management providers creating their own enrollment portals, Apple enrollment starts automatically on the device at startup or is initiated from general settings. All of these capabilities reduce the potential for security vulnerabilities and attacks while simplifying the user experience. And these features also necessitate a specific focus on the entire Apple ecosystem as these capabilities are Apple only and require same-day availability from management and security providers, most notably Apple. We're excited by all the great innovations that Apple has lined up and look forward to bringing value to our customers as we help them succeed with Apple. I'll now hand things over to John to highlight additional areas of Jamf's momentum and Q2 wins. John?
spk12: Thanks, Dean. We took advantage of some great opportunities this quarter to bring Jamf to new customers and expand our relationships with longtime Jamf customers. This spring and summer, we hosted Jamf Nation Live events all over the world where Jamf admins come together to share the best practices and learn to maximize the power of Jamf. These events are a great way for us to learn what our customers love about Jamf and what we can do to help them succeed with Apple. Across Europe, Asia, Australia, and New Zealand, over 2,100 customers and prospects attended Jamf Nation Live. It was great to connect with Jamf Nation in person. During these events, it was evident that companies across different geographies and industries are embracing our vision of trusted access. By merging device management, identity management, and endpoint security on Jamf's Apple-first platform, organizations can ensure only authorized users are granted access on enrolled devices, provide a secure connection to corporate apps and data, and deliver comprehensive modern security to defend against an evolving threat landscape. Perhaps the best Q2 example of our trusted access vision coming to life is with one of the world's most valuable brands. As you know, 22 of the top 25 global brands use Jamf Pro to manage their Mac. One of these brands has been utilizing Jamf Pro and Jamf Connect for its 22,000 corporate Macs while using a competitive legacy UEM vendor for its 85,000 devices across retail, corporate, and BYOD use cases. Jamf created a vision for trusted access across their entire fleet, resulting in the brand upgrading to our enterprise business plan for their corporate MAC and adopting iOS Trusted Access. In total, Jamf replaced the legacy UEM vendor for management as well as replacing a number of security vendors. By consolidating all of these solutions with Jamf, the brand simplified its deployment and reduced its IT spend. We believe that this deployment will help provide a blueprint for other customers looking to streamline their deployments and protect their organization using Jamf's Trusted Access platform. A key tenet of Trusted Access is security. Security continues to be top of mind for CEOs, especially as the rise of AI has lowered the barrier for advanced cyber threats. Mac and iOS users need Apple-first protection and an easy way to deploy these solutions. We continue to gain traction in the security space with Q2 representing Jamf's biggest security quarter ever from a new ARR added perspective. Jamf's top three wins included a management component, but security was the driver of the new bookings for each. Often, Jamf security opportunities are the result of a disruptive customer event. Dean mentioned one example earlier, citing that our largest Q2 win in the tech industry was for more than 10,000 seats of Jamf Protect, replacing a cross-platform, non-specialized security solution. This win was a direct result of the non-Apple-specific security provider not being prepared for a new macOS update, which resulted in disruption of the customer's workflow. As a result of this disruption, Jamf Protect was chosen to replace a competitive solution on both their Mac and Windows devices. Another Jamf customer, a product review website, experienced disruption after a cyber attack successfully infiltrated the company's servers through a non-Apple laptop. This experience led to a decision to replace all non-Apple laptops with Mac, growing their Jamf contract from 1,000 Mac to over 5,000. Leadership felt that the organization's data was safer with Apple and Jamf. As Dean mentioned, 22% of Jamf's total customer base is utilizing both a security and management solution. We're seeing an increase in customers purchasing multiple Jamf solutions at the onset of the contract instead of starting with just a Jamf management solution or just a Jamf security solution. This is especially true in the small business market, which is Jamf's largest and fastest growing market. where organizations are looking for a single vendor to provide both their