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

Good morning, everyone. Welcome to Day 2 of the JMP Securities Technology Conference. My name is Joey Marincek, and I'm part of Team Software here at JMP. Really excited to have Jamf present today with me CEO, Dean Hager and CFO, Ian Goodkind. How you guys doing today?

We're doing great. Thanks for having us.

Thank you so much. So we'll have a number of questions we'll run through during the session. We'll leave some time at the end as well. But just to kick it off, can you give a brief overview of Jamf and the problems or help them solve today.

Sure. Again, thanks for having us. Thanks for being here, everybody. Jamf's mission is to help organizations succeed with Apple. We do so by managing and securing Apple at work. Our focus for 21 years has been on the Apple ecosystem and helping a large and small organizations, whether they be government schools, hospitals or businesses, deploy Apple devices in mass in a way that it preserves that consumer simple experience that Apple is so well known for, but yet provides the enterprise level of security and efficiency that organizations need. We've grown over the last 21 years, especially over the last 7 or 8 now to over 71,000 customers that we support around the world. And those customers are running Jamf on over 30 million devices. So -- and everything from helping the IBMs of the world deploy over 100,000 map to helping the government of Japan deploy iPads to schools throughout Japan to running the iPads that are in the international space station. Just about every kind of deployment you could think of.

Awesome. And our classic question. How is the business Dean, what would you say?

No, it is your first question every time you speak with us. So obviously, 2022 has started to experience some macro challenges. With that said, in a strange way, we're as optimistic and encouraged about our business as we've ever been. We ended the year with year-over-year revenue growth of 31% on an annual basis, expanding margins throughout the year, strong free cash flow. And more importantly is the changes, both macro and within our business that has set up for even a stronger long-term growth. Our product lines expanded substantially, both in the management and the security space in 2022. For the first time ever, we've always competed with best product, which typically has meant were more expensive than our competitors. But when you consolidate on our management and security solutions, we replaced so many other providers for Apple that were actually a lesser investment upfront, which in this environment is terrific. The Apple market, the PC industry had a terrible 2022. I mean, ended up, I think, being in shipments down 17% year-over-year, which might be the biggest decline that the PC industry has ever faced, yet the iPhone, iPad and Mac all group and shipments year-over-year and market share expanded for all three, that's phenomenal for Jamf long term. And then competitively, there were some favorable things that happened in 2022 that, including most notably the Broadcom's announcement of their [indiscernible] acquisition that serve us well for the long term.

Maybe we can dig into the macro just a little bit more. What are you seeing overall? What does demand look like? And then maybe, Ian, if you could weave in how that's factored into guidance, I think that would be helpful.

Why don't we ham and egg it. I'll start it. And -- so overall, from a macro perspective, the demand from customers is as strong as we've seen. Our customer retention is year-over-year, really no significant difference there as well. And our competitiveness and long-term market, as I mentioned, we're bullish on that. The challenge that we faced in the last year has been the direct result of different employment expectations from our customers and employment expectations dictate how many devices you need within an organization. So both new customers and renewing customers are either buying or renewing at a lower device count than what I think would have been the normal rhythm of the business a year ago. Now that doesn't mean that they're renewing at a lesser device count. If you just take, for instance, the tech industry, for instance. The tech industry has experienced quite a few layoffs in the last couple of months. But prior to that, it had hired rapidly. Since we renew on an annual basis, those customers at renewal, to us, it just looks like a little slower growth than normal, not necessarily a decline. Nevertheless, it is a slower device growth rate, and they're also not buying forward. Any way you want to add to that?

Yes. And what I would add, exactly on that point, right, it's the muted device growth, but we are still seeing good new logos. We had 2,000 additional customers. In Q4, we added 11,000 in 2022. And then we have also built out the security advance business 3 years ago, we started. Now it's over $100 million in ARR. So we've taken those things into account. We looked at the last 6 months, and we factored that into 2023 for the first, let's call it, 6 to 9 months of kind of muted growth at renewal, call it, the growth of devices. But we do have some positivity at the end of the year. We do have some things specific within our industry. We have a product called Safe Internet for schools, which is we released late last year. We're really going to catch that budget cycle this year. We're just getting stronger at security. We have ramped [ QBRs. ] and then as Dean mentioned, we have one of the best replacement markets in our industry. And so we factored all that into our guidance. Now our revenue guidance doesn't depend on it because your bookings growth in your fourth quarter really don't have an impact on your guidance. And then the last comment I'd make is you'll see we've guided to higher profitability this year. It's about 150 basis points higher than last year, which we continue to expand margins in this type of market, and then we'll grow linearly over the year.

