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

Okay. Welcome. I'm starting, and I apologize because I'm using the questions for everyone that is here. So if you kind of heard that before and heard other people talk about it, I apologize.

So a lot of stuff has happened since Q3 results, and we had election. So maybe talk a little bit about what you're seeing out there? Is the world changing? Or how do we feel about it?

Yes. I mean I can start and then David can pile on. It's a bit early to tell, obviously, just because the election just happened, but we've had some time since we released our Q3 earnings. We had a good quarter. We beat and raised. And so that's something that was good, right along with expectations, a little higher than that, of course. And as far as the election and the new administration, there's been some concern, "Oh my gosh, is that going to impact education?" But we have to remember that education money has been distributed already to the states, and most of it is controlled by the states. So that's been something that's been less of a concern. I was at a couple of other conferences and meeting with other CEOs and they talk about, under the new administration, there's going to be less regulation, it's going to be more business-friendly. I think some companies are looking at more potential acquisition capabilities, especially larger companies, given the tenor or the expected tenor of the new administration. But that's pretty much what I've seen from our side. It presents a good opportunity for us because, to the extent that there's optimism in industry, then we can take advantage of that. And to the extent that we don't see much downside on the education side, which we don't as a result of that, that's going to benefit us as well.

I think on the education side, I think it's important to note that about 90% of the funding comes from state and local anyways. 10% is federal government. I met with a lobbyist in D.C., and they were a little skeptical on the ability to cut programs altogether because it requires combined effort in Congress. And then on just the macro side as a whole, I think I check with my Head of Sales every week, and I say, "Is there anything?" And I think it's kind of progressing as expected. We anticipated within the guidance some level of budget flush, but nothing out of it.

That was my next question. You're taking my next question. How is budget flush for you guys? Is that kind of a big thing? I mean the other thing, kind of 10, 15 years ago, it was all about budget flush and then SAP had this massive Q4 and that sort of stuff. Is that kind of in the world of subscription and consumption, is that actually still really a thing?

Yes. I mean I've been in the industry a long time as well, and I remember everything get into Q4 and not as much nowadays. We do tend to see commercial have a good quarter in Q4. A lot of times, it's planned for. There will be some components of that. But I think it's lessened from years in the past. We have seen, given the uncertainty leading up to the election, and leading up to, yes, interest rates are coming down. But what impact is that going to have in the midterm? Is it going to increase inflation? And so there's been some uncertainty around that. But I think companies in generally have done a little better. And I do think that there's some budget there that, to the extent they get to the end of this year, they'll utilize it as they have in the past.

Yes, we had a strong Q4 last year. We had a price increase last year, which is the reason our guidance was at high single digits for revenues. And analyzing the pipeline and how deals closed and everything, we just assume it's going to be a normal flush this year, not like last year, but just kind of normal.

And then conceptually now, no guidance, conceptually now, if the world is getting better, where would you kind of look to see it first in terms of more on kind of, for you, John, for you more on the customer side? And then more for the internal metrics, where would you kind of think to look?

Yes. We've always talked about SMB kind of being the canary in the coal mine. And when things start to look better, they're able to move faster. So they tend to have more business formation or hire and invest in things. So they're generally the first ones and then enterprise will come along after that. And so that's where we would see it first, in the SMB side. Education is pretty set. Q2 and Q3 are our larger education quarters. As we look at Q4, we'd see things in the beginning of next year more on the SMB side start to ramp up and then enterprise to follow.

And I think on the down-sell because we've seen down-sell as the economy has been not favorable over the last couple of years, and I think we always look at how much shelfware is out there, how many seats are available, I think that will be the other area. As companies start hiring again, they're going to be at their max, so then we can go back to customers and negotiate more seats. And I think that's the thing we're going to watch for as things turn. And then on the volume side, we'll just look for volumes and see if it's picking up and then we can get some visibility on that, too.

I mean that's the thing. SMB sentiment is increasing quite a lot after the election, et cetera. And so far today as well, the guys that are focused, everyone is like, "Yes, maybe," but it hasn't really translated yet.

