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

Back after lunch. That was -- it's always inspirational here [indiscernible], unfortunately, I didn't have a chance to listen, but Bill is always an inspirational stuff. Joining us to kick off the afternoon session is a hometown favorite. Minneapolis Kindred Spirits Champ. We've known these guys for a number of years. I [indiscernible] in 2021...

2020 -- July 2020, yes.

2020. And so we've been big fans of about who they are, what they're doing, and we're just really, really excited to have Dean Hager, CEO; Ian Goodkind, CFO; and, Jen, down here in IR. Thanks for joining us. Maybe most -- I'm assuming most of you all know what Champ does, but Dean, just maybe just the 1 minute just for -- just to fill in the gaps on the commercial and the enterprise and the education side?

So, yes, first of all, thanks for everybody for being here. And, Matt, thanks for having us. And then I can't resist since you are [indiscernible].

That's not -- that's very unlike us.

We have had so little time to go over the last 50 years that we will take every opportunity we do. So [indiscernible] from that a bit and simply say that, yes, at Jamf, we help organizations succeed with Apple. We are 20 years old, we're founded in 2002, and we were actually founded in the area of device management for Apple products, of course, starting with the Mac way back prior to MDM even being invented. But as of these days, more modern Jamf, we manage and secure Apple at work, which is to say that we believe and our entire premise of our company is built around the notion that these ecosystems that are offered by Microsoft, Apple and Google, especially require a level of specialty in order to achieve the objectives of deploying that technology for the IT team, for the InfoSec team and ultimately for the end user. And for the end user, we believe the combination of management and security solutions that we offer actually can help make the workplace consumer simple, which is really the way to secure an organization because if you focus on security, without focusing on user experience, the security will be a burden because ultimately, employees will find a way to be productive, even if it means working around security guards that are in place. So Jamf focuses on making sure that each and every individual has a consumer simple experience built their own Apple at work and yet, the InfoSec and IT teams get the efficiency and protections that they need.

Yes, absolutely. So you are coming off of a good -- coming off a quarter with record bookings. You did allude to some churn, not logo churn, but more on the device churn. Just give us a sense for what you saw in trends coming out of Q3, so it sort of set Q4 guidance on both commercial and ad?

Sure. So mentioning -- Matt mentioned commercial and ad, because of our focus on Apple for a long time, we have had a robust business focused on the education market. As a matter of fact, if you go back years, the education market was our primary market. That's not the case anymore. 71% of our ARR comes from the commercial market, and it's growing more than twice as fast, and we believe that, that will continue to be the case. Nevertheless, we were far away, the market leader in the education market. And yes, we did see in Q3, it shouldn't be a shock to anybody that after the range that was distance learning in the heart of COVID, that there was some reconciliation of the exact number of devices that schools needed now a full year out of that distant learning environment. And so while we did not churn more logos than anticipated, or really been typical in Q3, August is our biggest renewal month for one of our products called Jamf School, and within that product, there was a little bit more than typical churning of devices, we just refer to it as a device reconciliation that occurred after the panic buying that happened within the pandemic of what was the exact number of devices that schools needed. So there was a little bit more device churn in Q3 than what we would typically see. And then on the commercial side, there wasn't so much churn as a little bit slower device expansion of renewals because of some tempered hiring expectations as we all see is happening in the industry.

Yes. So Ian, when you thought about those dynamics, how does that -- how did that sort of shape how you thought about Q4?

Yes. So we take a bottoms approach when we set our guidance. We look what's on the balance sheet, we look at what's in the pipeline. We look at churn and we put all those things together and think about what are those tailwinds that we just talked about. And then what are the headwinds, and those were the headwinds, what are the tailwinds that push us. And we have the BYOD, we have safe Internet for the first time. We have security, which grew last quarter at 50%. If you throw all those things together and we really come out with guidance that we can deliver on. So we did give good guidance there. We've also -- just 1 other thing to note. We did beat on profitability, both Q2 and Q3, which we've also put in our guidance for Q4, we've dropped that to the bottom line. So we're showing that we're staying true to who we are, even in these economic times, we're taking that balanced and prudent approach and gauging what revenue growth looks like versus profitability and balancing those 2 of the rule of 40.

