Jamf Holding Corp. (JAMF) Earnings Call Transcript & Summary

All right. Thank you, everybody, for joining us. This is the inaugural morning session of day 1 of the RBC TMT Tech Conference virtually. For those who don't know me, my name is Matt Hedberg, and I cover software here at RBC. And we are thrilled to kick off the morning session with something that's near and dear to my heart, near and dear to my location here in Minneapolis. We've got Jamf here. With us today, CEO, Dean Hager, and CFO, Jill Putman. So first of all, thank you, both for joining us. We got a lot to cover during the 30 minutes. Before we get into questions, for those listening online, please submit questions to the portal. We can see them here. We'll interject them throughout the conversation. You can either e-mail them to me directly at [email protected] or through the portal. So without further ado, Dean, Jill, welcome. Thank you for joining us here.

I want to start, Dean, with you. You guys are coming off a very strong quarter, 37% ARR growth, which I believe you've basically grown that same level in the 6 quarters you've been a public company. It was a beat and raise quarter. Your stock is down quite a bit in the past week. What -- I just want to start out, what's your initial reaction to the stock move following a very strong quarter?

So first of all, Matt, thanks for having us. It's always a pleasure to speak with a fellow Viking fan. Regionally, I should say I don't want to be presumptuous, but it isn't often that we get to do that. We're overwhelmingly proud of the results that we continue to put up. You're right, we've been public for 6 quarters, having significantly beat estimates every quarter, averaging 37% organic ARR growth for those 6 quarters, including the most recent quarter. And of course, including the acquisition of Wandera, our total ARR growth was 47%. So that's just a great base of high-retention recurring revenue going into 2022, which is outstanding. And I'll also just remind everyone that we also delivered 30% unlevered free cash flow margins in the quarter and 24% over the last 12 months. So organically, that's rule of 60, which is rarefied air from a results perspective. Of course, price reaction is always an interesting topic. It's not something that we control and there's a lot of factors, not the least of which I should mention was we've had a 25% run-up of our stock over the past few months. So that's a factor as well. And of course, there was also a reaction to the Apple announcement that is apparently massively misunderstood. Those of us close to the Apple Business Essentials announcement celebrated because it will make Jamf and our customers stronger in time as the market understands what it is and better understands Jamf's strategy because we are still a young public company. And our plans to embrace technology, Apple technology, improve upon it and offer something brand new that the market has never seen, that's how we've become the standard in Apple Enterprise Management over the past 2 decades. And so -- and by the way, Apple embraces that strategy from Jamf just as much as our customers do.

So that's a great lead in, Dean. Yes, your stock is down. It's shed about $2 billion in market cap which to me is just ridiculous, given, I think, your opportunity, your momentum and the success that you've had on a very consistent basis. So this news originally came out 18 months ago. And I remember an e-mail from both you and Jill talking about your initial reaction to Apple buying Fleetsmith 18 months ago. And you talked about this on the call, and your answers 18 months later were very consistent with that view 18 months ago. So for those that maybe are less familiar with what's going on, could you give us a little bit of history lesson on what Apple is trying to do. And although the market sees it as a big negative, how you and we see it as a positive for you guys, really enabling a richer Apple ecosystem?

Yes. What a great opportunity for wise people who want to pay attention to strategy. So consider that a good week, if you will, but thanks for the opportunity to clarify this. I just have 3 points that I want to make. First, the capabilities offered with Apple Business Essentials are largely complementary. In fact, as whole products go, they're completely complementary and will be leveraged by Jamf to create better solutions for customers. The really exciting thing in Apple Business Essentials is for the ability for organizations to purchase iCloud storage. Up until now, only individuals could purchase it. And now through Jamf, organizations are going to be able to volume purchase applications and distribute those applications and offer the storage that those applications use not to mention cross-device storage, collaboration, back up, the opportunity there is massive. And it will grow Apple in the enterprise and will result in Apple or Jamf innovating new solutions on top of that capability. Mark my words, no company on earth will deliver more customer value with Apple Business Essentials than Jamf. It was a monumental week for us. Second, the notion of Apple offering basic commands, MDM commands is not new. Apple offered their first MDM product to market in 2011. So let me say that again, Apple has been offering an MDM product to the public called Profile Manager for over a decade. Jamf has always coexisted with this first-party capability. And Apple has to do it, otherwise think about that, that if a small business, all they want to do is lock the computer if it's lost. If they talk to Microsoft, Microsoft says, yes, we can do it. Google says, yes, we can do it. And Apple says, we can't do that. That is not an option for Apple. They have to be able to offer this basic capability. Apple Business Essentials addresses that simple need and is not intended to be a competitive enterprise management solution. It supports nothing outside of the MDM framework, just the simple MDM framework. And it actually supports less of the MDM framework than their product did in 2011. So we've coexisted with that for a decade, and so that's my second point. My third point is the product was expected and predicted. To your point, Apple's acquisition of Fleetsmith, a small business MDM provider occurred in June 2020. And it bothered Jamf so much on the day that it had happened that 6 days later, we filed our S-1 to go public. I don't know if anybody remembers that timing. We literally filed 6 days later. And through our partnership with Apple, we have a firm handle on what Apple Business Essentials would be. We communicated it to people like yourself on that. We embraced it. And we said because they had to do it because Profile Manager was getting so old, I told the market at the time of the acquisition that it would not be competitive. And since that day, we have added [ 160 million ] to our ARR. So we feel kind of proof is in the results and the move by Apple presents far more opportunity than threat. It will grow Apple's [ using ] business. Jamf will help customers get there, provide additional solutions on top of it and be the natural migration path as organizations become ready for a proper Apple Enterprise Management solution. So it's -- we're already innovating and creating new value that we can deliver to customers.