That's great. Super helpful. And we'll definitely dig in on the cost side a little bit more later. But can we talk about Apple a little bit? How would you describe that relationship? How has it evolved over time? And how do you describe it today?

In a word, strong. In two words, super strong. And I'd say that in that I mean we've been doing this for 21 years. I mean we know Apple extraordinarily well. They know us extraordinarily well. I usually describe our relationship as having really three aspects of it. There's going to be Apple -- well, actually we're each other's customer, of course. There is the development relationship and then there's the go-to-market relationship. And if I start, but the latter on the go-to-market relationship. Apple actually is a reseller of ours, both in the education market and through Apple retail stores, nothing's changed there. The strongest go-to-market relationship is actually in the commercial market enterprise space where they have reps out working with organizations. So even though they resell us an education that's strong, they just have way more coverage within the enterprise space. And they simply bring us into deals because we manage and secure in a manner that is consistent with embracing the latest Apple technology, and that's really important to Apple. In the co-development relationship, I always remind people, we are not dependent on any private APIs Apple. We use all completely public APIs. We have a level of abstraction in everything that we built so that we're not dependent, but yet there's a good collaboration and strategic discussion there. And then over on the customer relationship, obviously, we're an Apple shop, and they're Jamf shop. And Apple has been Jamf's customer since 2010. And there's never been a time in our history where -- they've been running us on more devices, using more of our product committed for a longer period of time than what they have right now.

Yes, it's so fascinating that they're also a customer of yours. Can you dive in a little bit deeper on that. So what are some of the ways Apple's using Jamf internally?

Well, I mean all of their Macs. There are iPhones that they use for productivity just like all of us. But what I think a lot of people don't realize is, no matter what Apple retail store you walk in worldwide, all of those devices are running Jamf, not just the devices that are there for demo, but the iPads that the point-of-sale people, the people who come out and serve you and they make reservations, those are all Jamf managed as well. So it is a very big commitment that Apple has made in Jamf, and we've served them well. They're an important customer and we're an important provider to them.

That's great to hear. Thank you. And let's talk about security. It's a blossoming part of the Jamf's story. What do you think sets you guys apart in security?

The word and -- because one of the things I will remind people is that we manage and secure Apple at work. And the strength that we've always had in the manage is, first of all, 70,000 customers are using us to manage the devices. That means that 70,000 customers are around in there are able to completely remote control and do anything that they want with the software that's on those devices, the settings that are on those devices. So virtually any security incident that you would need to mitigate you would use our management software to mitigate it. You had quarantine software, you would remove software, you would update software. All of that is done with our management solution. . So by coming in with a security solution, there's a natural in an yang that go with that in that if you detect a security vulnerability, you can mitigate that security vulnerability automatically. And it also gives us the ability to provide a true zero trust security framework, which everybody throws around that terminology, but what zero trust means is that you're able to detect any threats that are there and instantly block access to anything that, that device might or that person might have access to. And because of our management solution, we can block at the device level, we can block at the network level. And we have -- we're actually the only provider I'm aware of in the world that have partnerships with AWS, Microsoft and Google that they actually integrate and we integrate with them to be able to protect their cloud environments based on an Intel provided by Jamf. And then like I said, after blocking it, we can also kick off the automations that remediate the process. So it's a really nice combination that we're able to provide to customers.

And how do you think about future investments you expect to make on the security side in your security solutions? And then maybe weave into that the ZecOps acquisition and what that brings you?

Yes, well as it comes to investment, we have gone from $0 to $100 million in 3 years. Now we did acquire some of those solutions. In total, we acquired less than $30 million of ARR. So we've taken that and we've grown it to over $100 million of ARR by combining with our solutions. So we still have some work to just bring in some of those acquisitions and create a consistent awesome platform for our customers, and that is where the bulk of our focus is right now. And we did include acquisition as recently as November of ZecOps. And ZecOps has the ability to do some of the deep analysis of logging information on the iOS devices in a way that's never previously been done before. I'll describe it as akin to what Jamf has been able to do on Mac or what a crash plan is -- not crash plan, CrowdStrike has been able to do on Windows devices, we're able to do a really deep analysis of the logging information and be able to determine whether the device has been hacked. That type of functionality hasn't existed for iOS before, and ZecOps have created it. We acquired it and we'll be bringing that into our platform. One other thing on the management security that we've been noticing of late, I mentioned it briefly, is because now that we have the entire vertical stack for the Apple ecosystem and our security solutions also go beyond Apple's [indiscernible] secure all Windows or Google devices. But our stack is so deep on Apple that we're able to replace 3, 4, 5 different providers on that platform by providing an integrated approach that is actually less expensive upfront as well. That, as it turns out, has been more important than the last 4, 5 months than what we anticipated at the time that we guide into management security.

