JAMF - NASDAQ

Thank you for standing by. Welcome to Jamf's Second Quarter 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce Jennifer Gaumond.

Good afternoon and thank you for joining us on today's conference call to discuss Jamf's second quarter 2024 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 closed today, we issued a press release announcing our second quarter financial results. We also published a Q2 earnings presentation, investor presentation and Excel file containing quarterly financial statements to assist you with modeling. You may access this information on the Investor Relations section of jamf.com. Today's discussion includes forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from our forecast. For more details, please refer to the risk factors and other information discussed in our most recent SEC reports including our most recent annual report on Form 10-K. Jamf assumes no obligation to update forward-looking statements which speak only as of the date they are made. 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 questions to one initial question and one follow-up. Now, I'd like to turn the call over to John Strosahl. John?

Thanks, Jen. In Q2, we continued to deliver on the expectations we set for 2024. Q2 revenue and non-GAAP operating income again exceeded the high end of our outlook. Q2 year-over-year revenue growth was 13% and non-GAAP operating income was $23.5 million, representing a non-GAAP operating income margin of 15%. This margin represents more than 1,000 basis points improvement from Q2 of 2023. At the end of Q2, ARR grew 13% year-over-year to $621.7 million. We ended Q2 with 33.6 million devices on our platform and 76,600 customers. Of these customers, 41% run both Jamf management and security product. Security ARR grew 27% to $145 million, representing 23% of Jamf's total ARR. We continue to see strength across a diverse group of industries, while the tech and K-12 industries continue to see softness related to device expansion. We're seeing great traction in industries where technology adoption has lagged historically through our platform's ability to deliver unique workflows for purpose-based devices, which we refer to as Deskless. We're also encouraged by the two consecutive quarters of PC shipment growth after two years of declines. IDC estimates Q2 year-over-year worldwide PC shipment growth of 3%, with Apple experiencing the highest year-over-year growth in shipments of any manufacturer at nearly 21% gaining market share. As a reminder, our outlook for 2024 does not rely on significant uplift in device expansion. Before we cover some of our customer successes in Q2, I'd like to touch on some exciting updates coming out of Apple's Worldwide Developer Conference. At the June event, Apple unveiled a suite of updates across its platform, while reiterating their focus on privacy, user experience and seamless integration within its ecosystem. Apple continues to innovate to help organizations embrace Apple devices as their secure and stable endpoint of choice. This includes further improvements to manage OS software updates, enhanced phishing resistant identity provider integrations, zero-touch deployment for VisionPro and hardening of managed device attestation by leveraging Apple silicon chipsets. Combined, Apple continues to demonstrate their commitment to winning over IT and security teams alike with their endpoint platform. Jamf is fully committed to helping organizations realize all of these capabilities through Jamf's comprehensive platform of software and enterprise integration. Apple also introduced their take on generative large language models through their implementation of Apple Intelligence. Apple Intelligence is unique in the AI space and that Apple maintains their privacy and security model, not only through on-device techniques, but also through leveraging a revolutionary innovation in cloud computing, which is Apple private cloud compute. This new combined model provides cloud scale computing power to pick up processing where the device leaves off, all in an auditable privacy-first implementation. These capabilities are incredibly powerful and will benefit users, as protecting sensitive or confidential data makes device security even more important now than ever. Jamf remains committed to helping organizations realize the best that Apple has to offer on their device beyond traditional device management. As Apple continues to innovate, Jamf provides the tools and expertise necessary to harness these advancements, optimizing the benefit to businesses globally. We have a number of exciting announcements planned for our Jamf's Nation user conference in October to demonstrate our commitment. As we like to say at Jamf, when Apple innovates, Jamf celebrates. For the remainder of my remarks, I'd like to use the strategic growth drivers we discussed during our Investor Day, Mac leadership, mobile expansion, management plus security and international expansion to highlight some of our successes we saw in Q2. In Mac leadership, we continue to see customers choose Mac along with Jamf Pro, to meet the needs of highly technical development organizations like a US based strategic technology company focused on developing augmented reality software. This customer chose Jamf to manage their global fleet of Mac. Key to this win, was the ease with which Jamf Pro can help safely and efficiently deploy applications across the organization, with little to no impact to end users. Efficiency and ultimately end user productivity were also key reasons a leading private sector bank in India, decided to make the move to Jamf. The bank was experiencing extensive delays in deployment and configuration, with their legacy vendor. Our team was able to demonstrate a number of efficiencies through a pilot period, for senior leaders in the bank. This investment in Jamf licenses, underscores the bank's commitment to leveraging cutting-edge technology to enhance operational efficiency and security. And Jamf technology continues to be recognized in the industry. Recently, Jamf was named a leader in the IDC Marketscape Worldwide UEM software for Apple devices 2024 vendor assessment, a testament to our leadership in managing and securing Apple at work. Our second strategic growth driver expanding with mobile was particularly strong in Q2, with the two largest deals of the quarter having a large mobile component. First, is one of the top 10 largest school districts in the US. The district recently hired a new CISO, who is interested in stronger security for district Mac devices. Jamf was able to demonstrate our strong security features and expand the conversation to Jamf Connect, as well as Jamf Pro for iOS. This key win displays a well-entrenched incumbent provider for a significant number of devices both Mac and iOS, over a five-year term. As I mentioned earlier in my remarks, Jamf's deskless workflows for mobile continue to provide unique solutions for countless industry use cases, representing a large growth opportunity within mobile. iPads, as point-of-sale devices and pilot flight bags Apple Watch, for driver tracking and baggage handling and Vision Pro, for medical use cases are just a few. In all cases, these devices need to be managed and secured within their organization's environment. Additionally in Q2, one of our lighthouse customers in the telecom space expanded with Jamf beyond Mac, adding a significant number of seats of Jamf Pro and Jamf Connect for iOS across thousands of retail locations, representing the second of the largest deals in Q2. This is an incredible competitive win for Jamf against the legacy UEM that reflects not only expanding with mobile, but also Jamf's ability to deliver both management and security at scale. This ability to deliver both management and security on one platform, is a key differentiator for Jamf providing a unified experience for users and driving customers to consider moving away from Windows to Apple. The number of deals we see with both a management and a security component continues to grow. In Q2, 16 of our top 20 deals included a security component. These deals include both new customers and our management customers expanding into security. Currently, approximately 40% of our new customer commercial pipeline is made up of a security opportunity similar to Q1. Another example of our success, with both management and security, are what we refer to as delivering our trusted access vision, is a leading airline in India who has embraced trusted access for their MAC devices. Jamf's holistic approach with trusted access, allowing the airline to see the benefits of our platform capabilities and building a strong relationship with the CISO will what ultimately secure this competitive win. And last, international expansion. As we laid out at our Investor Day, we continue to invest in strategic geographies with growing adoption of Apple. In addition to the two deals I've already mentioned in India, an area where Apple and Jamf are expanding rapidly, we continue to see the strength in more mature international markets like Western Europe and Japan. In Q2, a Western European government agency expanded with Jamf almost doubling their fleet. Jamf is now the primary threat defense and secure remote access partner for the agency's iPhone fleet with Jamf Connect and Jamf Protect. Key aspects of this win were tied to the strength of our technology from the superior experience of