That is about as compelling a pitch as I've heard in a long time. And Dean, you said something to me that I'm going to file it away. The day after you react, the stock moved down, you sent me an e-mail and you said it's a bad day for the unwise, but it's a great day for the wise. And I think we'll all look back on this as unfortunate, but ultimately, we see it as just as you outlined. We see there's an ultimate tailwind to Apple products being embraced in the enterprise. And that is a huge, huge opportunity, we feel. So we see it as opportunistic, and I think you laid out a compelling case for that as well. I'm going to come back to maybe some of the ways that you're diversifying away from basic MDM in a second here, but I want to get Jill involved here. Jill, just stepping back from the Apple news. You guys had a very strong quarter, and I think there was a lot of consistency in your message. And what I wanted to ask you was about your 2 different business segments. Commercial was particularly strong and seeing building momentum despite the Apple risk. And -- but you also talked about education, kind of starting to see some leveled off growth following a COVID boost. Can you just talk about the 2 mixes of the business there? I think most recently, I believe the commercial was 75% of your Q3 bookings. How should we think about these 2 businesses mix shifting over time, given we think there's big opportunities in both sides of your business?

Yes. Thanks, Matt. So first of all, as a level set, commercial has been running at 70% to 75% of our new bookings for the past 4 years with 2020 being just a little bit on the lower end of that range. And that was simply due to the uptick we saw in education in the second half of 2020. But then as we exited Q3, the commercial market represents 70% of our total ARR. So it's just kind of a level set of mix of our business. But now within those 2 markets, those growth rates do differ quite a bit. Commercial has significant -- has always significantly outpaced our education growth rate. And that's a good thing. That's where the bigger market is. But what we saw in the second half of 2020, it is exactly what we had predicted as we headed into COVID, and that is that we saw education growth outpace its typical, call it, low 20% growth rate, and we saw commercial growth slow a bit, kind of closer below that 50%-ish range that had typically been -- we had been experiencing. And then what we saw here coming out of the third quarter was again what we had expected as we headed into the COVID period, which is for education growth rates to begin to return towards their similar pre-COVID levels, while commercial is going to continue to accelerate, and we expect to see momentum across all products, all geographies and across all type of industries that we serve.

That's great. I'm going to get back to you about kind of how we think about kind of a layer-cake approach to your ARR growth. But I want to flip back to now Dean, maybe had a glass of water, a couple of coffee, let's talk about this broader market for a second here. Obviously, you guys are the largest Apple focused enterprise device management company on the planet. Obviously, Apple uses you internally for their own provisioning. While there's a lot of concern about the competitive dynamic, could you just level set for us what's out there competitively? I have to imagine a lot of it is greenfield, but I think there's probably a lot of lower end products that are maybe trying to be competitive on pricing with a product here or a product there. But just talk about why you win? What is it that makes you the biggest player in this, we think, growing market opportunity?