management and security solution needs. A great example of this is one of our healthcare customers who is a provider of high-tech speech generative devices, curriculum, and services helping individuals with disabilities. The company's hardware pairs with iPads, and the company was having issues updating applications, managing Apple IDs, and blocking users from accessing specific content. Jamf was able to provide a solution for the company's 20,000 iPads with Jamf Pro and Jamf Protect so they could continue their mission to help individuals with disabilities live fulfilling lives. We're not only seeing demand for bundled solutions in the small business market, but across all sizes of organizations. Another great example of bundled solutions was with a multi-billion dollar cybersecurity and firewall provider, which expanded its relationship with Jamf to over 12,000 Apple devices using Jamf Pro and Jamf Connect. We're happy to see a trusted name in security and trust Jamf with the management and verification of its Apple devices. This just goes to show how Jamf integrates so well with so many different partners. Customers are also taking advantage of our complete bundles like Jamf Business Plan and Jamf Enterprise Plan. In fact, year over year, ARR from Jamf user-based bundles has grown over 100%, and new ARR from these bundles was second only to the new ARR added from our flagship product, Jamf Pro. It's worth noting that selling user-based bundles like Jamf Business Plan did not immediately add to Jamf's device count. When Jamf sells device-based seats, the devices are immediately added to Jamf's total device count. However, when selling user-based bundles, devices are only included in our total after the device has been activated by the customer. As user-based bundles represent a higher portion of our sales, we should expect more lag between when contracts begin and the customer devices are incorporated into Jamf's totals. As one example, for the replacement win we described earlier that included 85,000 iOS devices, because they were purchased as part of a user-based bundle, only about half of the anticipated total number of devices are included in our 31.3 million device total. Speaking of replacement seats, as we have highlighted in the past few quarters, consolidation in the Legacy Unified Endpoint Management, or UEM, market has created a robust replacement market for both new and existing customers. Versus one UEM provider, Jamf not only replaced 85,000 iOS seats at just one customer, but also replaced over 40,000 devices across another 20 wins. Given uncertainty in the market around UEM vendors, combined with Jamf's unmatched solution portfolio, we expect this robust replacement market will continue. It would not be Q2 without mentioning the education space. Q2 represents a tough comparable due to the Taiwan Ministry of Education deal that happened last year, so growth is muted. However, we had a great number of wins that provide us with optimism for the second half of the education buying season. Three of our largest education deals in Q2 involved cross-selling our security solutions, providing seat growth but not device growth. Chicago Public Schools, the third largest school district in the U.S., and a longtime Jamf Pro customer, upgraded its 15,000 devices to include Jamf Connect and Jamf Protect in order to provide the best experience for its students, teachers, and leadership. A unique and important customer adding Q2 is the Ministry of Education and Environment of Ukraine as part of the Save the Future of Ukraine campaign, where Jamf partnered with Apple, ASBIS, and the state authorities of Ukraine to restore school children's access to education. Together, we distributed 5,000 iPads with Jamf Pro and Jamf Safe Internet to children who may have been split between buildings and locations because of the effects of the war in Ukraine. Another interesting use case is with Mesa Community College. Mesa provides each student with an iPad as part of their student success initiative. When the state of Arizona banned the use of TikTok on all state-owned devices, Our sales team was able to work with prospects across Arizona, including Mesa Community College, in a very short timeframe to deliver Jamf Safe Internet, with Mesa contracting with Jamf over 15,000 licenses. While still in its early stages, we're delighted with the success of Jamf Safe Internet in its first year. We recently announced support for both Google Chromebook and Windows devices and are working on making improvements to the offering, including making Jamf State's internet available in more countries with in-country server locations, providing us with a roadmap for the future. We look forward to what Q3 brings as we finish out the education season. With that, now I'll turn it over to Ian.