Thanks, John. Q2 year-over-year revenue growth was 13%, exceeding the high end of our revenue outlook. SaaS recurring revenue remained strong in Q2, growing 15%. Less strategic revenue sources like license, services and on-premise revenues continue to experience year-over-year declines. We ended Q2 with total ARR of $621.7 million representing year-over-year growth of 13%, exceeding expectations. Jamf's commercial ARR was 74% of Jamf's total ARR and security ARR was 23% of total ARR. Jamf's commercial business remains the main driver of Jamf's ARR, and we expect this to continue over time. Our net retention rate decreased slightly as expected to 106% in Q2 when compared to Q1. The remainder of my remarks on margins, expense items and profitability will be on a non-GAAP basis. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP are found in the earnings release. Q2 non-GAAP gross profit margin was 82%, a slight uptick from Q1 and within our expectations. We continue to expect gross margins in the low 80% range and expect slight fluctuations each quarter. Non-GAAP operating income exceeded the high end of our Q2 outlook by $1 million to $23.5 million or 15% margin due to cost saving initiatives and increased revenues, representing more than a 1,000 basis point improvement over Q2 2023. Our trailing 12-month unlevered free cash flow margin was 14% compared to 13% in the prior year. Our effective tax rate for Q2 was negative 7.6%, 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 nominal amount of cash taxes. During our Investor Day, we outlined some key milestones that will help you track our progress against our goals in 2024. One, meet our quarterly financial outlook. In Q2, we exceeded the high end of both our revenue and non-GAAP operating income guidance range; two, achieve at least 25% growth in Security ARR. Q2 year-over-year growth of security ARR was 27%. Three, decreased general and administrative expense as a percent of total revenue. Q2 non-GAAP G&A margin was 14%, similar to Q1 and approximately 100 basis point improvement from Q4 2023; four, decreased sales and marketing expense as a percent of total revenue. Q2 non-GAAP sales and marketing margin was 34%, similar to Q1 and approximately 200 basis point improvement from Q4 2023. Now, turning to our outlook for Q3 and full year 2024. For revenue growth, we continue to expect softness in device up-sell through the remainder of 2024. We will continue to drive new logo and cross-sell in the areas John highlighted. We continue to make investments in scalability and efficiency to drive future growth and margin expansion. We're focused on scaling our go-to-market organization, optimizing our platform and automating back-office processes. We reached a key milestone related to these initiatives earlier this month when we went live with a comprehensive systems update to enhance both the customer and partner experience. And later this month, we'll launch Jamf's new partner program. The new program includes enhancements to our partner management capabilities and incentive structures with the goal of empowering our partners with the tools and insights need to expand with Jamf. Scalability initiatives like these will set Jamf up for profitable growth in the future and return Jamf to the rule of 40 as outlined at our Investor Day. Based on these factors for the third quarter of 2024, we expect total revenue of $156.5 million to $158.5 million, representing year-over-year growth of 10% to 11%. Non-GAAP operating income of $25.5 million to $26.5 million, representing non-GAAP operating income margin of 16.5% at the midpoint. Additionally, this year's Jamf Nation user conference falls in Q4 instead of Q3 impacting Q4 expenses. For the full year 2024, given our continued strong performance in Q2, we are increasing our expectations. Total revenue of $622.5 million to $645.5 million, representing year-over-year growth of 11% at the midpoint. This reflects an increase of $3.5 million at the midpoint. Non-GAAP operating income of $96 million to $98 million, representing a non-GAAP operating income margin of 15.5% at the midpoint and an approximately 740 basis point improvement over fiscal year 2023. This reflects an increase of $3 million at the midpoint. While we don't provide an outlook for ARR, we suggest modeling full year 2024 ARR growth similar to full year revenue growth. With respect to unlevered free cash flows for full year 2024, we expect unlevered free cash flow margin to be similar to non-GAAP operating income margin. We also provide estimates for amortization stock-based compensation-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. With respect to the longer-term financial outlook we presented as part of our Investor Day, we remain committed to the goals we outlined during the event. And last we will be hosting an in-person product session for investors during the Jamf Nation User Conference in Nashville in early October, led by our Chief Innovation Officer Jason Wudi. An invitation with details will be sent out next week. Now John and I will take your questions. Operator?