Yes. I think it's probably too early.

Yes, I know. As you think about next year, where are we on other drivers that we kind of think about? There's an education renewal cycle. We obviously had massive investments post-COVID, but a lot of those devices must be coming kind of to an end-of-life, et cetera. So as we or you guys think about next year, what are things that you're kind of paying attention to?

Yes. Well, I think as you mentioned, the refresh cycle is something that we're watching very closely. And with education, which is a smaller part of our business, but where we were historically, although commercial has taken the majority of that over since then, we've seen those devices generally last about 4 years is when an education district will go to do a refresh cycle. Most of those devices were purchased in late 2020, early 2021. So we're really coming up on that 4-year cycle right now. So we're anticipating that at some point. And on the commercial side, after COVID, post-COVID, there was a lot of hiring, you remember that, and then there was a lot of layoffs. And tech is a large industry for us as well because it's an early Apple adopter. So we did see that down-sell as a result of some of those companies laying off employees, and we've seen that lessen over time. So we're watching closely on the tech hiring. And when the tech hiring returns, we've seen it flatten a bit, but as it returns, we expect to have some tailwinds from that as well.

And remind us a little bit if there's a refresh because it's not a bigger number on the education side, for example. It's not a bigger number of kind of devices, it's just refresh devices. Does that change your revenue somehow? Or do you get more out of it? How should we think about that?

Yes. We've typically seen companies, well, school districts as we're talking about education, if they've chosen other device platforms, they tend not to be as robust, as durable. They also have a finite life cycle, for example, and where the iPads and Apple devices won't. And so we've seen at that time of refresh, Apple can gain some market share in that area, and that obviously helps us.

Yes. And then the other thing to think about, and it's more high level, if you think about next year, is there anything out of Apple that could make things interesting? Obviously, they have the AI phones or AI chips in the phones, et cetera. Does that kind of, at some point, create an opportunity for you guys?

It does. It does. And we've heard that from our customers as well. We talk about the refresh cycle in education, but there's also one in commercial side as well. And we've seen CFOs, given the uncertainty, try to elongate that life cycle of the device a little bit longer, especially on the cusp of what they've seen and we've all seen in the market with the AI-enabled devices, with the Apple Silicon being able to make that device much more powerful and run AI on board. Again, that's something that Apple, they've stated very interested in, is the privacy and being able to do that on the device and then creating the silicon to be able to do that, to have the power on board to do that. I think that companies are looking to leverage that and rather than buy something immediately, but then all of a sudden then have a refresh of a device that's going to be able to have more onboard processing power.

Yes. Okay. And David, not to put you on the spot, but when you joined, you kind of must have kind of thought about the long-term opportunity. How do you think about from here the growth formula for Jamf and where things should kind of play out?

Yes. I think we have a very solid foundation in management that we can leverage. We've added security. It's now about 25% of ARR growing in the mid-20% range, sell that, and then also the international opportunity, too. We're about 1/3 of revenues internationally now. And I think it's a massive opportunity. Education is a growth area outside of the U.S., too, because we've signed up multiple countries as a whole to provide security and/or management to the devices. And then on the channel side, too, we've been expanding the channel. About 80% of revenues are channel-driven outside the U.S. In the U.S., it's about 40%. So we can do a better job in the U.S., and we've expanded. We have AWS as a partner. We've just signed Azure. We went live with Azure. We're on both of their marketplaces. Customers of Amazon, AWS and Azure, they can buy Jamf now as part of their annual spend. And then the sales teams can get quota retirement for us, too. So we're trying to spread it everywhere. And then on top of that is the mobile device, too. Mobile is a huge opportunity, the deskless world. Everybody's got a phone or 2 or 3, watches, the Vision Pro, I think that's an area where you need security. And a lot of people might not think you do, but it's an area that we're pushing very hard, and we're seeing nice traction there, too.