spk08: Thanks, John. We ended Q2 with revenue growth of 17% year-over-year, exceeding the midpoint of our outlook. SAS recurring revenue, the strategic core of Jamf's business, remains strong. Less strategic revenue sources like license, services, and on-premise revenues were lower than anticipated. As Dean mentioned, we had the strongest commercial bookings quarter ever. Growth in the education market continues to be impacted by the investments and deployments made in 2020. Quarter over quarter, ACV growth in the U.S. outpaced rest of the world as geographies outside the U.S. were more impacted by economic conditions. Total ARR grew 18% year-over-year to $547.8 million, exceeding expectations, as we have seen stabilization in the U.S. and in certain industries. Muted customer hiring expectations continue across most of the economy, but perhaps most acutely in information and communication. In education, K-12 remains in the COVID overhead. These industries are JAMF's two largest and combined represent 47% of JAMF's total ARR. Historically, information and communication, which is led by tech, has been one of our fastest growing industries with a 33% three-year CAGR, but the tech industry has been hit harder than most other industries over the last year, slowing hiring and also experiencing most layoffs. Thus, Muted device expansion has caused year-over-year growth to come down to only slightly higher than Jamf's total growth. Fortunately, the tech market loves Mac, is receptive to Mac and mobile and management and security from Jamf. Even more fortunate is that we believe the slowdown in tech is temporary. When tech returns to normal hiring, it will positively impact Jamf rapidly. K-12 schools, rushed to implement one-to-one programs during the pandemic to support distance learning. As such, there is very little device expansion right now, causing single-digit year-over-year ARR growth, lowering JAMS' total ARR growth. We anticipate improvements from current levels, but more importantly, over time, we believe our commercial growth rates will outpace K-12 growth rates, resulting in K-12 having less of an impact on our overall results. As we have mentioned before, diversity is our friend, and Jamf's next three largest industries, professional services, financial services, and wholesale and retail, represent 24% of Jamf's total ARR and collectively have a three-year TAGR and year-over-year ARR growth of over 40%. This momentum, combined with anticipated return of tech hiring, will help return Jamf to higher growth. As anticipated, we saw a decline in total company net retention rate to 109% in Q2 due to the impact of five consecutive quarters of muted customer hiring that affects device growth at renewal. We believe this decline is primarily driven by the difficult macro environment, and we would expect the NRR metric to increase as the economy improves. The remainder of my remarks on margins, expense items, and profitability will be on non-GAAP basis. Our GAAP financial results along with a reconciliation between GAAP and non-GAAP are found in our earnings release. Q2 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. Non-GAAP operating margin exceeded the high end of our outlook in Q2 at 5.8 million, or 4%, due to the impact of cost initiatives. One example of this is in the first half of the year, we lowered our onboard headcount by more than 100 FTEs from the peak. Our trailing 12 months on liver-free cash flow margin was 13% compared to 11% in the prior year. Our effective tax rate for Q2 is negative 3.2%, consistent with our expectations. As a reminder, for our non-GAAP metrics, We use our domestic statutory rate for calculating tax impacts, which is currently 24%. Please note that we pay a negligible amount of cash taxes on a U.S. federal basis and pay an immaterial amount of cash taxes outside the U.S. Now, turning to our outlook for the rest of the year. We believe the underlying fundamentals of our business remain intact, and we expect continued demand for CHAMP's innovative solutions. We're especially excited about the traction we are seeing with customers adopting our vision of Trusted Access. Also, as Dean and John mentioned, we are well positioned to benefit from industry tailwinds from the adoption of Apple in the enterprise, increased organizational focus on security, and customers' desire to consolidate on a single platform. We continue to execute cost initiatives while balancing investment for efficiency and scalability in both customer-facing operations and back office functions. Our cost initiatives span our whole business, including areas such as headcount, hosting, facilities, software, and other one-time costs. We will continue to focus on these initiatives for the remainder of the year. Less strategic revenue areas of our business, license, services, and on-premise revenues are challenging to model, and NQ2 declined to represent only 6% of JAMF's total revenue. Part of this decline is reflective of our multi-year strategy to bring both licensed and