JAMF - NASDAQ

Thank you for standing by, and welcome to Jamf Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jennifer Gaumond, Vice President, Investor Relations at Jamf. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call to discuss Jamf's third quarter financial results. With me on today's call are John Strosahl, Chief Executive Officer; and Ian Goodkind, Chief Financial Officer. Before we begin, I'd like to remind you that shortly after the market close today, we issued a press release announcing our third quarter financial results. We also published a Q3 earnings presentation, along with an updated investor presentation and excel file containing quarterly financial statements to assist with modeling. You may access this information on the Investor Relations section of jamf.com. Today's discussion may include forward-looking statements. Please refer to our most recent SEC reports, including our most recent annual report on Form 10-K, where you'll see a discussion of factors that could cause actual results to differ materially from these statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Jamf's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our earnings release. Additionally, to ensure we can address as many analyst questions as possible during the call, we ask that you please limit your question to one initial question and one follow-up. Now, I'd like to turn the call over to John Strosahl. John?

Thank you, Jen, and thank you, everyone for joining us. Jamf achieved strong results in Q3, exceeding expectations for the 14th consecutive quarter. Year-over-year revenue growth was 15%. Non-GAAP operating income was $12.4 million and 80% increase over the prior year period. This resulted in a non-GAAP operating income margin of 9%, a 300 basis points improvement over the prior year period. Additionally, ARR grew 15% year-over-year in Q3 to $566.3 million. We continue to achieve these results amidst a challenging macroeconomic environment, a testament to the strength of the Jamf platform and diligent execution by our team. In Q3, we saw continued muted device expansion, but some signs of stabilization with eight of the top 10 deals, including an upsell component. Over 40% of our new customer pipeline generated included a security component and over 85% ARR growth for our business plan and enterprise plan combined, as customers implemented trusted access. We ended Q3 adding 900 customers and 500,000 devices to our platform during the quarter, resulting in more than 74,400 active customers running Jamf on 31.8 million devices. Of these customers, 23% utilized both a security and a management solution, an increase of 1 percentage point from the last quarter. This increase helped drive to 6% year-over-year increase in Jamf ASP. We are proud of our ability to consistently add customers, grow devices, and expand with additional solutions. I'm confident in our ability to continue to achieve strong results in difficult times, and I'm excited to see what we can achieve in a normal environment. While I have been at Jamf for just over eight years, it's been just over two months since I became CEO. I want to assure you that our focus on helping organizations succeed with Apple has not changed. We will extend our leadership position by continuing to execute on our strategy. Our business has changed dramatically since our IPO with over $300 million of ARR added in just three years. Now is the time for Jamf to enter the next phase of its evolution, scaling for growth while driving profitability. This isn't new for me. I've helped scale large organizations in the past and spent a third of my career outside the United States. This experience will help us continue to expand internationally and capture the enormous opportunity that exists for Jamf globally. I could not be more delighted to lead this team and continue building on all the successes we've achieved to date. One of the key events during this past quarter was our Jamf Nation User Conference, or JNUC. In September, we hosted our largest JNUC ever in Austin, Texas, where we brought together our unique and tight-knit Jamf Nation community. This year, we highlighted new innovations that further bring to life our vision of trusted access, allowing trusted devices and trusted users to securely access corporate resources. We were honored to hear from some of our key strategic partners like Apple, Google, and Microsoft during our keynote as they highlighted ways they are helping organizations succeed with Apple, with the help of Jamf. Also, at JNUC this year, Fletcher Previn, the CIO at Cisco presented how Cisco's employee Mac Choice program powered by Jamf makes employees happier and more efficient, while reducing costs through fewer IT tickets and lower cost of Mac ownership. And Apple has recently made the math of total cost of ownership even easier by lowering the price of the 14-inch MacBook Pro, which now includes the new M3 chip. Additionally, we hosted our third Annual JNUC Investor event where we described Jamf's key growth drivers over the