That's very helpful. Let's switch gears to Jamf fundamentals. Can you talk about that offering a little bit? What is taken like on Jamf fundamentals? And what's the strategy?

Yes. I mean right now, so we just released that, oh gosh, in 2022, and we're already up to 18% of our Jamf Now customers have adopted that. So far, the feedback has been good. And just a reminder, Jamf Now was just more management. Jamf fundamentals is now management and security, at the low end, it's less functionality. But it's been a really good uptake, and we've seen a lot of positivity out of it right now.

That's great to hear. And then what's the strategy at the BYOD? How much of a driver do you see that being over time?

So up until March of this past year, we didn't offer a BYOD solution. And we didn't because we just didn't think that there was a differentiated way of doing it. And we didn't think it made a lot of sense to lower the price of our product for a nondifferentiated way of doing it because you do have to offer it at a better price point. Nobody really wants to pay to manage a BYOD device the way that it's historically been. But everybody wants to pay to secure their organization. And if you're going to allow access from a BYOD device, you have to be able to secure your organization because they represent a huge potential security vulnerability. So Jamf in working with native Apple technology came up with a method that if you enroll a BYOD device, we will working with Apple, be able to segment that BYOD device into a work side and a personal side and your privacy is not violated in any way on the personal side and says, if you have a completely unenrolled device that you're using. But on the work side, you have all of the security that you would have on a work device. And now that you have eSIMs for phones, you can actually provide a personal number and a work number on the same phone. As a matter of fact, the phone that I have in my back pocket is Jamf BYOD enrolled running Jamf Security. I have a business line on it and a personal line on it. And it's kind of nice actually because my personal line is an AT&T carrier because I have a family plan for AT&T. My business line is because we're a Verizon customers of Verizon. So I actually have two carriers on my phone at all times. So I pretty much have coverage wherever I go. So it's just an awesome BYOD solution. And that just opened up like half of the number of Apple devices that are being floated out there using -- so they grew our TAM a ton for the coming years, yes.

That's great to hear. Let's talk about competitive dynamics. Can you just provide a brief overview of the kind of landscape and how often do you compete with [indiscernible]? I know that's a name that's come up quite a bit recently but...

So there's a -- the way that -- I would say that we have three different types of competitors. At the high end of the market, there's really only two. It is, Microsoft, and it is VMware. Microsoft is actually more of a partner than they are a competitor. I described them many times as being our second most important partner compared to Apple. And Microsoft relies on us heavily for creating that Apple experience within a Microsoft enterprise, and we have integrations across all Microsoft Solutions, Sentinel, Intune, Azure, Azure AD, Power BI, we have a lot of great integration there. And then on the VMware side, that's purely competitive. And frankly, they got a lot weaker in the last year because of the announcement of the Broadcom acquisition and nothing against them, but in the Apple space, if you don't stay up with the Apple technology, you can become obsolete within a year. And every other provider that is cross platform that has been consolidated has more or less disappeared from our competitive landscape. So we're predicting that, that will happen there as well. And we've called it, as Ian said, probably the largest replacement market we've ever been in. The low end of the market is companies like Addigy, Mosyle, Kandji. And I applaud what they're all doing because they're all kind of mimicking Jamf's strategy, which is to focus on the Apple ecosystem. And so -- and they're all kind of coming at Jamf from the same direction on the low end of the market. Yet, if you take a look at the commercial markets from 1 to 1,000 employees, that's our fastest-growing segment of the market as well. So it hasn't really hurt us. So I applaud what they're doing. I can't really comment much about the business as they're private, but our win rates are as strong as they've ever been. And as I mentioned, our growth rate in the 1 to 1,000 employees, which is where they're attacking us, is actually the fastest of all the commercial market segments that we're in. And then the third type of competitor we have are security companies. And frankly, they're all customers of our management solution, most of them are. So they are actually our competition with security companies is very similar to Microsoft. Officially, we have some competitive solutions, but we end up cooperating more than competing.

Great overview. I'll pause it there. If there's any questions from the audience, happy to queue in.