Yes. And on the mobile side, even since the IPO, we've been talking about, "Oh, mobile," because on the Mac side, you have a very high market share. On the mobile side, the market share is not quite as high, but there were a lot of vendors that were playing in there that kind of took some of the mobile market share. But then those vendors are just kind of a part of a bigger beast that is kind of charging you 5x over what you had before, I'm not talking about Broadcom, or are in different hands. How do you think about that mobile conversion story?

Yes. Well, as you mentioned, that's created a great replacement market for us. And we've gotten a lot of mobile customers and devices in the tens of thousands of a quarter from that opportunity. The thing that excites me when I think about future possibility is just the expansion of the TAM of the mobile or, as David mentioned, a deskless opportunity. You can do baggage tracking by having a watch under management and an RFID in the baggage tag on the bag. And every time a baggage handler touches that bag, they know where that bag was and where it is and when it was there, saving carriers millions of dollars and having to track bags and use scanning devices, things like that. Retail outlets, when is the last time you walked into a retail store and went to an old-school cash register? I mean they're all mobile devices now. And all of these devices that employees are carrying around, companies are thinking up of new and innovative ways to use them that we haven't even thought of yet. And all of those devices need to be both managed because they have to have the applications on that device and especially if it's a shift work. So the person on first shift will turn in that iPad and then the manager from the second shift will pick up that iPad, log in and it immediately has all of the details of that second shift manager, nothing to do with the first shift manager. And those are the things that manufacturing companies are using retail outlets. It's just way expanded the traditional clamshell corporate sitting at a desk, working on a laptop.

Yes. As part of the kind of the changing world, and I apologize again, I did ask a question to kind of all the other guys, but how do we think about gen AI playing in? We mentioned Apple kind of doing potentially something there. But how do you guys kind of do it more from a Jumf perspective?

Sure. Well, we use it internally in a lot of areas, research and development, for example, with our support and services organization, to help query the massive amounts of information that's out there on Jamf and Apple devices and how to fix and do these things. But what's most exciting is how we're using it in our product going forward. So one of the advantages of having both management and security together is because if you find a vulnerability from a security standpoint, you can actually remediate it or do something about it. There's whole industries out there that are based on analyzing and interpreting the telemetry that comes from those end points in. And if we have the management capability to do something about it and we can put AI on top of that so that can help decipher all that data coming in and then automatically do something to remediate that, I mean that's really where the market is going in our area.

Yes. And then, I mean, you mentioned a little bit the security upsell opportunity, but also the change in the industry there. Where are we on that security journey for you in terms of upselling, cross-selling, into your installed base?

Well, to use a baseball analogy, it's early inning, like first, second inning, really. I mean we're early in the game because of the fact that there's just so much -- one, security is not becoming any less important. Bad actors are becoming even more sophisticated. Apple as an operating system is super secure. But as it expands into the corporate environment, it becomes a bigger and more valuable target. So again, security is becoming even more and more important. And there are so many different new vectors that bad actors can come in, whether it's through the network or the end point management protection capability, mobile threat defense. There's so many aspects of security that you have to cover. So we think that that's a great opportunity for us, especially as we do it Apple-specific. There's a ton of great products out there that are primarily written for Windows. Some of them will do some things in the Apple ecosystem, but they're primarily written for the Windows environment. But we are Apple first and Apple best, and that's where we focus, and we handle a lot of things natively.

And where are we on penetration levels? And then the question is, is there an argument to think about pricing packaging differently that you have, like that SKU is the new SKU and there's security in there, so you kind of force things? Or how do you think about that?

Yes. I mean, as David said, it's a smaller percentage of our overall ARR. That's a good thing because there's a lot of upside opportunity there. About 40% of our management customers have at least one security product on that device. But the nice thing about it is, is that every device can have one device management product, but every device can have 5 or more security products and many times do because it's network security, it's end point protection, it's mobile threat defense. All of these different security products will roll into that. So there's a lot of opportunity still even to go yet with our existing customer base.

Yes. Okay. And then how do you think about overall pricing and packaging on that one, just kind of to go back.