medium-term. Jamf is poised to make great strides growing within our customer base, as well as bringing new customers into the Jamf platform. By leaning into Jamf's unmatched Mac leadership, combined management and security offerings, and our expertise in both the Mac and mobile ecosystems, we were able to bring the power of the Jamf platform to help our customers meet their organization's goals and position Jamf to accelerate growth as macro conditions improve. In the Mac space, Q3 was another challenging quarter for PC shipments with IDC reporting the broader PC market declining 7.6% year-over-year, and Apple shipments declining 23.1%. Despite this decline, Apple market share for the quarter still grew to 10.6% from 8.6% in Q2. Much of Apple's year-over-year decline was the result of a tough comparison with Q3 2022, where Apple shipments grew 40% due to the end of a COVID-related production halt in a PC market that declined 15%. IDC anticipates the second half of 2024 will benefit from post-COVID refresh cycles as well as the end of support for Windows 10. We agree and believe the refresh cycle could be supplemented by the recent M3 Mac launch. These factors when combined with an increased prevalence of employee Mac Choice programs will give more employees an opportunity to switch to Mac at work. A great example of this is SAP, a longtime Jamf customer. SAP utilizes the full Jamf platform with Jamf's enterprise plan across their entire Apple fleet. Also, SAP joined our JNUC keynote presentation to highlight how they are utilizing Jamf Trust technology to create a consumer-like experience for employees with virtual employee badges. Jamf Trust brings digital trusted access policies to the physical world, ensuring that only users on secure devices are able to access buildings and offices. Virtual employee badges are just one of the many value added workflows SAP has implemented for its employees leveraging Jamf. A few years ago at JNUC, our customers told us Jamf Pro made deploying their Apple fleet simple, but they needed an easy to deploy security solution to meet the increasing security demands of their organization. Cyber threats continue to rise as bad actors level up their technology according to IDC's future enterprise resiliency and spending survey. In companies of 500 employees or more, 50% of companies surveyed had sustained a business disrupting ransomware attack in the last 12 months, and one-third of that group said the attack disrupted business by one-week or more. In that same survey, when IT decision makers were asked, what were the top deciding factors when you are choosing a computer for your company, security was by far the number one response. Jamf is the only platform that delivers an Apple-first integrated management and security solution that meets the needs of the modern enterprise. Today, our security solutions comprise 21% of our total ARR, and we anticipate security to continue to become a larger part of our total ARR over time. Much of our success in security has been predicated on our ability to deliver both management and security on one platform. The success of Jamf's bundled solution is a testament to this with ARR growth of bundled solutions, outpacing most of Jamf's individual products, and we are seeing customers of all sizes and end markets embrace Jamf's platform for management and security. While the growth in the SMB space has continued to be strong, growth in the enterprise space was equally as strong at Q3 showing how Jamf is gaining traction with displacing other security vendors on Apple devices. And not only are our customers taking notice that the industry is as well, Jamf Protect was recently named a leading endpoint security vendor by Frost & Sullivan in their Frost Radar Endpoint Security 2023 report. This is a great achievement and a testament not only to Jamf Protect, but an acknowledgement by the broader industry of the importance of Apple-first security technologies. We are excited to be recognized as a leader, especially after such a short time in the security space and believe this is a great step in increasing our awareness of Jamf security capabilities. In Q3, over 40% of our new customer pipeline generated was from security and currently nearly half of our new customer open pipeline is for security. Security products are also helping us increase our win rates. When customers come to Jamf with security in mind, we win almost twice as often as we do when customers are looking at management alone. One item to note, in Q2, we signed one of our largest ever security deals for 85,000 devices with a large enterprise, which led to a very strong security quarter making for a tough quarter-over-quarter comparison. For mobile, employees want to be just as productive while on the move as they are in front of their Mac. While organizations want to make sure company data is accessed from secure devices. This is the reason why Jamf is leaning into delivering our platform across both Mac and mobile devices. More and more of our customers are reorganizing their InfoSec