Yahoo Finance Jamf Holding Corp. (NASDAQ:JAMF) Q4 2023 Earnings Call Transcript
Jamf Holding Corp. (NASDAQ:JAMF) Q4 2023 Earnings Call Transcript February 27, 2024
Jamf Holding Corp. misses on earnings expectations. Reported EPS is $-0.13778 EPS, expectations were $0.12. Jamf Holding Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the Jamf Fourth 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. Please go ahead.
Jennifer Gaumond: Good afternoon, and thank you for joining us on today's conference call to discuss Jamf's fourth quarter and full year 2023 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 fourth quarter and full year 2023 financial results. We also published a Q4 earnings presentation, investor presentation and Excel file containing quarterly financial statements to assist with modeling. You may access this information on the Investor Relations section of gan.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 will 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 questions to one initial question and one follow-up. Now I'd like to turn the call over to John.
John Strosahl: Thanks, Jen. Jamf achieved strong results in Q4 to round out the year, exceeding expectations for the 15th consecutive quarter. Q4 year-over-year revenue growth was 16%, representing the first quarter of revenue growth acceleration since Q2 of 2021. This strong revenue growth led to our highest non-GAAP operating income quarter ever at $21.1 million, with a non-GAAP operating income margin of 14%. This represents a 700 basis points improvement from Q4 of 2022. Full year revenue growth was 17% and ARR grew 15% year-over-year in 2023 to $588.6 million. Full year non-GAAP operating income was $45.4 million, a 75% increase over 2022. This resulted in a full year non-GAAP operating income margin of 8%, a 300 basis points improvement over 2022.
We're especially proud of these strong results as the past six quarters have seen muted growth in the education and tech industries overall, along with slow PC growth. Q4 PC shipments declined nearly 3% with Mac shipments seeing a decline of 18%. We remain optimistic regarding the potential for a 2024 PC refresh cycle as predicted by IDC. However, our expectations for 2024 are not reliant on a significant uplift in device expansion. Longer term, we're still confident in our prediction that Apple technology will become the number one ecosystem in the enterprise due to continued user preference for Mac at work. We ended 2023 with 75,300 customers and 32.3 million devices on our platform. Of these customers, 41% run both Jamf management and a security product.
This represents a significant increase due to the transition of our Jamf Now customers to Jamf Fundamentals. Jamf Fundamentals provides the most complete yet simple IT solution for small- to medium-sized businesses to manage and protect their Apple ecosystem. Other highlights include a continued demand for Jamf's Apple first security platform with 33% year-over-year growth in Security ARR to $134 million or 23% of Jamf's total ARR. Our strongest quarter ever for ARR added for Jamf business plan. Many of our largest sales had an upsell component, proving the value of our land and expand strategy. we continue to see positive trends across professional services, financial services and retail, which are three of the top five industries we serve, and we also saw a strong quarter in health care.
Our results were driven by strong performance across our strategic focus areas of Mac leadership, management and security and Mac in Mobile. In Mac leadership, we're seeing continued growth in our customer base with customers like a leading fully integrated biopharmaceutical solutions organization. The Company has been a Jamf customer for nine years and after finding that their Mac platform required fewer support tickets and a lower total cost of ownership decided to take the next step and scale out their Mac Choice program with Jamf. The Company expects to use over 5,000 Mac's in the near future as a result of their upcoming refresh cycle. Moving to security. Last week, we released our Security 360 report that looks at real-world customer data, cutting-edge threat research and noteworthy industry events to provide an overview of the evolving threat landscape.
Among many striking data points, I wanted to highlight, we are now tracking 300 malware families on the Mac operating system, 21 of those families being found in 2023. It is true that Apple builds one of the most secure out-of-the-box platforms on the market, but hackers are agnostic as to the platforms they target. Jamf is the only platform that delivers an Apple First integrated management and security solution that meets the needs of the modern enterprise. Jamf enhances Apple's built-in security features by increasing visibility, prevention controls and remediation capabilities. 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. In Q4, over 44% of new customer pipeline generated was for security. Security products are also helping us to 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. This was true in both Q3 and Q4, and we expect this trend to continue. We also see long-term management customers expanding with Jamf for security. In Q4, a European payments company added Jamf Protect to its 5,000 Mac's as part of a three-year agreement. Given the Company's exposure to PII and payment information, it has strict security and regulatory requirements.