What -- I think one of the questions that I'm trying to get a sense for when I talk to different companies over these 2 days. There's things that you can control, the things you can't control. And Ian you're referencing the profitability. That's something obviously you guys can have a direct line of sight to and control that. What about -- when we look at '23, what are -- and I sort of know what the answer is some of this, it feels like security is certainly a big part. But what are these levers that you guys can lean into that could cut through a more challenging macro environment in '23?

Yes. So first of all, there's going to be several vectors of growth. One will simply be, and this may surprise some people, but it's going to be the Mac growth. And the reason I say that may surprise people is because most people are saying, wait, isn't the PC market declining? And it is. However, if you look at IDC numbers and you pair them to Apple's numbers, Q3 just came off the biggest expansion of Mac shipments in Apple's history and IDC stated that for the first time, Mac as market share in Q3 was double-digit growth -- or double-digit market share, I should say. It was 13% market share, which was actually shocking, jumped up significantly. Some of that was pent-up demand. But the bottom line is for Mac growth, we don't just have headcount growth to rely on, we also have market share shift growth to rely on. As a younger population comes into the workforce, more of them are choosing Mac versus windows. So we're not completely dependent on headcount growth. And then plus the iOS market is so large that there's -- we don't need that market to grow to continue to take share within that market. And there's an added dynamic that is occurring in the iOS market and that is the consolidation of the unified endpoint management providers that are out there. And recently, there was another one that was announced with Broadcom's acquisition of VMware, and we believe that's going to create market opportunity for us.

And then let's talk on security. Because to me, I think with that growth of 50%, 18% of the ARR mix today, and it feels like even from a perception standpoint, I think a lot of people kind of think about Jamf as maybe on our MDM. But I just -- I wonder, as you become more security-focused, how does that change the composition of the company, the growth rate of perception, kind of all the above?

And on the growth drivers, I hadn't even mentioned the 50% growth on security yet, which is clearly probably the #1 tailwind to growth that we have. As I mentioned earlier, we manage and secure Apple at work. That is a very unique position to take. If you look in the industry, there are a lot of management providers and there are a lot of security providers. But we're probably 1 of 2, maybe 3 management and security providers. And the most important word there is the word and. Since we already do the device management for 22 of the top 25 global brands in the world, we have a very solid position from which we're able to expand into security. It isn't like we're out there trying to break into the security market, not having a firm foundation on which to launch. We are the market leader when it comes to Apple device management. And it's from there that we're able to add the security solutions. . And you can imagine the market positioning that we have that security solutions, their intent is to identify potential threats that exist on that device. Well, then you've got to mitigate those threats, or almost all mitigation that you take blocking the device from the network, updating the software on the device, quarantining software on a device. All of those things are done with management software. So if all of your mitigation for security vulnerabilities are done with management software, does it not make sense to put them together so that you can actually have a whole solution for an organization. So yes, we believe that it's going to be one of our primary growth drivers in '23.

Yes. And I guess the question I always get to is how do you coexist with stand-alone cybersecurity vendors, you know that's a conversation, but just how do you think about that?

Well, we attempt to make that as friendly a coexistence as possible. Most of the cybersecurity vendors that are out there. I mean if you were to throw out the names of 3 of the most famous cybersecurity vendors, more than likely they're all Jamf customers. So we have a relatively friendly arrangement just from that perspective. They recognize that our existence within the enterprise is good for them because after all, our software is often used to deploy their software to Apple devices. But ultimately, the reason that we are able to keep that relationship friendly is we don't try to be the single source of truth to the CIOs and the CISOs. We let the cross-platform security providers serve that role. In other words, all of the data, all of the telemetry that we get off of the Apple devices, we will freely share with the cross-platform security providers like a CrowdStrike, like a Microsoft, Like [indiscernible] so that they can still play the role for the CISO exactly as they are doing today. The only difference is they're doing it with a better set of data from Apple devices because we're the ones that are sitting on the Apple devices.