on-premise revenues down to near zero. Both licensed revenue and on-premise subscriptions are driven almost exclusively by long-time Jamf Pro customers who have not yet converted to a SaaS cloud contract. The primary way this revenue grows is through expanding devices on their current on-premise implementation. As we have explained, in today's environment, device expansion has slowed substantially. As a result, these less strategic, choppy sources of revenue have come down even faster than Jamf anticipated, and in Q2, declined 25% year over year, the largest decline we've seen from these revenue sources in our history. We're going to encourage the continuation of this trend, and thus, we anticipate these less strategic revenue sources to decline similarly in the second half of 2023. As such, we are adjusting our full-year revenue outlook to reflect this decision. The adjustment represents less than 1% of CHAMP's total revenues and results in 97% of CHAMP's full-year revenue coming from recurring sources, including both SAS and on-premise subscription to create an improved environment for predictable growth in the future. Based on these factors, our outlook for the third quarter and full year 2023 is as follows. For the third quarter of 2023, we expect total revenue in the range of $139 to $141 million, representing growth of 12 to 13% year over year. Non-GAAP operating income in the range of $10 to $11 million. For the full year 2023, for the reasons previously mentioned, we're adjusting our total revenue range of $555 to $558 million, representing growth of 16 to 17% year over year, a decrease of less than 100 basis points. And we are holding the range for non-GAAP operating income at $41 to $43 million. We continue to expect margin expansion as we finish out the year and expect to exit 2023 with a Q4 non-GAAP operating income margin percentage in the low teens. And while we don't provide an outlook for unlevered free cash flow margins, we anticipate Q3 margins similar to Q2 and full-year 2023 unlevered free cash flow margins similar to 2022. We also provide estimates for amortization, stock-based compensation, and related payroll taxes and other metrics to assist with modeling in the earnings presentation as part of the webcast and also posted on our Investor Relations website. And now, Dean, John, and I will take your questions.
spk10: Operator? Sir, one moment for our first question. And our first question comes from the line at Matt Stoller from William Blair. Your question, please.
spk03: uh hey thank you for taking the questions um maybe just want to start off on the uh the the guidance update so you know very clear commentary on on where you're seeing weakness in the uh in the tech end market um i guess the first part would be you know i guess what's most incremental there right is that the deals are getting pushed out is that contractions are more than you expected or the duration of those contractions are more than expected and then if you think about what's implied for that core recurring sas piece in your updated guidance How does that compare to what that core recurring SaaS assumption was in last quarter's guidance? Trying to get that, how much was SaaS and how much was other non-strategic business?
spk08: Yeah, I'll take that. Good to hear from you, Matt. So a couple of things to talk about there. As we talked about, it was predominantly driven by our less strategic choppy revenue streams like on-prem, license, and services. We saw those come down within the quarter by 25%. And then let's just dive into each of those a little bit. Actually, let's start with license. On the license, those are predominantly driven by added devices. And what we've seen there is with the muted economics, those aren't there. On the on-prem, it follows something similar. And then on the services, you know, we've actually enabled our partners to actually be able to provide those services. And so that number It is getting driven more on those partners and we're okay with that, and those are the things we factored in the second half of the guidance. What I would add on there, too, is that, on the education front, that was something that was lower than we expected in Q2, and we factored that education piece into the second half. What we've thought about, though, what we noticed in Q2, we actually had our highest commercial booking quarter ever, and so we've seen some positive signs there. We were also, you know, 40% of our net new ARR came from security, so some positivity there. And those are all the things we factored in into the second half of the year.
spk03: That's helpful. And maybe just as a follow-up, you know, you guys have kind of a number of, you know, key partner relationships that you typically discuss, you know, Microsoft being one of those. You had a couple of announcements during the quarter relative to Microsoft and AWS specifically. Well, let's just get an update on the momentum you're seeing with those relationships in this environment and how those are taking shape.