Certainly. And our first question for today comes from the line of Rob Owens from Piper Sandler. Your question, please.

Great. Thank you so much for taking my question. Would like to drill down into some of the verticals like K-12 and tech that remain challenging. And just what you're seeing on that front any signs of stabilization or potential green shoots of growth I guess noting that the installed base of devices in K-12 is probably aging at this point to the extent that maybe there's a refresh coming.

Yes Rob, thanks for your question. This is John and Ian can add some color on this. When we think about the education market, we still are awaiting a refresh cycle there. We're working with some of our larger customers. We did note in our prepared remarks that one of our largest wins in Q2 was an education customer. That's a new logo to us. And we are working with our existing customers on that refresh cycle. We haven't seen them yet but we are in discussions about them. So we know it's coming. We just don't know exactly when it's coming but we're working with them on that.

I would just add to you Rob the things that we think could accelerate the education market things. When we look for that refresh cycle, we are encouraged also by our security products Jamf's internet or education bundles. And lastly from deals that we see outside the US and we think those are opportunities for that market and for our growth rates to increase in that market. I think you asked a little bit on Tech too. There we've continued to see what we've seen. But when we look at that and we've been just staring at different ways at looking at our net retention we're starting to just see signs – continued signs of stabilization and that's encouraging for us. When you look at our SMB for example, we've seen stabilization within that NRR. And I think that bodes well for us in the future. And we're just -- we're not calling bottom but we're just seeing those signs of stabilization.

Great. And then you mentioned security. I would love to drill down a little bit more. Obviously, you guys are executing on that opportunity and gave us the disclosure of management and security customers. Can you remind us if a customer takes both, what's that typically do to deal size versus them taking one or the other? I guess I'm really trying to extract what that security upsell looks like.

Yes. A couple of data points, I'd give you there. First, at our Investor Day, what we had shared is that if you took everyone that was on Pro today or Pro and Connect or Pro and Protect and you move them to business plan at today's ASPs that was about a $350 million opportunity. One other way to think about it is just to look at our prices on those different products. So when you take Jamf Pro, think of Jamf Connect as a 50% uplift and Jamf Protect as a 75% uplift, and then even business plan is call it, almost double of what Pro would be.

Great. Thank you, guys.

Thank you. And our next question comes from the line of Joshua Reilly from Needham. Your question, please.