Yes. I'm going to be cheeky here for a moment, a little bit related to the last topic, where some will go, geez, how can you compete with the most valuable company in the world that has the first-party ability to offer solutions and is powerful enough to undercut you on prices? And my answer to that is we've been doing that since 2002. The company is called Microsoft. Microsoft is actually an enterprise gorilla, and they have offered these types of solutions, including security solutions, which Apple, of course, doesn't. Again, apple don't do anything besides the basic MDM commands, which they always have. But for us, our focus has always been what is the gap that exists between what Apple builds and the enterprise requires. And from a competitiveness perspective, there have been many companies that have come and gone over the years. And I would say there's really probably 4 that remain that we consider to even really be competitors, and 2 are at the high end that offer the unified endpoint security and unified endpoint management. And then 2 are at the low end that have literally come in through saying they're going to just help small businesses and for Apple only. In other words, they're trying to mimic what Jamf did so many years ago, and they're trying to follow us into that space. So it really comes down to the 2 small Apple providers and 2 large unified providers. And on both fronts, we compete very favorably because with the small Apple providers, of course, our product footprint across connecting users, protecting the devices and data and managing the whole ecosystem just can't be matched. And then when it comes to the unified providers, as Apple continues to innovate in their technology with things like the M1 chip, it's so disruptive to a unified provider. And I don't think the market quite realizes that, that there are some unified providers who have literally dropped their products since Apple came out with their Mac products, since Apple came out with the M1 chip because they just could not keep up. And so as Apple continues to innovate, more and more becomes clear that an Apple-focused provider is needed, and there it's just us competing with a couple of companies on the small end of the market who don't have anywhere near our product...

Yes. Well, and I'm going to get back to the device growth here and Jill, kind of thinking about the kind of the ARR layer cake. But before we get to that, just 1 more question for you, Dean, before I flip to Jill. You guys have been spending a lot of money diversifying away from MDM, most recently with Wandera. Could you talk about why enterprise security within the Apple ecosystem is so important? And I'll caveat this with I remember one of the last user conferences you guys held, when you announced your first security products, the crowd literally stood up and clapped, right? It was almost like an Apple experience of them announcing a new device. These Apple administrators are hungry for security. And you guys have really consistently delivered both organically and inorganically, a lot of capabilities. So maybe talk to us about why security and why Wandera is so important to your strategy here, both from a security perspective as well as growing internationally, which is another interesting caveat.

I'm glad that you were at that conference and you remember that launch, because this tells you about as much of how unique Jamf is as anything. At that conference, at that keynote, Microsoft, who offers security solutions was a main stage keynote speaker at that event. Apple was a main stage keynote speaker, which they never do, at that event. And CrowdStrike was our sponsor at the event that we launched our security solutions, and it's because we have figured out a spot in the market where we can partner with the powerful and differentiate within their ecosystem and yet partner with them well. The reason why we launched what became Jamf Protect at that conference is because 1.5 years earlier, we had a focus group with customers. And we said, why in your organization since you can use Jamf for management, why doesn't everyone who wants a Mac, have a Mac? And we went down the list and what we found is top on the list was the CISO, that the CISO and InfoSec team just was not confident in how the Apple devices were being secured. And some of that comes from the fact that Apple devices are like marketed as being more secure and all of the security software targets Windows first that it actually left kind of a gap for Apple. So we went out, we launched Jamf Protect, not coincidentally, just prior to the launch of the M1 chip, which was hugely disruptive to security providers, and it was just the right product at the right time. And we have just seen a surge of buying for Jamf Protect over the last 1.5 years. And as we got into last spring, it was clear that our customers were telling us, Jamf, we will look to you for Apple security. You are synonymous with Apple Enterprise. And so if you can help us secure this fleet, we will. And what Jamf Protect did, is it did on-device endpoint threats, but we weren't doing network threat protection, anti-phishing, malicious downloads, those types of things. And so we wanted to find somebody, because we're very meticulous on how it should be built for the Apple ecosystem, we wanted to find somebody that use the native Apple capabilities to build private access solution, threat detection solution, malicious downloads and anti-phishing solution and Wandera ended up being the mix. So the way I'll describe it is we were doing on-device, Wandera was doing network. We are both doing it in an Apple way, and we come together and we have an entire security solution then for Apple.

And I think just 1 last question here because I get it all the time. And you alluded to it in your -- the first part of your answer here was that I'll hear people say, well, like, geez, like because Jamf thinks that they're going to beat out CrowdStrike or Zscaler. And it's really the contrary. It's really much more of a partnership symbiotic thing. Maybe just double-click on that piece, because I think there's some investors that still struggle with how this whole security ecosystem works.

