Jamf Holding Corp.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Thank you for standing by, and welcome to Jamf's First Quarter 2021 Earnings Conference Call. . I would now like to hand the conference over to your host, VP of Investor Relations, Jennifer Gaumond. Please go ahead.

[Jennifer Gaumond:]

Good afternoon, and thank you for joining us on today's conference call to discuss Jamf's first quarter 2021 financial results. With me on today's call are Dean Hager, Chief Executive Officer; and Jill Putman, Chief Financial Officer.

[Dean Hager:]

Thank you, Jennifer, and thank you to everyone for joining us. On today's call, I will share highlights from our first quarter and discuss our recent announcement regarding our intent to acquire Wandera, a leader in zero trust cloud security and access for mobile devices. Jill will then review our first quarter financial results and provide our outlook for the second quarter and fiscal 2021. Last quarter, we talked about our remarkable balance and momentum across our business in 2020. And we continued to see this in the first quarter, driving our overall ARR growth of 37%. Once again, our first quarter ARR year-over-year growth for every one of our priced products was at least 25%. And Additionally, our ARR growth in all 3 major geographic regions

[Jill Putman:]

Thanks, Dean, and thanks again to everyone for joining us today. As Dean mentioned, we had a strong start to the year with continued momentum across all aspects of our business. Total revenue for the first quarter grew 34% year-over-year to $81.2 million. Revenue growth exceeded our expectations primarily due to outperformance in subscription revenue and the timing of license revenue from 1 large customer who significantly grew their Mac fleet that we were initially anticipating closing in the second quarter. Recurring revenue grew 37%, representing 92% of our total revenue. Total ARR as of March 31 was $308 million, an increase of 37% year-over-year. Similar to the prior quarter, this was driven by greater than 25% growth across every product, geography in each of our top industries, with particular strength in our international business, with ARR again growing over 50% year-over-year. As a reminder, ARR represents the annualized value of all subscription, support and maintenance contracts as of the end of the period. ARR mitigates fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses versus staff. The 3 primary drivers of our ARR growth are

[Operator:]

. Our first question comes from the line of Bhavan Suri of William Blair.

[Dean Hager:]

Bhavan, is that you?

[Bhavanmit Suri:]

Yes, can you guys hear me or not?

[Dean Hager:]

Yes. I can hear you great now. Thank goodness.

[Bhavanmit Suri:]

Okay. I'll back up. Congrats. It was a good quarter and congrats on Wandera. I'll dive right in. I was going to talk about Jamf's business plan. You announced it late last year. It was a great way to make sort of the adoption of full stack easier for customers. I guess what kind of traction have you seen with the bundling approach. And how is that impacting the attach rate of Protect and Connect with new customers? And is Wandera kind of the idea to become part of the bundled sort of drive ASP lift. How should we think about that? So kind of how is business plan doing? How does that impact Protect and Connect and the Wandera integration into that?

[Dean Hager:]

Yes. Thanks for the question, Bhavan. And we are very pleased with the uptick that we're seeing in Jamf's business plan. The intended use case that we had for it was simply to make it easier for our customers to purchase multiple products from us. And indeed, it has done that. We continue to move in the neighborhood of hundreds of Jamf business plan licenses within a given quarter. And you're right in that it's pretty common that if a customer is thinking about multiple products, it just starts to make a lot of sense to lean over to Jamf's business plan. So we're seeing a lot of that product being purchased if they're interested in either Jamf Connect or Jamf Protect to accompany Jamf Pro. And then what ends up happening is the customer contracts for it and then ends up using both products, which is great for them. And then your question on Wandera specifically, It will sell as a -- when we do come together, obviously, as a stand-alone product just like Jamf Connect and Jamf Protect sell as a standalone product, regarding any bundling plans is way premature to determine what we might do there. We're just happy with the value-added solution that it will have for our customer base.

[Bhavanmit Suri:]

Got you. Got you. Got you. I think the other piece I want to touch on a little bit was the Apple relationship, and this comes up when we talk to investors a lot, just can you speak a little bit about the continued co-development with Apple? And then any update on conversations with that partner, obviously, since they bought Fleetsmith. It feels like the fervor around their risk there is died down, but I'd love to get your take as you talk to Apple obviously much more directly than we do.

[Dean Hager:]

Yes. So our partnership is still multidimensional. Obviously, we're each other's customer. Apple resells us in education and also through retail. And then, of course, we have several joint projects that we'll work on. And we developed to Apple technology, working with their worldwide development organization as anybody else would. There has been no change to that relationship over the past year of us being public. We consider our relationship with Apple to be at the strongest point that we've ever had. And I had mentioned a year ago that the Fleetsmith acquisition would have little to no impact on our business. And now a year later, I would suggest that it's been even less than what I implied a year ago.

