Jamf Holding Corp.

Thank you for standing by and welcome to JAMP's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like 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, Jennifer Gamon, Vice President, Investor Relations.

Good afternoon, and thank you for joining today's call to discuss Jamf's third quarter 2024 financial results. Joining me on today's call are John Strozel, CEO, Ian Goodkind, outgoing CFO, and David Rudow, incoming CFO. Before we begin, a reminder that shortly after the market closed today, we issued a press release announcing our third quarter financial results. We also published our Q3 investor and earnings presentations, along with an Excel file containing quarterly financial statements to assist with modeling. You may access this information on the investor relations section of Jamf.com. Today's discussion includes forward-looking statements, which involve risks and uncertainties that could cause actual results and trends to differ materially from our forecast. For more details, please refer to the risk factors and other information discussed in our most recent SEC report, including our most recent annual report on Form 10-K. Jamf assumes no obligation to update forward-looking statements, which speak only as of the date they are made. We will also reference some non-GAAP measures related to chance performance. Reconciliations to the nearest comparable GAAP measures are available in our earnings release. To facilitate a full Q&A, please limit yourself to one initial question and one follow-up. Now I'll turn the call over to John.

Thanks, Jen. Q3 was another quarter of strong performance, with revenue and non-GAAP operating income exceeding the high end of our outlook. Q3 year-over-year revenue growth was 12%, with subscription revenue representing 98% of the total. Non-GAAP operating income reached $27.7 million, representing a non-GAAP operating income margin of 17%, an 800 basis points improvement from the prior year period. ARR grew 12% year-over-year to $635 million, driven by our commercial business and continued demand for our security solutions. Our platform now supports 33.9 million devices and 76,000 customers. Due to our recent comprehensive systems update, we made a one-time adjustment to reset both our device and our customer counts. The adjustment includes items like updating MSPs to count as a single customer each. In addition, we recognize revenue for certain licenses that mirrors the expected life of the device or expected usage of the product. Some customers with these licenses are extending the usage of devices past the revenue recognition period. Therefore, as we are no longer recognizing revenues for these licenses, we have removed them from our device and customer accounts. Excluding these adjustments, device ads would be similar to Q2 and customer ads would be similar to Q1. 42% of our customers run both a Jamf management and security solution, up from 41% in Q2. Security ARR reached another milestone, surpassing $150 million of ARR in Q3. We ended Q3 with security ARR of $152 million, representing growth of 26%. Security represented 24% of Jamf's total ARR in Q3, up from 23% in Q2. This growth was driven primarily by demand for Jamf Business Plan, which saw its largest customer increase in the history of the bundles. Demand remains strong across a diverse set of industries despite tight customer budgets and extensive approval processes. We're encouraged by growth again in three of our top five industries, professional services, financial services, and retail, while we continue to see muted growth in tech and K-12. PC shipment reports showed slightly overall industry declines in Q3, following two quarters of growth. Mac shipment data was mixed, with IDC showing a decline and Gartner showing growth in Q3. When looking at year-to-date shipments, Apple shipments remained flat. Despite the slowness in the PC market, industry analysts expect a recovery fueled by demand for AI PCs and the end of Windows 10 support in late 2025. Shipment data and quarterly fluctuations therein do not directly impact our business and are more of a barometer for the health of the industry. This is even more true in the mobile space due to the large number of overall devices currently in the market that are unmanaged or undermanaged. I'm especially proud of our strong performance this quarter given the recent go-live of our comprehensive system update, which will enhance both the customer and partner experience. This is a key milestone for our scalability and efficiency initiatives to drive future growth and margin expansion. We also launched our Jamf Partner Hub, and new partner program which will drive more business through our channel partners, increasing the efficiency of our go-to-market organization. We recently brought on a new channel leader to execute our strategy, focusing on ecosystem growth and removing friction from the sales process. In Q3, we entered into two strategic agreements with key partners to help drive additional value for customers. First, a five-year agreement as part of the Microsoft ISV Partner Program, expanding our existing collaboration with Microsoft with new