spk12: Yeah, Matt, this is John. I'll take that question. The AWS partnership has been fantastic. In fact, it's exceeded my expectations with the capability to use AWS committed funds toward purchasing Jamf products has really been a benefit, not just to the salespeople on the AWS side and the Jamf side, but also to the customers. If they've earmarked those dollars for AWS, they've used them in many cases to buy the Jamf products. And because there's already a set process in place, it's made it much more expedient to process those orders and deliver the products. And we continue to integrate with Microsoft in a number of ways and go to market with given the fact that they are vertically focused on the Windows environment and we're vertically focused on the Apple ecosystem, and together we cover all endpoints, and that's really been a benefit to the partnership.
spk10: Very helpful. 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. Great.
spk04: Thanks for taking my question. I also wanted to hit a little bit on the guidance and just the shape of the back half and understand the pressure on license and services and how that's impacting the model. But you do have, if I can do the math right, math is hard and no one said there'd be math today, but if I do the math on the fourth quarter, there is the acceleration in revenue. So what's baked into that expectation versus, I guess, the pretty significant decel in what you're seeing relative to Q3?
spk08: Yeah, thanks for the question, Rob. So on that, you know, we just mentioned in the commentary where commercial was a little bit stronger than we anticipated here in the quarter. You know, when we look at things that, you know, like pipeline and our security building, we're definitely seeing, I'll say, just slight positivity there. Where we've come down and where we saw the impact impacts is still the COVID overhang on the education. And if you think about us seasonally, Q3 is more of an education quarter and Q4 is more of a commercial quarter. And so I think that's the dynamic you're seeing in your math.
spk04: Great. And then second for me, can you comment on gross retention rates and what you're seeing there?
spk08: Yeah. Yeah. So when you look at NRR and gross retention and even loss retention, so net retention has come down. We talked about that last quarter from the standpoint of We thought it would continue to come down. We thought the economics would impact us. It has continued to be on the upsell piece. When you look at growth and loss retention, that's still the 1% to 2% within the pre-pandemic level. But what I would say is we do think net retention will just continue to come down, but not as much as it's been coming down. We think that's actually going to level out. Our security sales have been strong, so that cross-sell motion stabilizes the net retention. And we feel good, and we're seeing just, we saw just a tick up tick better in our lost logos, just a tick better. And so we're excited about that and excited, you know, that there's less churn.
spk10: Great. Thanks. Thank you. One moment for our next question. And our next question comes from the line of Matthew Hedberg from RBC Capital Markets. Your question, please. Great.
spk02: Thanks, guys. Ian, maybe sticking with you, you don't guide ARR, obviously, but I'm wondering, you know, with the dynamics that you talked about on revenue, on services, and sort of kind of the on-prem license piece, is there any different way we should think about the ARR impact this year vis-a-vis sort of your revenue comments?
spk08: Yeah, yeah, great question. It is an interesting one. We were staring at this a little before the call even, and When you look at our revenue guidance, we have brought that down. That is, again, like we said, predominantly driven by those less strategic choppy revenues that make our business a little less predictable. But when you, I'll say, plug the math into your models and look at the recurring line piece, you'll see that growth rate's a little bit higher than the total growth rate. And I think that's the number you should be using to factor in for your Q3. And I think it'll be just slightly less than that for Q4.
spk02: Got it. That's super helpful. Thanks, Ian. And then, you know, 40% of net new ARR was from security this quarter, which continues to tick higher. I'm curious on some of these larger, you know, sort of enterprise deals, you know, is security becoming even a bigger part of that land motion? I know it's obviously been a big part of the upsell, but kind of curious if customers on the enterprise side, especially on the big deal side, you know, are coming to you almost as a security first initiative.