and IT departments with dedicated Mac and iOS teams focused on deploying best-in-class security and management solutions regardless of the device type. Jamf's integrated platform can help customers achieve trusted access no matter what device an employee is using. This is especially true for organizations where users are constantly on the go. For example, in Q3, we expanded our relationship with the U.S. Professional Sports League which has many users traveling to games across the country throughout the season, needing access to corporate resources via mobile devices. The league was already utilizing Jamf for its Mac devices, but wanted a more robust solution for its 2,500 iOS devices. The InfoSec team made the decision to go with Jamf after seeing the value and being able to manage a dispersed group of Mac and iOS devices from a single pane of glass. We continue to see success from our efforts around Mac and mobile as well as management and security across the number of areas. First, in financial services, we continue to gain traction in this industry as it has been laggard with respect to Apple adoption. We view the financial services space as a significant opportunity due to the under penetration of Mac today. Financial services represents the second fastest growing segment by dollar value in Q3 and has the highest three-year ARR CAGR of our largest nine industries. In Q3, across just five financial services wins, we added over 26,000 devices. In fact, thanks to the adoption of Employee Choice programs. Our two largest wins for Q3 came from the financial services space. We had a key win with a large bank that has been working to uplift their security posture and overcome perceived risk of using Mac. The bank has been coordinating with Jamf and Apple to deploy over 2,500 devices in specific departments over the past few quarters and plans to expand Mac across the rest of the organization. In Q3, this Jamf customer took the extra step of deploying Jamf Business Plan to protect all of its Mac after its previous UEM provider struggled to provide support for a number of new devices in the organization. Another key financial services win was with NASDAQ. NASDAQ, a Jamf Pro customer acquired Verafin, a Jamf Business Plan customer. After examining the success of Jamf's Business Plan at Verafin, NASDAQ decided to expand the Jamf Business Plan for both Mac and iOS across the entire company. Jamf was able to unify NASDAQ's Apple fleet into one enterprise solution. We continue to operate in the best replacement market we've seen in our history and it shows no sign of slowing down. We saw a number of key wins from legacy providers in Q3, including five wins totaling over 75,000 devices. While we see significant traction replacing this legacy vendor in the commercial space, our ability to replace in the education space is just as strong. Our four largest education deals in Q3 were in the K-12 space and were competitive takeaways. Each of these districts had their own reasons for switching to Jamf. Arlington Public School saw Jamf as a superior solution that could seamlessly bring the best experience into its classrooms. The district migrated 12,000 Mac and 20,000 iOS devices across 34 schools to Jamf this quarter. Another win was a large school district in Southern California. The district was facing a price increase while not experiencing reliable support for their 25,000 devices. The IT team wanted to provide students with all of the latest Apple features and updates while being able to manage those devices in the classroom. Jamf was able to demonstrate superior features and ease of use deployment, giving the district the confidence to make the shift to Jamf. These deals represent the robust replacement market we are currently in, but similar to Q2, we continue to see muted overall growth in education due to the significant investments in deployments made by many schools in 2020. And finally, with respect to security and mobile, we launched Jamf Executive Threat Protection earlier this year to help customers defend against advanced mobile threats. As a reminder, this mobile security capability is extremely unique in the industry, providing organizations with an efficient remote method to monitor mobile devices and respond to advanced attacks greatly reducing investigation periods. Jamf Executive Threat Protection is designed to identify sophisticated digital threats going beyond traditional device management and endpoint security to extend visibility into attacks that target high value users. In Q3, we saw four significant JETP deals spanning government agencies and media organizations, helping protect the devices of government officials, D-suite executives and journalists across the U.S. and Europe. While this solution is designed for a number of unique use cases, it demonstrates Jamf's commitment to increasing our security capabilities. Over time, we will be looking at how to incorporate some of the JETP functionality into Jamf Protect to benefit our broader customer base. Now with that, I'll turn it over to Ian.