and innovative Microsoft Cloud and AI-powered solutions for our joint customers. Jamf Solutions will be hosted on Azure and available for purchase on the Azure Marketplace by late 2024. Second, we joined the Okta Elevate Partner Program to drive further go-to-market alignment and accelerate our product innovation between our two companies. This partnership will enhance our cloud identity solutions for Apple devices, providing a seamless, secure login experience for shared customers. We're excited to see the benefits of these initiatives to our business as we continue to progress toward our goal of achieving the Rule of 40, as outlined in our Investor Day. We capped off a busy Q3 with our premier customer event, the 15th Annual Jamf Nation User Conference, or JNUC. Under the theme Go Further, we highlighted innovations making management and security simpler for Apple-driven teams. Key announcements included enhancements to compliance features, our new AI assistant, and insights from partners like Apple. We also hosted an investor product session led by our Chief Innovation Officer, Jason Woody, showcasing our latest innovations and how each drives value for our key buyer personas, which are Mac Enterprise, Enterprise Mobile, SMB, and K-12. Moving forward, we will be focusing on these buyer personas as we refine our go-to-market approach. For the remainder of my remarks, I'd like to use the strategic growth drivers we discussed during our investor day, MAC leadership, mobile expansion, management plus security, and international expansion to highlight some of the successes we saw in Q3. In MAC leadership, we continue to demonstrate our ability to support MAC in any business setting, a clinical healthcare company that leverages AI to automate their patient journey, recently expanded from Jamf Pro to Jamf Business Plan, adding nearly 1,000 devices. The company is a longtime Jamf customer who previously utilized Jamf Pro through an MSP, but has now moved IT entirely in-house. Key to this win was our ability to demonstrate the value of our trusted access platform for a seamless user experience and vendor consolidation. Second, mobile expansion. saw a number of large deals in Q3 with seven of the top 10, including a mobile component. Our largest deal was one of the world's largest biotech companies that expanded with Jamf for their 30,000 iOS devices. Customers are not only expanding with mobile for their desk-bound workers, but also in the deskless space. Jamf's deskless workflows continue to provide unique solutions for use cases across transportation, healthcare, and many other industries. We believe the deskless opportunity is significant and will continue to grow as companies look to manage and secure all devices in their fleet, regardless of location. In Q3, we saw a number of customers in the emergency care space choose Jamf. A US-based air ambulance service provider was struggling with iPads updating mid-flight, creating safety issues along with slow performance and decreased reliability of their solution. An upcoming device refresh gave our team the opportunity to showcase Jamf Pro as well as introduce our new mobile security SKU. This new SKU is the perfect solution, providing a cost-effective way to solve these pain points. We've seen great traction with this solution since its launch in August. The power of and, management and security, delivered seamlessly on one platform, continues to resonate with our customers as they heighten their security posture and look for ways to reduce overall vendor spend. The number of deals we saw with both a management and security component continues to grow, with 16 of our top 20 deals in Q3 including a security component. Currently, approximately 40% of our overall commercial pipeline is made up of security opportunities. Investments in strategic geographies with growing Apple adoption is a key area of focus, given the growth opportunities we see outside the United States. In Q3, a leading public IT service provider in Germany serving over 270 schools purchased 18,500 seats of Jamf Safe Internet after facing a youth protection case when a student accessed a violent website from a home network. Our teams were able to provide a long-term solution that not only covered the customer's immediate issue, but equipped them with a solution to potentially deploy across their entire customer set. In Q3, a military organization purchased Jamf Executive Threat Protections. for its executives and VIPs in an effort to improve their security posture and reduce administrative workload. As a reminder, JetP is a one-of-a-kind solution that provides deep analysis of mobile security threats that's easy to use, scalable, and privacy-centric, and it looks for indicators of attacks as well as indicators for compromise in mobile devices. JetP opens up additional opportunities for Jamf with high-profile global organizations and further cements Jamf as a leader in security. Before I hand it over to Ian, I'd like to thank him for his contributions over the last five years and wish him the best. I'd also like to welcome David Rudow as our new CFO. David will say a few words at the end of our prepared remarks.