Yes. No, that's a good point. And I didn't answer the last part of your question, but I should have. So the security, we have a security suite. We just released it last August, I think it was, mobile security suite that won the Mobile Security Solution of the Year award. And so we're getting some external market accolades that our security product is working really well, especially bundling them together. So we have a product called Business Plan, and that has both our management and our security products. And the adoption of that, particularly in Q3, it's really ramped up, and we continue to see that as a way into the future because they are two sides of the same coin, management and security, and customers are taking advantage of that by buying the bundled product.

And it is an embedded price increase because they're going from using the management tool to then this bundled approach and includes the 5 different security tools, too. And so we released that and we're seeing nice traction with that. But in the long run, security and management should be together. I think John has talked about the convergence of security and management. And I think how is it bought, I think that will adjust too in the future because you really need management to manage security, too.

How does identity kind of play in there?

Yes. I mean that's a big part of the security piece of it. And of course, we're partnered very closely with Okta, as an example. We also integrate into Entra on the Microsoft side. So there's a lot of identity capabilities that we have ourselves in Connect, but then also integrate into others as well, other solutions as well.

Yes. Okay. And then I want to shift gears a little bit, and we talked a little bit about it earlier already that you're kind of gaining some of the mobile customers from other players. But your industry fundamentally has changed in a way, so you have the Microsoft more on the Microsoft world, and they got a lot better on the mobile side. You have a lot of kind of other vendors that are out there that is not doing that well, and then you have you as kind of the hero on the Apple ecosystem. Do you see any kind of industry evolutions in terms of people kind of realizing, okay, there's 2 big players in a way, you and Microsoft, and kind of consolidate on them. Where are we on that journey?

Yes. And we partner very closely with Microsoft. And David just mentioned that we now have Azure cloud capability where before we were just AWS. AWS is still a fantastic partner, but we expanded that to include Azure and being part of the Azure marketplace, of course, not only do Microsoft sales reps get quota retirement from selling Jamf because it's part of their marketplace and it uses Azure cycles, that's a benefit, but we also have over a dozen integrations with Microsoft today. So we'll put that end point information into Defender. We're integrated with Entra. We're integrating into Sentinel as well. So there's a lot of things that we do with Microsoft and people say, "Oh, is it an either/or situation?" It's really not. It's Microsoft and Jamf, in many cases, if you have more than one ecosystem in your environment. We've spent over 2 decades developing at the pace of Apple. And that's something that we really are one of the only ones that have ever been able to do that, working so closely with Apple, and we'll continue to do that and then supplement the things, like what a Microsoft might need from the Apple ecosystem or companies that have focused primarily on Apple, we're the chosen partner for them.

Yes. I mean if you partner with Microsoft, how does that work? Because in a way, you have this call it coopetition a little bit. Is it competition versus kind of cooperation? And how do you keep that kind of balance?

Yes. There's one area where we overlap, then that would be their device management product, again, written for Windows can do some things on Apple. We even integrated into that. So it's much, much more on the coopetition side versus the competition side, the cooperation side more so, just given the capabilities that we have. And again, Microsoft works with us specifically because we are focused on the Apple ecosystem and can do that, and they're focused on the Windows operating system.

Yes. Okay. In the last few minutes, I want to shift gear a little bit. So David, you joined. Being a successful CFO before, what was the mandate when you joined? Are we kind of continue what you do?

Yes. So I think first thing is get familiar with the company, get to know the company better than anybody in the business because you got to tell the story, understand how investors view things. We're working on the plan around it. So my first month was Board meeting, earnings call, conferences, investor meetings, building the plan. So I guess it is the perfect time if you could write a book on how to start as a CFO, this is how you do it because you got to get up to speed very quickly. I think for me, it's continuing on with our progression on margins. If you look at our incremental revenue growth this year, we returned to the bottom line about 70% of that. And so looking at gaining efficiencies with the business, being more productive and being mindful of growth, right, we have to prioritize growth, but we have to spend smartly for that growth. I think those are the things that we're going to look to do. And I think the north star is Rule of 40 by 2026. I think that is the goal. And unlevered free cash flow, that's the other item. I don't think a lot of people talk about or think about it. It's grown at 70% this year. We've been able to grow it substantially over the last 2 years, and that growth will continue. And so I'm very pleased with the company, its market position. We have competition like all companies, the product is exceptionally good. And it's been a pleasure getting to know John and the team, and I'm excited for next year.