Our team was able to demonstrate how data flows through the product in order to meet their complex needs and deliver the powerful insights and analytics of Jamf Protect. In addition to demand for complete management and security platforms, customers are also reorganizing their infosec and IT departments so that they can manage and secure devices by technology ecosystem. This also allows end users to get the most from all of their devices while organizations can trust solutions built for the unique technology of their environment. Industry analysts, like Omdia are recognizing Jamf for its mobile-first management and security saying Omnia has seen Jamf become the primary UEM solution adopted by businesses that are well invested in the Apple ecosystem.
Jamf was also early to market with capabilities to securely manage shared iOS devices. Jamf's management capabilities for iOS and iPad iOS extend well beyond basic device management, including the ability to provision connectivity through eSIM and physical access tokens through key cards stored in digital wallets. This makes Jamf a strong choice for businesses looking to effectively manage and secure their Apple devices. A great example of Jamf's leadership in securely managing iOS devices is a Q4 win Learning Care Group. Learning Care Group is the second largest for-profit child care provider in North America and a leader in early education. It operates over 1,000 schools across 38 states. Learning Care Group will be migrating their 20,000 iOS devices across its locations to Jamf.
With Jamf, the Company is easily able to manage its entire fleet as well as keep all of the native apps that teachers and children use at school up to date. We continue to see many industries, especially nontraditional tech industries reach for Apple technology then to Jamf to make that tech work for their organization. As I stated earlier, we're seeing strong momentum in professional services, financial services, retail and health care. One example is Sharp Healthcare. Sharp Healthcare is the leading health provider in San Diego in a trailblazer in health care innovation. Their mission is to be the best place to work, the best place to practice medicine and the best place to receive care. One recent innovation is the deployment of more than 1,500 iPads to patient bedside, providing access to their medical records, patient education and entertainment.
These iPads are powered by Jamf's Healthcare Listener patented technology, which receives patient admit, discharge and transfer messages from the Epic Electronic Health Care System. The technology can automatically trigger management tasks such as remote wipe and full device reset between patients to automatically personalize the experience for each patient while ensuring personal identifiable information and protected health information are secure. Another example of a company reaching for Jamf to power its unique industry-specific workflows is the longest-running airline in India. This customer chose Jamf Pro over their existing management solution and two competitive solutions to manage 5,000 iPads with future plans to implement additional products to achieve trusted access.
Jamf continues to lead the way with continued innovation across our business. One recent Apple innovation that we are particularly excited about is Vision Pro and its potential for the enterprise. Recently, Apple highlighted a number of enterprises that are deploying Vision Pro. This month, we announced we are the first to market with support for Apple Vision Pro, adding this powerful new endpoint to our Apple first security and access products, Jamf Protect and Jamf Connect. This means Jamf customers can now confidently explore new ways of working while maintaining security, performance and privacy. Additionally, with the introduction of MDM support, Provision OS 1.1 beta announced earlier this month by Apple. VisionPro will soon include the key foundations for deploying and leveraging an enterprise-grade device at scale.
Jamf will be working alongside Apple to support MDM in Vision Pro, and we are excited to continue to fill the gap between Apple's powerful technology and the security, identity and management needs of the enterprise. As we look ahead to 2024, we will continue to execute our strategy. We are committed to simplifying work by helping organizations succeed with Apple and by doing so at the pace of Apple. To do that, we need to ensure we have a healthy company in service to our stakeholders over the long term. Our business has evolved, both because of continued innovation in the space and because of the changing needs of our customers. Over the last few years, Jamf has been on a dedicated journey to align our workforce to meet the evolving needs of today's IT and security teams while remaining a sustainable and profitable business.
Over the last year, we've seen reduced customer budgets and muted hiring and layoffs in the technology space, which in turn has elongated sales cycles and decreased customer purchases of new devices. This has put pressure on our land and expand strategy. And in Education, K-12 remains in a COVID overhang. These challenges in tech and K-12 will likely remain throughout 2024. On the flip side, we are seeing expansion in industries outside of these two, as I mentioned earlier. We are controlling what we can by transforming and adjusting our investments and resources consistent with our current growth rate. This involves a more rigorous approach than we've taken in the past. We will continue to invest in areas that further solidify Jamf's position as the leading platform for managing and securing Apple at work.
We remain committed to innovating at the pace of Apple and enhancing our platform to deliver the best solution for our customers today and in the future. We're prioritizing investments in areas where we're seeing tremendous growth and opportunity like security and AI while reducing spend in areas not providing as fast or as high returns. We've also embarked on a number of scalability and efficiency efforts, including realigning our organizational structure to match our investment areas, which resulted in a reduction in force we announced in January. These efforts span every area of our business and were subject to a rigorous process that involves each member of my management team. Ian will provide more detail on the scalability and efficiency efforts in a bit.