Thanks, John. Q3 year-over-year revenue growth was 12%, exceeding the high end of our revenue outlook. SAS recurring revenue remained strong in Q3, growing 13%. Less strategic revenue sources like license, services, and on-premise revenues continue to experience year-over-year decline. We ended Q3 with total ARR of $635 million, representing year-over-year growth of 12%. Jamf's commercial ARR was 75% of Jamf's total ARR, and security ARR was 24% of the total. Net retention remained flat at 106% when compared to Q2. The remainder of my remarks on margins, expense items, and profitability will be on a non-GAAP basis. Our GAAP financial results along with the reconciliation between GAAP and non-GAAP are found in our earnings release. Q3 non-GAAP gross profit margin was 82% flat with Q2 and within our expectations. We continue to expect gross margins in the low 80% range and expect slight fluctuations each quarter. Non-GAAP operating income exceeded the high end of our Q3 outlook at $27.7 million or 17% margin due to cost saving initiatives and increased revenues. The 17% margin represents an 800 basis point improvement over Q3 2023. Our trailing 12 months unlevered free cash flow margin was 13% compared to 11% in the prior year. Our effective tax rate for Q3 was negative 12%, consistent with our expectations. As a reminder, for non-GAAP metrics, we use our domestic statutory rate for calculating tax impacts, which is currently 24%. Please note that we pay a nominal amount of cash taxes. During our investor day in March, we outlined some key milestones that will help you track our progress against our goals in 2024. meet our quarterly financial outlook. In Q3, we exceeded the high end of both our revenue and non-GAAP operating income guidance ranges. Two, achieve at least 25% growth in security ARR. Q3 year-over-year growth of security ARR was 26%. Three, decrease G&A expense as a percent of total revenue. Q3 non-GAAP G&A margin was 14%, similar to Q1 and Q2, and an approximate 100 basis point improvement from Q4 2023. Four, decrease sales and marketing expense as a percent of total revenue. Q3 non-GAAP S&M margin was 32%, improving 200 basis points from Q2 and improving approximately 400 basis points from Q4 2023. Now, turning to our outlook for Q4 and full year 2024. We continue to expect softness and device upsells through the remainder of 2024 while driving new local growth and cross-sell in the areas John highlighted. With respect to profitability, we continue to see the cost savings benefits of our efficiency efforts. Based on these factors, for the fourth quarter of 2024, we expect total revenue of $161.9 to $162.9 million representing year-over-year growth of 7% to 8%. Non-GAAP operating income of $25.5 to $26.5 million, representing a non-GAAP operating income margin of 16% at the midpoint. For the full year 2024, given our continued strong performance in Q3, we are increasing our expectations as follows, reflecting another beat and raise quarter. Total revenue of $626.3 to $627.3 million representing year-over-year growth of 12% at the midpoint. This reflects a midpoint increase of $2.8 million from our previous outlook. Non-GAAP operating income of $98.8 to $99.8 million representing a non-GAAP operating income margin of 15.8% at the midpoint an approximate 780 basis point improvement over fiscal year 2023. This also reflects a midpoint increase of $2.3 million from our previous outlook. We also provide estimates for amortization, stock-based compensation-related payroll taxes, and other metrics to assist with modeling in the earnings presentation as part of the webcast and also posted on our investor relations website. I'll now hand it over to David to say a few words.

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

Certainly. And our first question for today comes from the line of Joshua Riley from Needham. Your question, please.

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

Hey, Josh, it's Ian here. I'll take that question. You know, as you know, we don't guide to AR, but I'm going to give you the puts and takes like you suggested. I'll maybe talk a little bit about them on Q3 and then how they roll on the Q4. But during the quarter, some of the things that were headwinds for us, education was a headwind. We saw or continued to be tough sledding there. The new logo, the device expansion was tough sledding. What we did see in education, though, We actually saw our education bundle was pretty darn successful during the quarter, which gets us excited about the security side there. And we are looking forward to doing more with that in the future. And then on the commercial side, we saw really good growth rates just on commercial in general. We saw growth rates very strong for security. And we released a mobile security SKU this quarter, which was one of our most successful launches for our products. And those are the things we've factored in for Q4 as we've thought about it. And we believe that ARR growth rate will be similar to what we've seen from a revenue perspective for the year.