You said in the securities -- with your security offerings, you said sometimes you can replace 3 to 4 separate solutions together. What the solutions are you replacing?

So our whole platform boils down to three things: management, connection and protection. So protection is all about threat prevention. So there, we might replace SentinelOne and ESET, everybody that's out there in the threat protection space, either for mobile or for laptops. In the area of connection, it's really about all of the identity integration with cloud identity providers. And then being able to provide a simple authentication and zero-trust access into the network. There, we might occasionally replace like a Zscaler. And then on the management side, it's going to be your VMware. So we've had situations where somebody has decided to consolidate for Apple on us and move off of, let's call it, a VMware could be Carbon Black, could be SentinelOne, Zscaler combination.

[indiscernible] say -- can you ballpark like how much savings [indiscernible] company to the customer?

I wouldn't be able to throw out an exact percent because it would really depend on all of the different solutions they have and what providers they are. But undoubtedly, when you combine -- our management software alone is generally premium priced because we're a leader in the space. When you combine with our security solutions, we're a little bit more value priced. And I haven't seen a combination yet where we can't offer the customer something right up front. If you add connection and protection, onto a management customer, which management has been our historic core, you will essentially get about a doubling of your price per device. So that is why we see it as a huge opportunity to go back and sell security to all of our management customers. And even though that's a pretty big uplift, it actually still comes in under once you start adding up everything else they're using for security on the solution -- on the platform.

Any other ones from the audience? All right. Perfect. You did mention the AWS partnership, would love just to hear the key points about that relationship and how you see that playing out?

Yes, there's a few things there. So there's a virtual EC2 Mac that we manage. There's the Accelerate program, which -- it's one of those things you like do we get excited about, do we not, but we've actually seen some positivity there. And just for clarity there, that's where their reps are actually paid to go out and sell our product, and they're compensated on it. And then you actually can meet -- those customers can meet their minimum spending for AWS by buying our product through their marketplace. So that's actually been something that we've been keeping our eye on, seems pretty successful. And then the verified access side, which is where we trend ZTNA into their verified access. And really, the customer is getting the best of the world because they're getting the real clean data from an Apple posture.

That's great to hear. And then on the cost side of things, I don't want to dig in a little bit. What are some ways you're looking to reduce costs in the current environment? How you're thinking about overall spend?

So a couple of things there. So our largest expense is headcount. I mean we've said that. We are -- we've slowed hiring. We basically frozen hiring, but we did get to our QBR target for us to say that out loud. We did a lot of these actions in 2022. So it bodes well for us in 2023. We want to achieve a certain target on QBRs. We've gotten to that target. Why we did that, again, we see some positivity in our market towards the end of this year, but we are exiting this year either flat or lower headcount. And that comes through things like natural attrition, right, and good performance management. And that's something we've always done. We've been very prudent about things. We've been balancing our approach. And then we're going to look at other things. We have some facilities that hey, we've been in COVID for 3 years now. We know how much [indiscernible] can we sublease some of these, can we get out of some of these contracts? Software, like everyone else, we -- hey, we have the right seat size, that sort of thing. So we've really taken that approach, and we've been just really smart with our expenses. And we do it over time. We're not ones that knee-jerk reaction, we're down the fairway, and we're just really prudent about it.

And are you just hybrid or -- you are more of a hybrid, right?

We're hybrid.

We provide office as a service. And as a result, we'll probably be able to save a little bit on expenses there. But we have really, in part, using our own technology, have made remote work really work well for us.

Sounds great. And then lastly -- last question here. Is there anything you feel like is misunderstood or investors underappreciate about the Jamf story?

The one thing that I think that, of course, we always get the question regarding Apple and whether Apple whatever want to do what we do because -- and the example will always be throwing out is because that's what Microsoft does. But that's because that's what Microsoft wants to do. Microsoft is focused on business. Apple has never been. And so the partnership is incredibly strong yet because of the consumerization of IT, the Apple devices are naturally entering the workplace. And it is our prediction based on all of the public data, and I think it all supports this. That within the next year or a decade, Apple will probably be the dominant endpoint within the workplace on a worldwide basis. And when that happens, just like 10 years ago to lead in the enterprise, you had the first lead in Windows, 10 years from now, if you want to lead in an enterprise, you have to first lead at Apple. And since we are -- we have the pole position on that, we think that bodes well for our ability to expand over the next decade.

I think it's a great place to end, Dean. Thanks guys. Really appreciate it.

Thank you.