Yes. Thanks for taking my questions. I would echo the nice job on the quarter here. I wanted to get your thoughts on the progress you're seeing in cross-selling iOS security and management to existing Mac customers, and whether that's being reflected in Jamf business plan or just multi-device sales? I think you highlighted a couple of examples there but, are you seeing greater adoption of management and security for iOS devices in commercial markets?

Yes. Josh, John here. I'll start the commentary on. We've had really good success. When we've spoken about before when we bundle those products together, not only do we have better retention, we also have better upsell. So our customers are really -- it's really resonating with our customers. The management and security together are really two sides of the same coin and you can find out something is wrong and you can actually remediate that through the management capability. Two of our largest deals for the quarter that we mentioned in the prepared remarks both had a significant mobile component. And so that again is a testament to those customers and new customers taking on both the management and security side of the product capabilities.

Got it. And then as we look at the guidance here for Q3, and I just wanted to get your guys' thoughts around the pipeline as we are kind of entering the seasonally strong period for commercial markets. Do you think that the visibility is the same as a quarter or two quarters ago? Or do you think it's improving? How would you just kind of characterize your view into your own internal business? Thanks guys.

Yes. Yes Josh, John again here. It's pretty similar to what it's been. I mean we're -- as Ian said we're seeing some stabilization. We've gotten some good conversations with prospective customers and existing customers alike as they look to expand. So it's about similar to what it's been before and pretty stable.

Got it. Thanks guys.

Thank you. And our next question comes from the line of Matt Hedberg from RBC. Your question please.

All right. Good afternoon, guys. John, I think you said the word stable a whole bunch of times which is really good to hear in this macro environment. I'm sort of curious recognizing that we typically have back-end loaded quarters, was the linearity pretty consistent to what you would expect into Q2? And I guess have things in July trended kind of similar to what you saw in June. In other words like, does that stability also kind of made its way into Q3?

Yes. Thanks Matt. We have seen some stabilization. And we've said it a bunch of times, because that's what we're seeing. We tend to see quarters more back-end loaded how it's typically been and then that's happened for the last few years. Customers, they learn to buy this way, right? They negotiate up until the end of the quarter. So that's been pretty similar in the first two quarters of this year as we've seen in the past. We're not seeing a significant difference in that pattern.

Got it. Thanks for that. And then as -- and it's also good to hear the PCs are finally growing again. But I think you haven't made that into guidance. I guess on the broader topic of partners, which is a big part of your Analyst Day, could you talk about the importance of that sort of the partner distribution channel into the back half this year? And as we think about acceleration, how meaningful could ramping partner contribution be in that accelerating story?

Yes, significant. I mean we've really focused on this, and we talked about this at our Investor Day, how we've leaned into getting more efficiency from our go-to-market organization and our sales productivity. A lot of that is through leveraging the partners that we have, and particularly in the U.S., we've tended to leverage partners more heavily outside the U.S. And now we're really leaning into that in the U.S. as well. Some of the technology infrastructure advancements that we spoke about before as well, we're well into implementing those, which will provide us with partner portals, for example, partners can come in. We don't have to have a Jamf person touch that. Partners can actually generate their own quotes independently. All of these things will help us quite a bit on the partner side in addition to rolling out a new partner program that will leverage that partner portal heavily and the compensation to the partners that go along with that.

Really good to hear. Best of luck guys.

Thank you. And our next question comes from the line of Gregg Moskowitz from Mizuho. Your question, please.

Hey, thank you very much for taking the question. Good afternoon guys. Okay. So on the security side, we're continuing to see very nice growth overall, although from a net new security ARR perspective, at least for Q2, it looks like the net new dollars that were added were a little bit lower than what we've seen in the prior couple of Q2 period. And I just wanted to ask if there were any nuances to be aware of or anything else that you would call out?

Hey, Gregg. It's Ian, I'll take that one. So yes, when you compare to Q2 last year, if you rewind the clock, we talked about a significant enterprise deal that we had and they were lapping in Q2. We did add approximately $7 million to shy of that here within the quarter, which has been a similar run rate to, let's say, Q3 last year and other periods. So it actually was a really good quarter. We saw a security component in 16 of our top 20 deals. So we do see a lot of good traction there, and we do believe that traction will continue. I think the one other interesting commentary to make on it is that we've seen on the mobile side, too. I think seven of our top 10 deals had an iOS component, those have security with it too. And so we're just seeing traction in those areas that we mentioned at Investor Day with commercial security, the mobile and education security. Those are where we said that cross-sell will start to have an impact and start to drive growth as we go forward.