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

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

Thank you.

Thank you. And next question. comes from the line of Hamza Farawala from MS. Your question, please, Morgan Stanley.

Hey, this is John Isenson on for Hamza. Thank you very much for taking my question. So for John, can you talk a little bit more about how the data points have looked for the Apple refresh across all devices? And then just for a follow-up, on top line, can you, Ian, Can you help us kind of frame expectations for next year's ARR growth? I don't know if there's any puts and takes you can provide on this call, and if there's any change from the prior guidance given at the analyst day earlier this year. Thank you.

Yeah, John, I'll answer the first part, and we can have one of our CFOs in the room talk about the second part of that. But certainly, we're still awaiting a refresh in the rest of the market. In a couple of our largest industries, and we've mentioned before, Both tech hiring has been muted as well as education refresh. We're still anticipating that. We're starting to see little bits of that, especially outside the U.S., but we haven't seen that come in full force yet. If you look at the reports, the year-over-year increase in devices, we've had a couple years of declines, and then this first two quarters of the year there were increases with this last quarter showing a slight decline overall and a mixed bag on Apple. One agency will have Apple slightly down, the other will have them slightly up. So we're not seeing that come back in full force yet. Just in speaking to customers, some of the things that we've heard, that there is an anticipation of some more devices coming out with more powerful devices with Apple Silicon to help really address some of that onboard AI processing. And so we believe in times of tight budgets, especially on the commercial side, some of these are weighting waiting for some of these more powerful machines to come out. But, you know, some are going along as the refresh cycle happens, but certainly that's something that we see that's still in front of us.

Yeah, and then, John, this is David Rodot, the incoming CFO. I'll answer your question on AR. We are in the process of building out our plan for next year, so hold tight. We will disclose details when we report our Q4 numbers, which will probably be February at some point. Got it. Thank you.

Thank you. And our next question comes from the line of Jake Roberge from William Blair. Your question, please.

Thanks for taking the questions. Great to hear that Jamf business plan had the largest customer increase in its history. Was there anything specific on the product front that helped drive that uptick, or was that more just a maturity of the go-to-market motion and that team becoming more comfortable selling the product?

Yeah, Jake, I'll take that one. Quite honestly, it's both. The management and security together really has resonated with our customer base. And in fact, we've seen through the data that we have less churn and we have more upsell with those customers that actually buy the business plan. So we know that that's something that's doing really well. And at the same time, as we talked about before, our go-to-market teams are really getting their arms around how to lean heavily into the security. And the fact that they're becoming better at selling it And the fact that those two products work together so seamlessly, that's really helped us benefit in the business plan. And as Ian mentioned, in our mobile security solution, that also has really, really done well. The fact that they get multiple security solutions in one SKU that they can put in, that's helped us lean into security as well.

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

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

Great. Thanks for taking the questions and congrats on the results. Thank you.

Thank you. And our next question comes from the line of Remo Lenscha from Barclays. Your question, please.

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

Thanks, Ramo, for the question. This is John. You know, Microsoft and Jamf is much more of an and than it is an or. And the fact that, you know, we already have several integrations today with Microsoft, really, we just help continue to progress that relationship, even up until now into the go-to-market motion. We've historically worked with AWS in selling our product to the AWS marketplace, and that has gone really, really well, and we're going to continue to do that and lean into AWS. But we also wanted to offer our customers that have a Microsoft footprint an opportunity as well or an option as well in that area. So we've deployed a multi-cloud strategy that has allowed us to have our products hosted in the Azure cloud as well. And because of that, part of the ISV program We're actually working with Microsoft and going to market so their sales team can co-sell along with our sales team. And that's really been something we're excited about. We're going to actually officially launch that at Ignite here in November and this quarter. And we've got some great plans working with Microsoft, really, that both companies can benefit. There's very slight overlap in that area, but there's a wild amount of collaboration that we can do, and we have a lot of mutual customers.