Thanks, John. We ended Q3 with total ARR growth of 15% year-over-year to $566.3 million exceeding expectations. Q3 year-over-year revenue growth was also 15% exceeding the high end of our revenue outlook by $1.6 million. Similar to last quarter, the strategic core of Jamf's business, SaaS recurring revenue remain strong in Q3, exceeding our expectations. Less strategic revenue sources like license, services, and on-premise revenues continue to experience year-over-year declines. Specifically, for license and services revenues, the year-over-year declines were greater than anticipated. We continue to see macro uncertainty impacting our business, resulting in reduced customer budgets and elongated sales cycles. As we discussed last quarter, the industries where the macro has been most impactful to us are information and communication, which includes tech and K-12 in education. These industries remain Jamf's two largest and combined represent 47% of Jamf's total ARR. The softness in these two industries has been partially offset by Jamf's next three largest industries: professional services, financial services, and wholesale and retail, which represent 24% of Jamf's total ARR. We continue to believe that momentum in these three industries combined with the anticipated return of tech hiring will help return Jamf to higher growth. With respect to net retention, as anticipated, we saw a decline in total company net retention rate to 108% in Q3, due to the impact of six consecutive quarters of muted customer hiring that affects device growth at renewal. We continue to see volatility at the low end of the market, while enterprise remains strong, as evidenced by some of the wins John mentioned earlier. Overall, we believe this NRR decline is primarily driven by the difficult macroeconomic environment, and we would expect the NRR metric to increase as the economy improves. The remainder of my remarks on margins, expense items and profitability will be on a non-GAAP basis. On GAAP financial results, along with a reconciliation between GAAP and non-GAAP are found in the earnings release. Q3 non-GAAP gross profit margin was 82% and within our expectations. We continue to anticipate gross margins in the low 80% range and expect slight fluctuations each quarter. Non-GAAP operating income exceeded the high end of our outlook in Q3 at $12.4 million or 9% due to increased revenue. Our trailing 12 months unlevered free cash flow margin was 11% compared to 14% in the prior year, primarily related to significant shift in customer preference for annual billing in place of upfront billing for multi-year contracts. So far in 2023, we have seen unlevered free cash flow decrease as customers move from upfront to annual billings for multi-year contracts shifting cash collections out to future years. In Q3, this shift to annual billing was amplified and larger than we had anticipated. It's important to note that the resulting decrease in unlevered free cash flow is not indicative of lost customers, nor that customers are committing to shorter and lower dollar contracts with us. In fact, customers are growing with Jamf just not paying their full contract value upfront. Our effective tax rate for Q3 was 1.7% consistent with our expectations. As a reminder for non-GAAP metrics, we use our domestic statutory rate for calculating tax impacts, which is currently 24%. Please note that we pay a negligible amount of cash taxes on a U.S. federal basis and pay an immaterial amount of cash taxes outside the U.S. Now turning to our outlook for the rest of the year. Over the last few years, we have invested in diversifying our business beyond Mac management and have seen strong adoption of our mobile and security solutions. However, we are still in the early stages of capturing the opportunity within these large and growing markets as both new and existing customers realize the value of using Jamf to help ensure all their Apple devices are secure. The macro uncertainty I mentioned earlier remains effective with continued decreased growth at renewal. Jamf's diversity across products, industries and geographies has helped us mitigate some of these declines. On the cost side, we are committed to improving efficiency within our business by having our scalability initiatives, helping ensure Jamf can efficiently re-accelerate growth when macro conditions ease. Based on these factors, our outlook for the fourth quarter and full-year 2023 is as follows: For the fourth quarter of 2023, we expect total revenue in the range of $148 million to $149 million, representing growth of 13% to 14% year-over-year. Non-GAAP operating income in the range of $19.5 million to $20.5 million, representing a non-GAAP operating income margin of 13% to 14%. For the full-year 2023, total revenue range of $557.9 million to $558.9 million representing growth of 17% year-over-year, and a $1.9 million increase in the midpoint from the outlook we provided last quarter. Non-GAAP operating income of $43.8 million to $44.8 million, representing a $2.3 million increase in the midpoint from the outlook we provided last quarter. Additionally, this outlook results in a full-year non-GAAP operating income margin of 7.9% at the midpoint, a 250 basis point improvement over fiscal year 2022. For modeling purposes, given my earlier comments related to the dynamics of revenue components for Q4, you should expect license and service revenues to decline at a similar percentage to Q3, while subscription revenue will represent at least 97% of total revenue. And while we don't provide an outlook for ARR, we would expect to end the year with ARR growth approximately 2 percentage points lower than our anticipated full-year 2023 revenue growth. For unlevered free cash flow margins, we have made adjustments to our cash forecasting model primarily for customer payment schedules, given the significant shift in Q3 from upfront multi-year billing to annual billing. Therefore, our expectations with respect to unlevered free cash flow margins for full-year 2023 have been adjusted to 11% to 12%. Again, this is not reflective of lower contract values. Shorter contracts are lost customers, but a shift in customer preference related to payment timing. We also provide estimates for amortization, stock-based compensation and related payroll taxes and other metrics to assist with modeling in the earnings presentation as part of the webcast and also posted on our Investor Relations website. As we look to 2024, you should expect Jamf to continue to improve operating margins. We will continue to be diligent with expenses as well as drive efficiencies with our scalability initiatives. We look forward to sharing more 2024 expectations with you when we report Q4 results in February, and mark your calendars for March 6, 2024 when we'll host our first Investor Day at NASDAQ in New York City. And now, John and I will take your question. Operator?