spk12: Yeah, Matt, this is John. I'll take that one. Thanks for the question. It certainly is. And in fact, our three largest deals in this last quarter were security-driven. There was a management component, but there were security-driven deals. And the major brand that we spoke about, our largest win in the quarter, had obviously the same thing with our enterprise agreement. And we've seen particular security strength in bundling opportunities for our SMB market. And we're... Given the fact that we're a volume business here, we've seen a lot of traction with the bundled solution, certainly because of the security strength there.
spk10: Thank you very much. Thank you. One moment for our next question. And our next question comes from the line of Josh Riley from Needham & Company. Your question, please.
spk07: Hi, everyone. This is Michael on for Josh today. Thanks for taking my question. Just a couple quick ones for me. I was wondering how we should be thinking about the impact from price increases in early 2023 to drive ARR growth for the year versus net device expansion. Thank you.
spk08: Yeah, thanks, Michael, for the question. Yeah, what we did is just as a reminder, we actually had a 10% increase on Jamf Pro for commercial customers only, not on education. What I can tell you is as we go out for the sales process, you know, obviously there's a question, but, you know, customers recognize we haven't had a price increase in a while. And so we are seeing, we're not seeing any type of increased churn just know continuing negotiations we go and we think it's being well accepted and again we've delivered functionality that justifies um that price increase and and that has factored into the way we talked about the uh arr and what it should look like for the main business awesome thank you um and then one question we often get is kind of on the importance of new device sales to drive the business
spk07: I guess what's your takeaway on the current cycle and that are kind of new device sales more important or maybe less important to the overall growth rate than what you previously realized? Thanks.
spk08: Yeah, thanks for that question, too. Yeah, I think what we've always said is, look, we grow by new logos, we go by device expansion and we grow by cross-selling our entire platform. And what you saw in this quarter, is that we grew our platform or our ARR by a lot of that cross-sell opportunity. We saw, for example, we saw our bundles be the second largest net new ARR ad in the quarter. You also saw bundles being, I'll call it 100% growth over last year. So you saw a lot of that. And with those bundles, just as a reminder, those don't always come, obviously, with devices. And other pieces, when it's more of a user program The devices, we don't actually count those devices until they get enrolled. And so not at all, we cite that in our prepared remarks that some of those devices hadn't even been enrolled in some of those large customers. So we're excited. This is another growth trajectory for us and adds to our future growth of our business.
spk10: Thank you. One moment for our next question. Our next question comes from the line of Remo Lenzschau from Barclays. Your question, please.
spk06: Hey, thank you. Could we speak to, if you think about the current environment, is there, like, obviously it's tough in tech, education still has a hangover. So are we in a way, like, in a situation that we just have to wait it out? Is that kind of the right way to think about it, with kind of obviously some upsell kind of happening in the meantime?
spk08: Yeah, I can jump in there. I mean, so we just talked a little bit about our growth drivers. We are, you know, we have 47% of our ARR both in tech and in K through 12. Our growth is going to come on the commercial side. And so as tech does return, we've seen the most layoffs and impacts there from a device count perspective. As that returns, growth will return. But what you are seeing in the meantime, you are seeing our ability to grow um you know other ways through security and i also just want to take a minute here just to correct something i said earlier on some of the industries just something i didn't quite say right we we do see great strength in our professional services or financial services and retail and on a three-year kegger we see 40 that wasn't true on the one year so i just want to correct that statement but we are still seeing really good strength and that's actually stronger than what we've seen in tech and so i i see it a lot diversity is our friend different parts of our business come to fruition at different times and are impacted. And so I think that once that macro turns, well, all the cylinders are going to be firing and I think this business is going to go well.
spk06: Okay, perfect. Thank you. And then if you think about, you mentioned security and it's kind of obviously a good driver for you at the moment. Is there like a natural level, like at the moment it's 40%, is there a level where you think it's leveling out or do you think that you will skew more and more in that direction given like where the market is going as well. Thank you.