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

Hey, Ramothi, and I'll take that question. So there was two aspects to it, and you definitely touched on one. Anytime you have any type of comprehensive system update, you look at it. different metrics within your system. We did have kind of a one-time as you talked about there, and that is truly just taking a good example that is looking at an MSP that maybe we counted as multiple customers before, now it's one customer. So that's definitely more of a one-time nature. There was also, we recognized revenue for certain licenses over the period, over an estimated period of the life of the device and education. And some of those educators came back and actually didn't refresh at the end of the quarter, but they're still using the device. But our revenue ran off, so not only did we take the revenue off, i.e., the numerator, we took off the denominator, too. We do think that's a little bit more contained within the quarter, and everything else that could come from that is factored in within our guidance. So that is something that we've already contemplated within the numbers that we've provided you. Okay, perfect. Thank you.

Thank you. And our next question comes from the line of Patrick Walravins from Citizens JMP. Your question, please.

Oh, great. Thank you. Both of mine are going to be for David. Hi, David. I'm really glad to see you took this job. So question number one is just what made this opportunity stand out? So why did you want the role at Jamf? And then question number two is, I mean, I checked the investor deck to see if The three-year model was still in slide 50, and obviously it's awkward to come into a new role with a three-year model sitting out there. But if you could just give us your thoughts on that, I think everyone would really appreciate it.

Yeah, great, great. Nice to speak with you again, Pat, after all these years. Yeah, no, I think when I got the call on Jeff and I did some initial research and I had the opportunity to meet with John and the management team, but really stood out as the dominance on the Apple ecosystem. I mean, it's a market leader. I think it's a great story. We have international expansion. We have expansion into security. We've got an awesome customer base. And I think the opportunity is quite impressive from here. So that's the reason why I came here. I'm looking forward to filling the big shoes that Ian leaves behind. But I'm very excited to be here, and I think it's going to be a great run that we're going to have in the coming years. And now a three-year model, of course, coming in somewhere new. I took a look at the three-year model. I studied the investor deck. I think it was a great set of information. We are currently building out the plan for next year. I think it seems reasonable. But we will update everybody as we look to provide guidance for fiscal 25 next year as we do that when we report Q4. But everything I'm seeing now seems that the model is reasonable. All right, perfect. Thank you very much.

Thank you. And our next question comes from the line of Matt Hedberg from RBC. Your question, please.

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

Yeah. Well, thanks, Matt. I mean, we've got several, if we just look at the environment, we've got several tailwinds that are helping us. We've got an anticipated refresh cycle that we haven't seen yet. We believe that tech hiring is going to come back. We believe also that education is going to at some point refresh those devices that they have. You know, those kiddos are only going to keep those iPads for so long before they need to refresh them. You know, the security is getting a lot of traction. As you see, we got over $150 million in ARR and security this quarter. We've surpassed that, and it continues to grow in the mid-20s. And it's not only resonating with our customers, but our go-to-market motion is getting a lot more efficient as well. And some of the things that we talked about, that comprehensive system update, gave us the capability to do things like leverage our channel more. And we spoke about this before, but it gives us an opportunity to have a partner portal where channel partners can come in and actually register their own deal as opposed to having to call a Jamf salesperson, which is very inefficient on our side, very inefficient on their side. So we've had that. We've had hundreds of transactions already go through that model just in the first quarter of actually releasing it. So that's going to help us quite a bit as well. I think, you know, I mentioned already the expansion of Apple in the marketplace. If you look at the choice programs out there, two-thirds of the people will choose a Mac, according to the studies that we have seen that have been published at a couple different companies. And more and more companies are offering that choice program. So we have every reason to believe that Apple will continue to expand in the enterprise, as been their stated intention that they have noted on their earnings calls as well. We've got a great opportunity in mobile. We've talked about that before as well. This Deskless opportunity is tremendous. And we haven't even talked about the international expansion, which international continues to grow at a faster pace than our domestic sales do. Even though the sales in the U.S. are growing as well, there's just a great opportunity out there. Especially when we look at education, we've had a lot of international deals in education in Japan and in Germany, in Taiwan. And not only, as I mentioned earlier, we're getting some precursors of that refresh cycle going to happen, but there's also additional markets that we're working with Apple and leading into those as well. And so those are really coming well in the pipeline. So all of those things together give us confidence. Thanks, Luck. Great answer. Best of luck.

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