[Operator Instructions] And our first question comes from the line of Matt Hedberg from RBC. Your question, please.

Great. Guys, thanks for taking my questions. John, congrats on the quarter. Your comments on the success in security were really good to hear. Given this mix up, it sounds like, half your pipeline for deals, are there things that you're working on with the salesforce to accelerate these deals as they get larger and perhaps more complex?

Yes. Absolutely, Matt. Thanks for the question. Well, we certainly are, and our sales enablement team is really dedicated to teaching our sales teams to lead with Trusted Access because management and security, really two sides of the same coin. You can't have a secure device without it also being managed because if you detect a vulnerability or you need to remediate something, you need to do that through the management piece of that. So the fact that those two go together has really resonated with our customers. And as I mentioned in the prepared remarks, that we actually closed twice as many deals with security included than if it's just management alone. So again, security side is really resonating with the customers. We're really ramping up our sales team to focus on that. We did a while ago also bring in an overlay team on the security side to help our other territory reps learn how to fish. And that's working as well, and we're continuing to see some traction there. So yes, you're absolutely spot on.

Great to hear. Maybe if I could just a quick one for Ian. Embedded in your Q4 guidance, is it sort of more of the same sort of strength at the high end of the enterprise, maybe weaker SMB and weaker education? Is that sort of what your underlying macro assumptions were in that guide?

Yes. Thanks, Matt for the question. Good to hear from you. Exactly, I mean, it's more of the same, right? That the macro hasn't changed. I think though the way – rewind the clock to last quarter when we gave that guidance, we talked about the strength of our business and the recurring piece, and that is where we continue to see it in the commercial side specifically. We did talk about education continuing to be muted, but the commercial side was strong and one of the [Technical Difficulty] we think is achievable and that really is a good growth rate.

Thanks, guys.

[Operator Instructions] And our next question comes from the line of Gregg Moskowitz from Mizuho. Your question, please.

Hey. Thank you very much for taking my questions. Good afternoon, guys. So I guess the first question just on the guidance Ian for ARR growth for the year, I think you mentioned about 2 points lower than expected revenue growth. I think previously you had spoken about that these growth rates probably being similar to each other and I know the non-recurring revenue portion has been lighter this year, but of course that would not represent a headwind on ARR on a relative basis. And so I'm just kind of wondering if you could outline what has changed here in terms of the ARR expectations for the year?

Yes. Gregg, thanks for the question. Yes. And I touched on it here in the last remarks. I talked about the education being more muted this year than we originally anticipated. Even last quarter, we talked about that. It continues to be muted for us. But again, the strengths and a couple of data points for strengths have been really in the security side. And that is kind of where it's coming up and catching up to revenue, I'll say. But there are a couple of data points for you. If you look at the business plan that's up 87% year-over-year, and when you look at the net new ARR adds, that was the second largest contributor to that. So those are the things like the education, the upsells, everything we talked about, but there's definitely some glimmers with security in the Trusted Access story.

Okay. That’s helpful. And then for John. One thing that I don't believe you touched on was – very much was the dataJAR acquisition. If you could just talk about what excites you about acquiring that asset. And then also did that add anything just so we're aware for our models? Did that add anything to revenue ARR or deferred revenue in the Q3? Or any expectations that you have for that in the Q4? Thank you.

Sure. And Ian can talk to the guidance on where that sits with respect to ARR. It was not a revenue play though. It was really a technology and talent play and what we wanted from that acquisition and what we did get from that acquisition was great technology around giving our customers the ability to look across different instances from a single pane of glass. And that not only helps our MSP channel and we have MSPs all across the world, not just in the UK, of course, where dataJAR is. So it's going to help enable those MSP partners, but it also helps large school districts, for example, that want to have all these different schools or districts under one big umbrella. It also helps multinational companies manage different locales from a – get a common dashboard in a single pane of glass. So it's really the technology and the talent that built that technology. That was the benefit of that acquisition. And we're seeing that in the feature and functionalities rolled out not only in our product, but also across our channels.

Yes. And I'll just add in from the outlook perspective, as John noted, this was a tech purchase, it didn't have a significant amount, or it's really actually just had an immaterial amount of ARR that came with it. And so we did factor that in the outlook that we've provided you.

Very helpful. Thank you.

[Operator Instructions] And our next question comes from the line of Josh Reilly from Needham and Company. Your question, please.

Hey there. Thanks for taking my questions. Nice job on the quarter here. If you're looking at the calling of devices, any sense now with another quarter of data if there's another cycle of downsell that needs to occur following the SDB crisis earlier this year, and the interest rate headwinds to tech hiring this year? And these contracts need to reflect these kind of updated levels of employment. Or do you think that the downsell has peaked and becomes less of a headwind in the first half of next year?