The reason we do anything in the Apple space is confidence for the security team, efficiency for the IT team and an awesome experience for the user. That's the combination of what we work on for Apple. But because we focus on Apple, we're under no illusions that we are going to be the enterprise security solution that the CISO gives us, right? The telemetry that the CISO is going to want to take a look at is going to be some other enterprise solution, and we are going to feed our telemetry to that enterprise solution. So these partners that you're talking about, we go to them when we're saying, "hey, fine, you provide the single pane of glass and the remediation, what have you, to the InfoSec team, but we are going to give you the best telemetry in the world from the Apple devices." And on those devices, because we have management running on them, we can detect and remediate on Apple devices automatically before any human being actually has to react to it. And that's one of the reasons why during the investor conference, I announced a partnership with Red Canary and also partnership with Cybereason. These security companies -- think about it, these are security companies that work with all security software. They realize Apple's different, and they realize you have to do things in a different way. So they're embracing Jamf products to drive that telemetry and then be responsive to the InfoSec team.

And I think just to put my spin on it, too, the importance of this from my perspective, too, is I'll hear from investors as well, Jamf's just an MDM player. And my answer is no, they're not. And this is another concrete example on how the -- we're talking about Jamf Protect here, but there's Jamf Connect, there's monitoring solutions, there's a single pane of -- like, to me, it's so much more comprehensive, and I hope that's clear for those listening to Dean here. Jill...

If I could just mention 1 thing on that, Matt, and for clarity, MDM is a framework. It's a technology. It's not a solution. MDM is literally a list of a [ DO ] command. You can't install a third-party application with MDM. MDM is not a solution. So that's misunderstood in the marketplace, and sometimes people overact to that. So I appreciate you echoing that out there.

Yes. I know. That's great color. This is going fast, guys. We have 9 minutes left, but I think this is very, very helpful. Jill, you grew 37% this last quarter, and the consistency has been remarkable on an organic basis of what are challenging comps, right? You obviously haven't guided to next year. But given what you talked about earlier about kind of the opportunity in commercial. And by the way, I neglected to say, you guys manage, I think, about 25 million-devices these days, which I think was up almost 34% year-on-year. And for those listening, think about that number relative to even what Apple ships on a quarterly basis, like it's just staggering, we think the amount of greenfield opportunity Jamf has to manage devices. But Jill, the question is, without -- obviously, not going to guide to next year, but how would you, if you were us, go about thinking about sort of like a long-term layer cake on ARR build given the drivers that you guys have?

Yes. So look, you've heard us say that we believe that we are -- we firmly believe we're not market limited, right? And so given the large amount of unpenetrated TAM that's out there, we continue to invest in our go-to-market headcount. In fact, over the last 2 years, we've nearly doubled the number of QBRs that we have out working for us. And as we layer those in, we've actually maintained and slightly improved the productivity level coming out of those. So we expect that as we continue to invest at that same level or even a little bit higher in the next couple of years, that we're going to generate similar results to what we've been posting. And we see significant opportunity really coming in international markets, for example, some industry-specific workflows we've been working on that they really inspire further adoption of Apple in the enterprise. And then, of course, the new products that we brought to market and acquire through Wandera, you start to layer all that together and continuing to invest, and that's how we're going to think about our growth rates going forward.

And maybe just 1 last point on that, the invest side, I think a question would be like if you guys are growing sort of organically in the mid to high 30s is the temptation to maybe invest a bit more. So when you think about that balance between obviously being a very high growth company, but also an extremely profitable company, as Dean alluded to, a rule of 60-plus. How do you sort of think about that? And I guess I have 1 quick follow up after that. But how do you balance that internally that sort of that investment level? And are you tempted to maybe invest even a bit more?

Yes. There's not a quarter that goes by that we don't ask ourselves or get asked by our Board in fact. And our response is we're growing as fast as we can really absorb it and swallow that pace without taking management's eye off of the growth that's out there, right? It's -- hiring takes a lot of effort and energy and can be often distracting. And we pride ourselves on that onboarding experience for employees as well when they first come in, and proper training. So we're trying to digest -- it's how much we can digest without causing disruption and distraction to that go-to-market engine.

A couple of data points...

So basically...

Go ahead, Matt. I was going to say a couple of data points on that is we feel like our ultimate measure is keeping customers and keeping employees. And in this world that we're in right now of the great resignation, at the end of the most recent month, actually, I'll take that in the end of the quarter or end of September, our trailing 12-month retention is 93% of employees. That's remarkable in this environment. And then on customers, our end of September, 12-month retention on customers was a Jamf record. It's the highest that we have on record for retaining ARR from customers. And so as long as we're doing the most important thing, that's typically a pretty good thing. But of course, we want to invest in a way that we're never -- again, any employee we hire, any customer we win, we want to keep them. And that's like what Jill was talking about doing it in a way that we can properly absorb it is really important to us because of the culture we have as a provider and as an employer.