Yes. That makes a lot of sense. I mean, I can -- you can see why they would like that what's in it for you from a partnership perspective with some of these -- or sharing of data perspective.

We are able to achieve our mission, which is to create a consumer simple experience for the user of that Apple device and you have the organization know that every access from those employees and those devices is trusted. If we can accomplish those 2 things, that every employee loves their technology and every access point is trusted by the organization, that's all we want. We don't necessarily need to be the consolidation of telemetry that exist for the CIOs and CISOs.

I'm going to come back to you on a couple of things. But Ian, for you, you're not going to give us '23 guidance here, but like what are -- you can if you want.

No, no, no. I've been trained. No, no.

What are the right building blocks to think about if you're us, Dean just got done talking about some of the headwinds and -- but also the tailwinds. You had very durable growth since becoming public, even prior to that. What's the right sort of framework so that we set our kind of internal expectations?

Yes. I won't give 2023 guidance, but we'll talk about it similar to Q4, right? We're going to take that same prudent approach, we're going to look at the market. We're going to say, "Hey, who are current customer base. We're going to look at security, for example, there. We know we grew 50% this quarter. We know we're at 12,500 customers that have both management and security. What does that look like at the end of the year, to Dean's point, on the Mac side, what are some things that are going to open up there with the replacement market, especially in the second half potentially of next year. We're going to look at our -- the first time having an education product that has security sort of safe Internet product that we just released this year. We're going to look at all those things and then we're going to gauge how do -- what is the growth that renewal look like for the commercial side? So we'll factor those same things in. But again, I can say this much. We'll take that prudent approach, that balanced approach, make sure we're balancing growth with profitability, and we will manage the rule of 40.

When you're doing your bottoms up to build from a sales -- quota sales rep perspective, is there an extra conservatism that you're embedding in sort of something like -- nobody knows what's going to happen in 2 weeks, let alone 6 months, do you approach the budgeting forecast differently with a little bit more scrutiny in tougher economic times?

It's a great question. Dean is laughing, I'm laughing, we continue to have discussions about 2023. I think every company in the world is taking an extra hard look at it, what does it really look like? What does the economy look like? I mean, we come to these conferences and we ask all of you, "Hey, what's your interpretation in the economy. So I would say, yes, we've taken an extra lens. I think the good news is the thing to think about for Jamf is 95% of our revenue is recurring, right? We have a SaaS model. So we know 95% of that is coming through. It's what can we obtain in growth in the next year and why can we cross-sell. And those are the things -- we think about budgets, even this year what they were set, they may have set a budget, maybe they didn't renew as much as we thought or grow as much as renewal. Well, guess what, those dollars probably still haven't been spent. So our sales people are trained to say pivot and think about hey, do you need to do something with your iOS devices, or hey, you probably need to get those a little more secure and think about security. So that same dynamic and being less [indiscernible] is susceptible to device count growth. We have those other dynamics next year. So we're looking at all those pieces together.

Excellent. I'm going to ask a couple more questions and we'll see if there's questions from the audience. So queue them up in your head. Dean, I can't wait for the day that you and I are talking and we don't talk about app as a competitor. Maybe I wasn't even going to ask you about it, but like...

That day could have been today.

Well, next question. Let me just -- when you and I talk offline, it feels like it's almost becoming irrelevant in the conversation, right? I mean, I guess...

It is. And for what it's worth, we were just talking earlier that we just had our earnings -- Gosh, I don't -- was it -- it was last week. We just had our earnings last week, time flies. And of course, we've just been doing conversation [indiscernible] as we always do after earnings. And I think this is the second time I've been answering Apple as our competitor. That is the first that we've been public. So it seems to be dwindling and dwindling and dwindling and rightfully so because I can't state it anymore clear. It's actually a silly point of view to even consider. It's been almost 50 years that Apple has existed. If they haven't proven to the world that they have no interest or particular expertise in enterprise solutions, they would be the first I would stand here and say that.