spk08: Yeah, good question. I mean, you know, you can have, and we've said this multiple times, maybe to start out this way, you can have one management tool on each device, but you can multiple security. And right now we're at 22% of our customers are on security. So there's a lot of opportunity for us to continue to grow in this area and I'm really excited, though, what we're seeing when we look out at our pipe. We've seen more requests around security. We noted in our script or in our prepared remarks that professional services, you know, again, there was 10,000 seats of protect. We noted financial services similar. And so in the industries, we're just seeing a lot of really good security requests. building. And then even in the SMB side, we see the bundles, like we talked about earlier, with the 100% growth year over year. So I do think, and John talked about the fact that we're leading with certain security sales now too. So I think these are all really good opportunities for us as we go.
spk12: Yeah, Raymond, I'll add to that. And the fact that You know, only 22% of our companies, right, our customers right now are using both the management and security piece. I mean, that could be 100%. You know, that would be our goal would be to get to that point and to really continue to cross-sell because management and security are really, they go together. I mean, you can't have a secure device without it being managed. And so the fact that they're consistent with one another, that's something that our salespeople and our channel partners are certainly bringing to the market.
spk06: Yes. Okay, perfect. Thank you.
spk10: Thank you. One moment for our next question. And just as a reminder, if you have a question, please press star 1 1. Our next question comes from the line of Greg Moskowitz from Mizzou. Your question, please.
spk11: Hey, thank you for taking the questions. Good afternoon, guys. Your device management ARR decelerated a little more this quarter. It looks like it's now maybe growing somewhere in the neighborhood of low teens. How much of this would you attribute to the slowdown of device expansion in the tech vertical as opposed to other factors? Also, you know, how are you generally thinking about growth of management ARR going forward?
spk08: Yeah, thanks for the question. Yeah, I mean, a couple things on the management. If you're just looking at the management growth rate, that does include education. And what I'll say is, you know, education was one that was definitely, we definitely saw COVID overhang. Like we talked about that we're factoring in our outlook that does have an impact on our guidance, not to the extent of the non or less strategic revenues, but we definitely see that and so that that number I think you're looking at is maybe a little. You're perceiving it a little differently because we have really strong commercial bookings. So if you think about kind of just the commercial versus education that that slice of the pie, so to speak, I think what you'd see is that we're going to continue to have. good growth rates within commercial and the growth rates in the education side are going to be muted a little bit. But we're excited again, like we talked about commercial is going to be the big growth driver of business in the future. And we have, you know, while we have the headwinds today of the macroeconomics, we have a lot of great tailwinds, you know, Mac growth and enterprise, you know, replacement market, us getting better at selling security and, you know, refresh cycles potentially come up, including the choice programs. Those all bodes well for us for the long term and will help support management growth and security growth. Okay, thank you.
spk11: And then I wanted to also ask about Safe Internet because I think this is the first time actually that you've entered or truly entered the high education season with a new product. I know that, as you just pointed out, Ian, the education vertical is seeing some headwinds today. I'd love to hear a little bit just on kind of how the attach rate of Safe Internet has been tracking so far relative to your expectations. Thanks.
spk08: All right. Yeah, great question. You know, when we look at Jamf Safe Internet, you know, we compare it to any other security products that we had started. And when we look at that, it's actually having the same trends, growth trends that we're excited about. And we've seen, you know, we've cited some opportunities within our script about Safe Internet with schools wanting to ban certain social medias and some opportunities there. So we are excited about that. We also know, same as other theory products, as we released the first version and other versions, we have our new versions. We always take customer feedback and we enhance our product, and we think that will help it continue to grow.
spk12: Yeah, and I'll just add to that, Greg. You know, with Safe Internet, we've had great success coming out of the gate with that. And we'll continue to get more success as we take some of those server locations and that into some different markets in order to give a local service and localization for those products, particularly outside the U.S.
spk11: All right. Fantastic. Thank you.
spk10: Thank you. One moment for our next question. And our next question comes from the line of Nick Mattiaschi from Craig Hallam. Your question, please.