Yes. And then there has been a meaningful improvement in profitability already. How do you think about as you go in, can you do more? Is it kind of tuning it now? But then if you think about recovery, you invest again a little bit in terms of sales capacity, et cetera? How do you think about balancing all of it?

Yes. We did a complete study on the sales capacity with our modeling for next year. And we've been able to kind of slice and dice the numbers. And it really comes down to focusing on the leverage of the business and managing head count heads. I think the teams have done a great job of being able to manage through, we made some changes earlier this year, and really focusing on efficiency and productivity. So it's a mindset of the company, and that's what we'll roll forward into next year. Macro recovery, I think we're well positioned if there's a macro recovery, and looking at how we spend money next year.

And then how set are you guys, I mean, you mentioned growth, how set are you guys on the Rule of 40 in terms of how do you get there? I mean there's 10-30, 30-10. Is there kind of, "Oh, no, we want to be this?" Or how do you think about that?

I think we will prioritize growth. And if there's growth that we can see and invest in, we will do that. If there's not growth, then we will return it on the bottom line. I think that there's always a healthy balance, but understand we will always prioritize growth.

Okay. Perfect. Yes, that makes sense. And then if you think about, coming out of the downturn and going to the better times, but everyone got more efficient in terms of how they thought and what they do, how do I have to think about your need to reinvest? Because there's sales productivity that still can gain, so you don't need to hire that much sales guys. And I don't want to get to your kind of budget for next year, but how do you think about just conceptually about that, the evolution of the industry in terms of kind of throwing body at a problem versus kind of understanding can you do this smarter?

Yes. And I would say it's a great point. I think the answer has always been we need to do more work, so let's throw more bodies at it, right? And I think over the last couple of years, that mindset has really changed. And not just us, I think it's many companies out there. Now it's more of let's dig through, let's be managers, let's manage people, understand their skills and then upgrade as needed. And I think that is the mindset that people will take forward out of this cycle as recovery happens. I don't see it where everybody is going to go crazy spending again because everybody still believes that you need to be profitable and you need to return to the bottom line. Will they prioritize growth? Of course, they will, but always with the mindset that we need to return margin to the business.

And remember, we've done a series of things to help with that efficiencies already. We had a comprehensive technical update of our system that we did in August. And we're seeing the benefits of that already in leveraging our third-party channel as one of many things. But in the past, our third-party channel couldn't come in and even register their own deals. And so they had to call a Jamf salesperson for a channel partner to get that deal. Now they can do that. And that's been a great efficiency. It's going to help us leverage more of the third-party channel, which is going to increase our sales productivity. So there are some things that we've worked on already that should have the benefits of that as well.

Yes. Okay. Perfect. And then last question for me is about capital structure. So now as we're coming out, okay, the world is maybe hopefully a better place. How do you think about where you are in terms of balance sheet? What do you want to do with the money?

The beauty is, here, we generate a lot of cash flow, and it's only going to improve as we get more efficient with the business. We have a $375 million convert that comes due September 26. We're doing work right now to see kind of what do we do with that, what's the financing. We'd like to do something before it goes current. We also have a line of credit of $175 million that's untapped, $200 million of cash on the books plus cash on the books. So if you look over the next couple of years, we will generate a lot of cash. This year, we're going to generate about 70% growth in cash flow. And if you look and you map it out and achieve that Rule of 40, that growth likely continues.

Yes. Well, you have to, yes.

Yes. So we're watching the convert market. It's quite strong right now. We go into a quiet period next week. So coming out of earnings, we'll reevaluate and see what we can do.

Yes. Okay. Perfect. In a way, that's a good closing statement as well. Thanks for joining me. I really enjoyed the conversation. Thank you.

Thank you. Thank you very much.

Thank you.