Well, maybe this is -- mark that down as maybe the last time I ask this question.

Noted.

We've talked about it sort of offline.

It does get asked. It's reasonable to ask, but it's dwindling...

That's good to hear. Just anecdotally that people aren't asking you about it. That's encouraging. I asked you on the public call about competitive opportunities, and I think you always -- you said you were sort of hesitant to [ settle on ] any 1 particular vendor. But there is a favorable competitive dynamic. The elephant in the room is there's some changes going on with some of your bigger competitors. How do you think about sort of that balance between [Audio Gap] active replacement opportunity that can also be an interesting catalyst to '23 and beyond.

When a market event, as you mentioned, we're sort of in right now or we will be in 2023 that will create a displacement -- replacement market as, frankly, I believe that this particular event will create the largest replacement market that we've ever faced. The approach that we take is, well, there's a lot of organizations out there who are going to be hurting and wondering about their future. We have an opportunity to help them. And so we will line up certain strategies, specifically to take advantage of that opportunity. I'll give you one in particular. Management of devices is not something that's well known for being able to smoothly migrate from one platform to another. It's pretty much a reimplementation. So when all of this news started to break last year, we started to look at -- there's got to be a better way that we can help organizations migrate. And our team wrote a migration tool that is actually as slick as anything that I've seen, specifically to help with that particular opportunity. We will usually provide some guidance to the sales team of how can we actually work with organizations based on when their renewal is with their current provider because people don't want to pay twice with somebody who they're leaving and somebody where they're going to. So we will put together very specific strategies in order to make that -- sometimes the word safe passage is overused because every single software company in the world has had a safe passage program from whoever their competitor is. But we think of it that way. What is the smoothest path, the easiest transition that we can make for those arguments.

That's great. So think about that as kind of a long tail benefit given the renewal cycles and things like that. So if you put that in the category of things that you can theoretically control next year and have some sort of influence on. I'm going to ask you 1 question, then if there's a question out here, we'll pivot to the audience. Ian, when you -- it's a tough time, right? Everybody is scrutinizing IT budgets, as a CFO, how -- what's your focus on consolidating your own internal spend right now? Are you looking to consolidate platform vendors? Are you looking to sort of eat your own dog food in a sense of sort of leveraging into platform plays?

Yes, I'll be both. I'll just start with that.

Something you call out in particular that are particularly...

No. No, I mean, it is interesting. So I mean [indiscernible] I think we're $224 million of ARR, today, we're $491 million. So just that scale or the growth that we've been on, that changes your dynamic internally. Like maybe you were doing 1 process, I'll say, with payables. You've been doing that. Now you've hit a scale where, guess what, maybe we should automate that, right? And so what we're looking at, in fact, I did what we call our Jamf report on Monday of this week where we talked to all employees and give them a preview of kind of how our discussions work with investors, I challenge everyone to make sure we're looking at every single process, we're looking at -- we're not double spending on IT dollars. We're thinking about how to be as most efficient as possible. Now that we're 2 years older and that we're bigger and more scalable and how do we become more scalable and really set ourselves up for success in the future. So you name it, IT budgets, do you really have to travel? Are we hiring at the right pace? What are you hiring for? Can we automate that? So those are some of the things kind of on my radar to ensure our expenses grow at the right pace.

And really, all year -- the approach that we take from a leadership perspective is that we're in this for the long haul. And so we tend to not swing with the pendulum in either direction. If you take, for instance, at sales hiring, we've actually grown our sales personnel this year as a percent lower than probably any year in our history. And you see that even a little bit on the top line results, but it's because as we came into January and February of this year, we saw an escalation of sales compensation that was to absolutely unreasonable levels from a talent perspective. And there were organizations out there throwing almost as much money as you want to get each and every salesperson. We specifically chose not to do that because we believe that we were in a 6- to 9-month window where -- that was going to start coming down because of the news that we're reading of late and that we were not going to sacrifice our future just to get to full headcount with inside that 6 to 9 months. And now as we're coming into an environment where talent is going to become more readily available, frankly, at a more reasonable cost, we'll be able to, in a kind of a wiser method, add to our quota-bearing reps, because we didn't do what everybody else did last year.