So you're saying -- what I'm hearing is you're investing at a level that's responsible for the growth that you aspire to, because there -- I think there's always a risk of maybe over gearing the growth side of it and then you might run off a treadmill at some point. It feels like that's very cognizant in how you invest for this long-term durable growth. Okay. That's helpful. Dean, I'm wondering, you guys are such a unique company in that you really -- you're in this rich huge ecosystem that now in a hybrid world where employees have choice and especially like when you think about millennials and generational shifts into the workforce that want to work on any device that they feel comfortable with, right? There could be this groundswell of, hey, I want to Mac or I want an Apple device as I enter the workforce. How do you think -- what's your sort of view on hybrid work? And I guess maybe just philosophically, but also as it relates to Jamf, how is Jamf approaching this new sort of post-COVID world when you think about sort of work in the future?

Well, there's a couple of big meaty topics there. One is I'll just mention, I wrote my thesis paper for my grad work in 1995 on telecommunity. So turns out all it needed was 25 years and a pandemic to be right. But it's a topic that I've embraced for a long time. And so we are very clear with Jamf employees that our offices are a service to them, not an expectation of them. We create great office environments, but we want them to work where they feel the most comfortable and productive. And that has worked extremely well. We think that notion of a hybrid environment is here to stay, not everywhere, but certainly far more than it was a couple of years ago, and it is going to be phenomenal for Apple growth. Because the #1 growth driver of Jamf has been, not Apple, it's the consumerization of IT. And as the -- what's the consumer device of choice? It's Apple. That's what leads to Apple in the enterprise. And is sending everybody home to work for 1.5 years going to accelerate the consumerization of IT or minimize it? Of course, it's going to accelerate it. You combine that with the changing demographics. I have 3 daughters in their 20s. None of them have ever used a Windows machine. So the changing demographic is going to drive Apple. And then, frankly, Apple building the best laptop on the planet, right, now with the new M1 chip is also going to drive, I believe, you can hold me accountable on this at the end of the decade, in the United States, I believe there will be more Macs in business by the end of this decade than there are Windows devices in the United States.

Yes. That's -- I was going to say, what's the single biggest thing that you -- that excites you about Jamf, but I think you've sort of just preempted the question with that answer. I mean, and listen, I mean my kids like I have -- what is this, a ThinkPad here. And they want to touch the screen and like it just doesn't even compete with them. And by the way, they're happy kids that use Jamf unbeknownst to them in their school district. And so they're sort of -- like you're sort of feeding this next generation with Jamf in the education side that ultimately can bleed over into the commercial side. We are just about out of time. This is -- I can't believe that, that was 30 minutes. I guess, -- maybe 1 -- this is -- I didn't ask you this on the call, and we'll see if we can squeeze it in a minute. And it relates to that last question. Do you think, as your sales force maybe starts to get out on the road a little bit more, do you think that could have a positive impact on your ability to grow pipeline? Even though I think you probably would say that probably your pipeline is still probably at near record levels at this point. Do you think that's an incremental benefit when sales people start getting out a little bit more?

Good to just make them happier to actually [indiscernible] on the move, and that's a good thing. To echo what Jill said, we're -- we always are asked about demand. For us, demand is not the question. Our ability to execute against that demand is a greater question. So we're filling the pipe and our limitations on filling the pipe is not where they work or whether there's a demand. It's how many people we have filling the pipe. So it's hiring. It's onboarding. It's working. And we do that very effectively remotely. And once we have the choice to go and see people, yes, that's going to have a positive effect for numerous reasons, but I think just from a pure numbers perspective, we can do it whether we're remote or in person.

Yes. Well, that's -- this has been extremely helpful for me just to kind of hear you guys talk about the opportunity, which, to me, in sort of summarizing it, it feels like you guys have geared this for durable growth and profitable growth, mind you, which is sort of a bit of a unicorn these days with a big and expanding market, and this reaction that we've seen, you called it 18 months ago in terms of the -- how Apple would sort of go through this. And I guess what I tell people is that although Apple is a bit of a walled garden, you guys have a pretty good perspective on what their intentions are, and we feel like -- and especially in the large enterprise and on the ed side, your opportunity is vast and far reaching. So we see it as a huge opportunity to buy the stock at these levels because we ultimately think this is -- it's just -- if you look at the P&L, you look at the valuation, it's a unique situation right now. So we don't always get these, and this seems like a big overaction. So hopefully, that was clear to everybody listening. If anybody has any follow-up questions, obviously, Jennifer is on the line here as well, please reach out to me or my team or these guys. And so for all of us of RBC guys, we really appreciate your time. And for Minnesota tech, let's roll, right? Let's go, baby.

Go.

That's right. Thanks, guys.

Thanks.

Thanks. Appreciate it, Matt.