[Operator:]

Our next question comes from the line of Rod Hall.

[Roderick Hall:]

My first question, I guess, is this $9 million accounting impact. I wonder if you guys could dig into that a little bit more. I think I heard you say it's change to the way you're recognizing ratable revenue. But maybe, Jill, could you explain a little bit more on that? Or Dean, whoever wants to take it? And then I have a follow-up.

[Jill Putman:]

Rod, good hear from you. It's Jill. Yes. So we shared this at our last quarterly update. So midyear here, we're going to have a change in some future updates to our Jamf Connect product. When that -- when those go into effect, that product is now going to be deployed more like a cloud product versus an on-prem product as it is currently. So it's going to trigger a different accounting revenue recognition treatment, whereas prior or currently, right now, because it's treated on-prem, about 80% of the revenue is recognized upfront in the first month that is deployed with the 20% ratable. Going forward, about approximately midyear here when the change kicks in, all of it will be treated as a cloud deployment, so it will be all recognized ratably. The impact is about $9 million we're estimating will be the impact to the second half of this year. That's essentially just going to get deferred into next year. It's just the timing difference of the rev rec. It has 0 impact on the ARR. The ARR is going to remain whole.

[Dean Hager:]

And just going to add on a quick comment for clarity. The reason why Jamf Connect was treated at rev rec from an on-premise perspective is because it deployed as an app on the Mac itself and now is changing technically to be more of a cloud delivery.

[Roderick Hall:]

Great. Okay. That's great. And then my follow-up is just on visibility into H2. You're kind of guiding a little bit below consensus here, I guess, or implying below consensus a little bit. But then that are $9 million affects that. So it's a little better if you account for that. But I'm just curious what your visibility looks like into the second half of the year? Or do you feel like people are ordering on out into the end of the year? Are you kind of having to guess what the back end of the year is going to look like?

[Dean Hager:]

Go ahead. You take that, Jill.

[Jill Putman:]

So consistent with the full year guidance we gave at the beginning of the year. We're just updating that in fact, and raised it here off of our guidance from a quarter ago really based on the strength that we're seeing in the commercial pipeline. As we -- as Dean and I were anticipating as we got into 2021, Education is going to continue to have some tailwinds, but our commercial business and pipeline is really starting to come back. Predominantly, we're seeing that in the SMB market right now. And we're starting to see that as we exited March, strong pipeline going into Q2. continuing to build then, particularly in the U.S., a tiny bit slower outside of the U.S., so that would be upside to our model should that come back faster. Again, trying to layer in just a little bit of -- it's not absolutely certain how the pandemic is going to play out here for the next couple of months and the economy. But based on what we're seeing in our pipeline, that's the numbers that we've used to update our guidance.

[Operator:]

Our next question comes from the line of Raimo Lenschow of Barclays.

[Raimo Lenschow:]

Congrats on the acquisition as well. Dean, can I stay on that one? Like if I think about Wandera a little bit, like so you guys were more like endpoint. This just seems more like on the networking side. Like how do I think about that cross-sell, upsell? Like how natural is that Jamf Protect and Wandera kind of potential sales motion? Can you give us a little bit more color since we work so deep in there.

[Dean Hager:]

Sure. Thanks for the question, Raimo. And yes, you're right that Wandera would have a more network focus. But frankly, being able to block attacks from the network at the point that they're hitting the device is an important part of also protecting the user and the device. 80% of the activations on the Wander platform are for iOS specifically. So they are an Apple-first developer and their solution is also Apple best. When -- if you think about it, maybe I'll simplify it this way, with Jamf, we have, as you know, management, connection and protection products. Management we have for all iOS and all Mac for everything apple. But our connection and our protection products have really been only for Mac. What Wandera brings is connection and protection solutions also for iOS. So combined now, we provide the entire Apple Enterprise Management solution of management connection and protection for every type of Apple device. Does that make sense?

[Raimo Lenschow:]

Yes. That's super helpful. Okay. Perfect. And then Jill, like in terms of -- how did they sell in terms of revenue treatment for -- and deferred revenue write-downs, et cetera, that we need to kind of consider?

[Jill Putman:]

Yes. So for Wandera, we've done some high-level estimates at this point. We haven't gone through a complete analysis. So we've layered in what kind of a range where we expect that to land. Of course, that $9 million to $11 million that we've put out there for the second half -- we'll be completing that analysis. We just have -- it's too early really for us to nail that down right now.

[Operator:]

Our next question comes from Rob Owens of Piper Sandler.