That's really helpful, Ian. Thanks for that. And then for John, you had previously spoken thinking back to last quarter about particularly aggressive pricing from one of your competitors in the earlier part of Q1. I'm assuming that, that activity has ceased. I know it's sort of stopped fairly early on in the Q1, but I would love to hear any commentary on the overall pricing environment throughout the Q2 period. Thank you.

Yes, Gregg, thanks for the question. It really did and nothing has changed in that way. We did see an acute competitive pressure, particularly in January of all months. And it didn't persist through the rest of Q2 and we didn't -- or sorry, in Q1, and we didn't see that continue into Q2 significantly. And so we know that there were some other factors for that competitor relating to needing funding and things like that, that may have driven that. So -- but we haven't seen that persist, which is beneficial for our customers and for us.

All right. Thank you very much.

Thank you. And our next question comes from the line of Koji Ikeda from BofA Securities. Your question, please.

Yes. Thanks so much for taking my question. I only have one today. And it's really around the demand environment that you guys are seeing amongst a lot of software companies out there, we've seen a wide range of demand from very good to, frankly, not so good out there, but you guys are executing and you're beating and raising. And so maybe talk a little bit about what's different or what's unique about the current and upcoming demand cycle for Jamf that is enabling these good results and guide. Thank you.

Yes. Koji, I'll take that one. This is John. I think a couple of things are at play here. Again, the longer we talk about management and security together, the more it resonates with our customer. And that's continued to see traction as Ian had said. And also on the mobile side, on the iOS side, we continue to see more and more companies lean into the mobile side for protection and management, but certainly for the security side as well. And the thing that we've seen a lot of demand in recently. And again we mentioned in one of our top two deals, it was really around the Deskless workflow and how these companies are coming up with very innovative ways on how to use the Apple endpoint and that's really beneficial to us because all of those devices as they use them in retail environments or tracking bags or drivers or all of those things, they all need to be managed and secured within the corporate environment. So I think we're seeing some traction there and that's helping push the demand and we only expect that to continue.

Thank you so much.

Thank you. And our next question comes from the line of Jake Roberge from William Blair. Your question please.

Yes. Thanks for taking the questions and congrats on the great results. John, we've seen those two straight quarters of solid device shipment growth from a lot of the market research firms. I know that your results aren't directly impacted by device shipments on a quarter-to-quarter basis. But could you just remind us kind of the correlation and lag effect between your business and that device shipment [indiscernible]?

Yes Jake it certainly doesn't correlate exactly to the quarter because we'll see -- when we see not just one quarter or maybe even 2 but when we start to see continued year-over-year increase in those device sales that impacts us down the road. I can't put my thumb on exactly the timing of that whether it's one or two or three quarters down the road, but we know that continued device growth gives us a bigger opportunity. It's a leading indicator on what that potential opportunity could be. So that we're aware of those things. And obviously we're trying to address that in the market best we can. But there's not -- one quarter directly correlates to the next quarter's increase in our license sales, but does create a bigger environment for us to sell into.

Yes that's helpful. And then great to hear 16 of the top 20 deals included security in the quarter. When looking at security now representing about 40% of the pipeline, has there been any change in the win rates that you're seeing with security and management together? Or are those still kind of much healthier than the rest of the base where you've talked about two times better win rates with security and management together.

Yes that's been consistent. When we talk about management and security together, we do have a higher win rate. We have a higher retention rate and we have a greater upsell rate within those customers. And so that's really -- again one of the reasons we talk about management and security resonating with our customer base is -- and that's one of the indicators.

Very helpful. Thanks for taking the questions.

Thank you. And our next question comes from the line of Patrick Walravens from Citizens JMP. Your question please.

Great. And let me add my congratulations guys. So I was particularly intrigued by the comments in the script about Apple Intelligence, maintaining privacy and security. And I was wondering, how does Jamf fit in there? So how does Jamf provide tools and expertise necessary to help harness that advancement?

Yes. Thanks Pat. Great question. One of the things that when Apple talks about Apple Intelligence, they really continue to maintain their posture on security and privacy and they do it somewhat differently than other companies might which is a good thing for us because that specificity allows us to create tools and capabilities around that that other platforms may not have our share. And so that again it gives us that competitive edge to innovate along with Apple at the pace of Apple which we've done for over two decades. And that's difficult for companies to do but we've really got a cadence and rigor around that.

All right. Are we leaning into stuff that you want to save for the conference? Is that it?

I thought there was a follow-up for that, but we are going to highlight this at our upcoming JNUC in October in Nashville. So, please really look forward to having you come and others as well to share that story with you.

Okay. All right. Great. Thank you.