So think about that as an incremental driver perhaps to '23 and beyond [indiscernible] capacity perspective. I'm going to pause here for a second. Is there -- yes, [indiscernible].

Thanks, Dean. Just to double click on that. As you're going after sales capacity, it seems like the growth is in commercial, so when you think about adding folks, is commercial significantly outgrowing the education side, how aggressive are you getting after that opportunity as you look at '23?

Yes. So the question specifically, if you couldn't hear it, was as we add rep capacity, do we think we'll be doing that more on the commercial side versus the education side since commercial is growing faster. By and large, yes. The commercial side is both growing faster and it's much, much larger. It takes more coverage. The education market is relatively finite. We are going to continue to focus on education because we just launched -- it's actually been the best product launch in our 20-year history. In its first quarter, we launched a product in education called Safe Internet on July 1, and it had its very first quarter was the best first quarter of sales that we've ever had in 20 years. And because of what we believe will be a growing popularity of that solution, we'll continue to focus on education. However, as a ratio goes, it's going to be heavily weighted towards a rep capacity for the commercial markets.

And Dean, maybe just to add to on the security side, too. We are looking where those returns are going to come next year. And so security is one that's growing. And so we are investing on the security side, which shows in the commercial side as well.

Do you anticipate doing -- oh, go ahead.

[indiscernible] organic growth?

So the question being -- I'll repeat it for those that couldn't hear it. How do we balance our M&A approach because we have been acquisitive over the last couple of years, mostly with tuck-in acquisitions versus driving organic growth. So just as an example, all of our Q3 results are 30% revenue growth or 50% growth on security products even, all of that was organic. There was no inorganic worked into any of those numbers. So we believe that we have got one, a core management system that organically is still growing well. A new security platform that is growing even more, nevertheless, we still see an opportunity whenever there is kind of a whole in the total customer solution that we can provide, if we see an opportunity to improve that solution through inorganic except we'll do that. Actually, just very recently, we announced an acquisition, not closed yet of a company called ZecOps. That was because of a piece of technology that we always wanted to be able to provide on mobile devices to be able to assess whether there are any security vulnerabilities on the device or have been in the past through a deep examination of the logs, which literally nobody is doing in the industry. We saw that as a whole, I mean let's face it, CrowdStrike does it for Windows. We do it for Mac and nobody who's doing for mobile, and then we found the company that we didn't know existed in the world called ZecOps, and we evaluated their solution for about 6 months because we barely believe that it could happen and sure enough, it's real. And we think that, that is actually going to put us on a completely different trajectory once we bring that in as a Jamf product for security for mobile devices. So that would be -- we just felt that there was more problem to solve there, and we couldn't do that organically. We didn't have the expertise to be able to do that organically, and we found another company who could and we brought them into the Jamf family. But ultimately, our objective is to drive organic growth that inorganic activity should be layered on top of it, but it should replace organic growth.

[indiscernible] iOS and Android.

Yes, it is.

Sort of signal direction of travel, outside of the Apple ecosystem or...

That's a good question. So manage and secure Apple at work. Manage is Apple only, secure is Apple first. So one of the things that we found on security is especially around mobile devices, like it was 1 thing we could provide security for Mac and just for Mac, but on mobile devices, almost everything we were doing from a security perspective, antiphishing, antimalicious download, safe Internet, ZTNA and now on-device threat hunting, it just made sense the way that the solutions are architected to be able to offer that solution for both iOS and Android. So we actually have a very robust Android security system as well. Now we do not pull any punches. We believe that Apple as a mobile device is the leader in the workplace, and that needs to be where our top focus is. But in the area of security, it makes every sense to also do -- offer that for Android devices. And we do and we will.

Excellent. Well, we are unfortunately out of time. But from all of us at RBC, thank you and best of luck into the back half or through December and next year.

Awesome. Thanks, Matt.

I appreciate it. Thanks everybody.