Yes. Hey, Josh. It’s Ian here. Yes, thanks for the question on devices. It is interesting, we've had two quarters now at about 500,000 devices, and we were just talking about this earlier today. Like, again, you got to think about our business and step back. There's three ways our business grows, right? There's the new logo component, there is the upsell component, and there's the cross-sell component, and we are still finding logos. And that has been a steady stream. It's the upsell that's kind of been muted, and that's been the device count. And then we're getting stronger and stronger at cross-sell. And when we look at the markets, we have seen – when we looked at our churn, for example, we did look at, let's call it our largest churn by ARR. We looked at those. It wasn't customers leaving, it was customers being consolidated, it was customers restructuring and it was customers just down-selling, right? And look at that, it is the macro environment that we're in, but we have found ways to offset that. The successes we've seen in business plan, the replacement market, the things that Apple talked about on their call, for example, where they talked about, this was a tough Mac shipping, but next quarter looks like it's going to improve and those are things that are going to help us and I think will drive our growth rates in the future.

Got it. And then just to follow-up on the devices under management growth. How much of that slower growth here in the third quarter is due to the tough comps from education last year versus anything going on, on the commercial side of the business? Thanks guys.

Yes. Josh, I'll take that one too. Dividing that part there is definitely mutedness on the education. When I look at what that upsell was kind of lapping last year, that was definitely depressed. I mean there was definitely an impact also on commercial, but again, on the commercial side, that's where we're selling education. That's why you see actually our average ASP go up over the quarter. John, anything to add to that?

Yes. I guess the only thing would be that not only us, but IDC and others believe that the refresh cycle for education is due within the next – within 2024 timeframe, probably mid-2024 timeframe. I mean those kiddos that have the iPads are not going to have that same iPad forever. So when that refresh happens, we've seen more devices go toward Apple, and that obviously helps our install base.

Got it. Thanks guys.

[Operator Instructions] And our next question comes from the line of Raimo Lenschow from Barclays. Your question, please.

Hey. This is Isaac on for Raimo. Thanks for taking the question. One thing you guys have highlighted over the last few quarters is leaning on your partners a little bit more and building out this channel. Can you speak to the progress between this quarter and last quarter that you've made here so far and what you're seeing with customers as a result of this?

Yes. Thanks, Isaac. Tell, Raimo, hi. I just mentioned, we just talked about the dataJAR acquisition. It really helped enable the MSP partners, and we're seeing good growth in that area as well. We continue to work with our channel organization. We've invested in that to get more business from the channel versus just through the channel to help them create some of that demand. That's having traction as well. We're moving our sales enablement to that – in that direction as well to get those efficiencies. And some of the technology endeavors that we have on our side internally are also going to enable that channel partner, such as a partner program, a channel partner portal where they can register their own deals and it takes a more direct – a direct salespeople that they don't have to be included in that loop. And so more channel led deals. We've expanded our channel, we've focused on some security channel partners as well, and we've seen the increase year-over-year in the amount of business going through our channel partners.

Great. That's really helpful. Thanks. And then for Ian, on cash flow, should we think about this move to annual billings being the norm moving forward. Or is Q3 more of an anomaly versus what we should expect to see in the future?

Yes. Isaac, thanks for the question. It's interesting. We looked at the top 9 billing deals within the quarter, and when we looked at those eight of those nine moved from upfront payments to annual payments. And we are talking about this in this economy, yes, it's becoming more and more common to, for companies to hold their cash, interest rates are good. And so does this – is this shift rate for now as it continue. I think this kind of a one-time shift and what's going to drive our unlevered free cash flows as we move forward is continued profitability. This year you saw we delivered based on the midpoint of our guidance, we're delivering 250 basis points more in profitability this year and next year we're saying that we'll have more profitability in 2024 versus 2023. And I think that's the key that we should be thinking about as we move forward.

Great. Thank you.

[Operator Instructions] And our next question comes from the line of DJ Hynes from Canaccord Genuity. Your question, please.

Hey. This is Luke on for DJ. Thank you for taking the question. So as mentioned, Apple has, of course, a big refresh cycle coming up next year in 2024. Could you just help us think through how correlated your own business performance is with Mac shipments there? Whether there's a lag between demand for those products and your own success and just generally how that might flow through to your business next year and beyond?