spk09: Hi, this is Nick on for Chad Bennett. Thanks for taking the questions. So with the device ads down sequentially and even more so year over year, just any color you can provide on how much of that was education relative to last year and then how we should be thinking about both overall device ads and ARR per device growth in the second half.
spk08: Yeah, Nick, thanks for the question. A good question, a good question. You know, in the education market, we definitely, you know, I can't say it enough. It was definitely a COVID overhang and definitely a period where we would have expected more device growth and we didn't. And we're factoring that at least in the third quarter and in our guidance. You know, what I would say on the commercial side, though, is we talked about it earlier. We have so many different ways to increase our value with customers. And that may be in more devices. I think when those industries return, like tech, you'll definitely see devices come back and that increase. I think what we're seeing in those other industries, professional services, financial services, wholesale and retail, that's happening now. And I kind of think about it from the fact that tech is a leader in the market. They've already really embraced the consumerization of IT idea. They're a leader and we're seeing these other markets kind of catch up, which will also yield and will strengthen over time. As for your ARR per device, You know, we had an 8% increase in ARPU or ASB or whichever acronym you want to use. But there we saw that. I would look at historical. I think we've had a range from 4% to 10% when you look at it historically. And we're towards the top end. I would say, you know, we would continue to think that's, you know, going to be somewhere in that same range as we roll forward for the rest of the year. I think we'll have additional devices, too, as we get into the commercial. So Q4, when we get into commercial, we'll see more device expansions.
spk12: And we also, sorry, Nick, I'll just add on to that, is that we did have, we are lapping, obviously, last Q2 with the Taiwan Ministry of Education, and so that was a massive education deal that impacted us, and so it's going to impact our comparable for this quarter.
spk09: Right. And then just following up on one of the previous questions about the Q4 implied guide, I Can you just talk about how big of a renewal quarter Q4 is for your technology customer base and sort of what your expectations and visibility into those renewals are?
spk08: Yeah, Nick, thanks for the question. It is a larger quarter for us. What we have been seeing and attended at this a couple times in the pipeline, we're getting calls now for Q3 and Q4 on the commercial side saying, hey, we're kind of curious. We want to learn more about some of the additional products you have, whether it ranges from, you know, Jamf Connect to Jamf Protect to even, you know, our Jamf Executive Threat Protection. So we're getting a lot of calls right now and a lot of pipeline generated. I'd say we were excited to hear how our pipeline looks, and so we have some visibility to that, and we feel good, and the things we're seeing from our customers would support the guidance and outlook that we have provided.
spk09: Got it.
spk10: Thanks for taking the questions. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Dean Hager for any further remarks.
spk05: Thanks, and thanks for joining, everyone. I've been a bit uncharacteristically quiet on this call, as I thought you'd want to hear from John and Ian. As you all know, this is my last Jamf earnings call, as I will be retiring at the end of the month, staying on the Jamf board, and as I mentioned before, remaining through work that I do, a customer and a shareholder. I've appreciated working with all of you over the past three years that Jamf has been public. Even more so, the last eight years have been the highlight of my 34-year career in technology. The people of Jamf have selflessly served each other or customers in the communities in which they live. beyond any team I've ever worked with. Over the past eight years, we've profitably grown Jamf by over $500 million through every possible market circumstance. Jamf has redefined the device management and security marketplace. We've provided the opportunity for thousands of new Jamf employees to advance their careers and work with people they love. But perhaps most significantly, there are an estimated 50 million people out there, young and old, around the world who are using a computing device that they love to perform their absolute best. And they're doing it simply, safely, and securely thanks to the people and products of Jamf. We are here to simplify the work they do. And this team, led by John and Ian, has a greater talent, technology, and market opportunity than ever before in Jamf's history. I'm absolutely confident that Jamf's best days are in front of us. Thank you very much.
spk10: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Disclaimer