As a result, we are anticipating achieving nearly 700 basis points of non-GAAP operating income margin expansion in 2024 when compared to 2023. We believe this is the right course of action to align Jamf's current revenue growth profile and establish a foundation for success in the future. With that, I'll now turn it over to Ian to review our results and give more color around our 2024 outlook.
Ian Goodkind: Thanks, John. We ended Q4 with year-over-year revenue growth of 16%, exceeding the high end of our revenue outlook by $1.6 million. This resulted in fiscal year-over-year revenue growth of 17%. Total ARR reached $588.6 million, representing year-over-year growth of 15%, exceeding expectations. For the first time since Q3 2022 we saw year-over-year new bookings growth, with Q4 representing one of our strongest quarters for commercial new bookings. This helped drive Q4 net new ARR of $22 million, resulting in Jamf's commercial ARR increasing to 74% of Jamf's total ARR and security ARR increasing to 23% of the total. These results benefited from the conversion of Jamf Now customers to Jamf Fundamentals. We continue to believe that Jamf's commercial business and specifically security will be a key growth driver.
Similar to Q2 and Q3, the strategic core of Jamf's business SaaS recurring revenue remained strong in Q4. Less strategic revenue sources like license, services and on-premise revenues continued to experience year-over-year declines. Additionally, softness in Jamf's two largest industries, tech and K-12 education remained while Jamf's next three largest industries, professional services, financial services and wholesale and retail saw continued momentum. And in addition, Healthcare saw momentum too. Our net retention rate remained flat at 108% in Q4 when compared to Q3. 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 our earnings release.
Q4 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 Q4 outlook at $21.1 million or 14% margin due to increased revenues representing a 700 basis point improvement over Q4 2022. For full year, non-GAAP operating margin was 8%, up 300 basis points increase over fiscal 2022 due to revenue outperformance and cost containment measures. Our trailing 12-month unlevered free cash flow margin was 10% compared to 18% in the prior year. It's important to note that year-over-year 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 GAP just not paying their full contract value upfront. Additionally, the trailing 12-month unlevered free cash flow margin of 10% in was slightly lower than expected, primarily related to a shift in customer payments during year-end. Our effective tax rate for Q4 was negative 7% and resulting in a full year effective tax rate of negative 2.1% with both rates 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 paid an immaterial amount of cash taxes outside the U.S. Now turning to our outlook for 2024. As John discussed, we are aligning investments and resources to match Jamf's current revenue growth profile with a focus on key investment areas and scalability and efficiency initiatives.
Now is the right time to take these measures to set Jamf up for profitable growth in the future and return Jamf to the rule of 40. Some of the scalability and efficiency initiatives include adjusting the sales organization for current and expected growth levels, enhancing the customer journey to make it easier to do business with us, enhancing channel relationships through stronger programs and automation, reducing reliance on steel sales. investing in process improvement and automation in sales and marketing and general administrative, leveraging leadership talent and create more efficient organizational structure and optimizing our global footprint, aligning to where our customers need us most. Most of these initiatives are in process with some same benefits in 2024 and others with benefits expected throughout the next few years.
With respect to revenue growth, given the subscription nature of our business, softness in device upsell in 2023 will impact our 2024 revenue growth rate. We expect continued pressure on device upsell through 2024. Based on these factors, for the first quarter of 2024, we expect total revenue of $148 million to $150 million, representing year-over-year growth of 12% to 13%. Non-GAAP operating income of $19 million to $20 million, representing a non-GAAP operating income margin of 13% at the midpoint. For the full year 2024, total revenue of $614.5 million to $619.5 million, representing year-over-year growth of 10% at the midpoint. Non-GAAP operating income of $89 million to $93 million, representing a non-GAAP operating income margin of 15% at the midpoint and a nearly 700 basis point improvement over fiscal year 2023.
While we don't provide an outlook for ARR, we would expect to end fiscal year 2024 with 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 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 beyond 2024, we remain committed to Jamf achieving the Rule of 40. Using our historical calculation method of revenue growth and unlevered free cash flow margin, we anticipate approaching the rule of 40 by the end of 2025.
We plan to exceed the rule of 40 in 2026. We look forward to sharing more regarding our plans through 2026 as part of our Investor Day on March 13, 2024, at NASDAQ in New York. If you would like to attend in person or virtually have yet to register, please reach out to investorevents@jamf.com. And now John and I will take your questions. Operator?
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