Yes. Luke, I'll take it. What we don't see as a direct correlation between Apple's quarterly shipments of devices versus our impact, but – versus impact to us. But we do see that when it's over a period of trailing 12 months, for example, because it has an influence on the install base or the uplift basically. And when companies are hiring, they're offering their employees a choice. Many of them are offering choice, and more and more are offering their choice, as I mentioned in the prepared remarks. Fletcher Previn, when they ask their people at Cisco, two-thirds of those employees that were asked the question chose the Mac. So when we see that refresh cycle come, we're actually seeing – even if it's a refresh cycle of a PC, we're seeing more of those PCs being replaced by the Apple devices and that's good for Jamf. And one of the reasons that happens, we like to think is because we help organizations succeed with Apple, and our sole purpose here is to make sure that we help those organizations be able to accept those devices and make it easier to manage within and secure within the organization. And so we'll see that over a trailing period, and we believe that more and more people, more and more employees are choosing the Apple device, which benefits our potential install base.

Got it. That's great. And then maybe a follow-up, with such a large portion of Apple's devices outside the U.S., can you talk a bit about what needs to happen internationally to more effectively capture that opportunity? Is there anything fundamentally different about those markets maybe from a compliance or regulatory standpoint, or is it more about just getting the right sales and marketing infrastructure in place?

Well, first and foremost, it's partnering very closely with Apple in those investments and I'm very much aligned with their geographic leaders across Asia and Europe personally. And as they expanded those, these are not brand new markets to Jamf and for, in fact, we have a legal entity in India, and Apple has said that's an area that they're expanding. We have a legal entity in Japan and a number of employees there. So none of this is brand new to us. It's more figuring out how to amplify that and scale that in those local markets. So we're obviously across Europe and many countries across Europe, as well as Asia and also in Australia and India as well. There's fundamental differences in every market. I've learned that from my days living and working outside the United States. But as long as we're partnering closely with Apple, we're working with our local reseller channels, again, a bigger percentage of our business comes from the channel outside the United States than it does inside the United States. And that's by design. We really leverage those local partners to help us get into those areas along with working very closely with Apple. So there's nothing that we – that is drastically different than what we're doing today. We just need to work on scaling that and doing so profitably as we mentioned in the prepared remarks.

[Operator Instructions] And our next question comes from the line of Rob Owens from Piper Sandler. Your question, please.

Hi. Thanks for taking my question. This is Ethan on for Rob. I want to go back to some of the comments about the favorable competitive environment. You guys are seeing right now. Seems like an important driver of new device adds given the hiring pressures some industries are seeing. I guess the question is, how long do you think this kind of environment lasts? Is this something that stays throughout 2024? Is this kind of a multi-year tailwind as you think about customers coming up for new on multi-year contracts with competitors? Thank you.

Yes. Ethan, I'll take that and Ian you can add some color. We're really benefiting from a very robust replacement market. As we mentioned, one of our larger competitors, when there's a change in liquidity event and one of those competitors, obviously it creates some uncertainty. And with Apple, you have to continue to innovate at the pace of Apple, and that's something that we've done for 20 years. And I think that that's benefited us greatly, especially with declarative device management and other features that Apple are producing that we're supporting. And we have a timeline for all of those things. So it's been very beneficial to us, as we mentioned in the prepared remarks. But several of our top deals were actually replacement deals as well as those last quarter. And we'll continue to lean into that. And is with respect to the other competitors, we see some noise from some smaller competitors, they continue to be noisy. We're seeing a little bit less of that just given the macro is affecting them and probably more drastically than it's affecting us given our scale.

Makes sense. And I guess as a follow-up on the security side, talked about 23% of the customer base now on management security. Is there any difference in attach rate you're seeing between commercial and education? Any color would be helpful there. Thank you.

Yes. I can take that. I mean, just rewind the clock, right? Jamf Safe Internet, still a newer product. We've got additional versions that are going to be released, that are focused on things the customer are asking for. And we do think that bodes well for us in 2024. So therefore, the commercial attach rate is actually stronger than that right now. And you saw in our remarks that we talked about now that 23% of our customers are at least using a management and at least one security product. And so that provides us a lot of runway to continue to cross-sell into our current install base.

And Ethan, one thing I didn't add on to what you asked about the multi-year component to that. We're not going to get all of those customers in one-year. There's a pretty substantial install base out there with our competitive products. So as their renewals come up, we know where they are and we're talking to them regularly. And so as their renewals come up, we'll continue to try to persuade them like we have done successfully in this past quarter.

[Operator Instructions] And our next question comes from the line of Nick Mattiacci from Craig-Hallum. Your question, please.

Hi. This is Nick on for Chad Bennett. Thanks for taking our questions. So John, I think it was around this time last year, you guys were talking about catching up on sales hiring in the year end. Just curious if you could talk about how those new additions are ramping throughout this year, and then as you look into this year's year-end, how are you thinking about sales additions?

Yes. Well, sure, Nick. Thanks for the question. And the ramping, I mean, we've really leaned into, as I mentioned earlier on the call in the sales enablement side, teaching our reps to lean in with Trusted Access, and that's both management and security and they're doing just that. So we've seen good ramp there and we'll continue to evaluate our sales organization, our go-to-market organization in general, and see how we can scale that and scale that profitably. And that's one of our focuses that we have obviously for next year planning and beyond that we'll talk about much more at the Investor Day in March.

Got it. And then Ian, maybe if you could talk about some of the underlying trends you are seeing within your net retention rate. Just any color you can provide on the relative trends in that metric for the commercial segment versus education. I mean, I understand that commercial's probably a higher rate, but are you seeing any more of a stabilization in one of the segments?

Yes. Thanks for the question on NRR. Yes. So just a couple things. Overall, obviously we're seeing the same economic – macroeconomics are impacting our upsell. To give you a little color stats around that. When I compare this – our NRR this year compared to last year, I'll say like 80% of that related to upsell. And so when I look at that, like, 80% is truly macro and the next 15% is down-sell and the rest is lost logo. So it's not a huge percentage that relates to customers leaving, and even when it looked sequentially, it's all lower upsell. So the macro has really been waiting on that. And if you remember, and rewind the clock to last quarter, what I talked about is that, we had seen, I'll call it a 200 basis point decline each quarter, and that this quarter we thought it would decline about a 100 basis points. That's where we're at. And I've said that's probably going to be about the same thing in Q4 because at the trailing 12-month and we're lapping these times. I see that similar trend for Q4 and what I would say, overall for the rate, that's going to come back as the macro improves. And just one other further point on education versus commercial, our cross-sell is really helping strengthen that in commercial. And so I think that's seeing a slightly different dynamic than what we're seeing in education. Education has just got that post-COVID hangover. But the growth of our business in the mix and where more of our ARR is coming from the commercial in the future.

Got it. Appreciate the answers.

[Operator Instructions] And our final question for today comes from the line of Pat Walravens from JMP Securities. Your question, please.

Hi. Thanks for taking my question. This is Oliver on for Pat. So a bit of a follow-up from some previous questions, but you've spoken a lot about getting a growth from your cross-sell as a future driver. So in terms of cross-selling your security solutions and particularly protect to existing commercial customers. How are those conversations going upon renewal? And are there more situations now where protect maybe heavily discounted or even essentially free for some larger customers for one year, things along those lines to get the products to stick?

Yes. Hey. This is Ian. I can take that one. When protect coming up for renewal, it's actually I would say the other direction. So we're seeing really good traction with the business plan. They're like, hey, we see the full suite and we're seeing the value of this, again, that's up 87% year-over-year, and whereas our second largest add within that new ARR for the quarter. I think the other thing to recognize is, and we pointed this out in the prepared remarks, we were just recognized by Frost & Sullivan for endpoint protection and that bodes well and people are understanding to have a product that both – and John said, this has two sides of the same coin, management and security go hand in hand. And that's what we're seeing resonate with our customers.

Great.

And maybe I'll just add to that, Oliver. Is that not only – so we're seeing that uplift in the business plan, but that – this is on the security side, but this is absent of device expansion. And so what we expect is when the market does return that because we've been able to successfully cross-sell those security products into our existing install base, when that device expansion does return, we'll be able to have both management and security on those expanded devices. And that's really what we're anticipating at some point.

Okay. And then maybe one follow-up, something you focused on a bit at JNUC was self-directed selling. So just wondering how your progress has been on that goal of more self-directed selling?

Just to clarify, I think you're talking about maybe like portals or customers buying…

Yes.

Okay. Yes, thanks. So on that, we talked about some of our initiatives within sales and marketing and some of those being putting in or helping our – streamlining our customer journey and making it simplified, such as in product purchasing, we already actually have that functionality in a couple products. That is something that'll come over time though for our other products. What we want to get in place even before that is things like a partner portal, and that's kind of – that's coming along. That's definitely – keep that in mind as we talk about future profitability and scalability. That is something that's definitely play within the next year we'll just stay on that one. And that's an opportunity for us, for our partners. And John talked about this earlier, to have the ability to really scale and drive more sales. So we are on that journey and that's one of the things we've talked about as a key driver for additional profitability into the future.

Great. Thank you.