[Robbie Owens:]

Great. Let me drill down into device count as its advancing. Is a lot of that acceleration we're seeing in enterprise? And then secondarily, how should we discount any potential supply chain issues that Apple is having right now relative to your outlook for Q3 in the back half?

[Dean Hager:]

I'll grab that. Regarding the supply chain, occasionally, just anecdotally, we may hear of a supply problem every once in a while, but there's been no material impact on our business at all. Regarding the industries that are driving those device counts, of course, as Jill mentioned, we continue to see great strength in the education market. But as predicted towards the end of Q1, we did see a surge of enterprise interest as well. So it really was a nice mix. If you take a look at our -- both sides of our business, the education and commercial side, as we mentioned, our growth was extremely balanced between the two.

[Jill Putman:]

That was our fourth consecutive quarter of momentum in our device growth -- accelerating growth.

[Operator:]

Our next question comes from Matt Hedberg of RBC Capital Markets.

[Matthew Hedberg:]

A lot of strength here to talk about. Obviously, education was strong, too. And I think that was a question that a lot of us had is the durability. And Dean, I think you mentioned, you expect strong education results this year. I'm just wondering, when you sort of think about the path of education spend this year, obviously, it's different versus last year. But now you've got CARES Act and a number of other international drivers. How do you sort of anticipate this -- the trajectory of this year from an ad spend perspective relative to last year when we were obviously in the back of COVID?

[Dean Hager:]

Yes. Thanks, Matt. Appreciate the question. First of all, just to level set everybody, as we've mentioned before, over 60% of our ARR is on the commercial side. And our commercial ARR still year-over-year grows faster than the education ARR does. We've just seen those growth rates closer in the last year than what they typically are because of the tremendous strength we've seen on -- in education. And one of the things I would say, we saw through continued strength through Q1 with education, and it's largely because it is such a global initiative. We mentioned on the call that there are several government funding programs like what we mentioned with the CARES Act. What we didn't mention is, gosh, almost every European country has some similar type of funding act. Even though students are starting to come back into the classroom. It's why we call it an education awakening when it comes to technology because even if they did not have technology deployed in time for the pandemic or in the middle of the pandemic, even as we start to come out of it as we are in various regions, there is an awareness of how important technology is in education right now. So some funding programs are just getting started. So we see buying continue to be strong there. And in the coming months, we are anticipating it to remain strong.

[Matthew Hedberg:]

Got it. That's great. And then, Jill, maybe I missed it. You noted that there was 1 large early renewal. I don't think you quantified it, but any way to kind of get a sense for -- I don't know, if it's a device count or ARR that just sort of shifted from Q2 to Q1. Just trying to get a sense for how we would rightsize that when we think about the sequential growth this quarter.

[Jill Putman:]

Yes. It was actually a large license -- existing customers who had a large license expansion as well as, of course, the maintenance contract that goes along with that. We anticipated -- we originally anticipated closing in early Q2, it actually swapped into Q1. So that was part of our exceed in the quarter.

[Operator:]

Our next question comes from the line of Gregg Moskowitz of Mizuho.

[Gregg Moskowitz:]

Okay. So a bit of a follow-up to start just from what Raimo was asking about. And I realize you're going to be selling Wandera and Jamf Protect discretely. But Dean, is there an opportunity to integrate and optimize some of the IP where perhaps you can enhance Wandera's ZTNA technology with Protect's anti-malware.

[Dean Hager:]

Thanks for the question, Gregg. And yes, you threw me a softball there. In that, yes is the answer. We see tremendous opportunity. One of the things that we love about this acquisition is that Wandera's sales have been driven by the same market forces that have been driving our sales. The desire to connect, manage and protect devices with a mobile workforce in an Apple-first way. Yet, we don't have any overlap in our solutions. They're incredibly complementary. In other words, 1 customer, it makes sense, and there are a few customers out there that have already done this, literally own everything that Jamf offers and everything that Wandera offers, but then they've integrated themselves together. By us providing that integration will take 2 valuable solutions and make them even more valuable together for our customers. So yes, many integration opportunities and it won't simply be for iOS either. ZTNA is a great cross-platform solution integrated with identity, and there are going to be potentially millions of Mac users out there that we're going to bring a better work connection experience to than what they've had using historical virtual private networks.

[Gregg Moskowitz:]

All right. That's very helpful. And are you guys able to say roughly how many customers Wandera has and just how much customer overlap does exist between the two companies at any level?

[Dean Hager:]

They have over 2,000 customers. We're not prepared at this time to talk about customer overlap. We're still doing that analysis. But what's terrific is even when we have a customer that has both solutions, very frequently what we have already found, it's because they're using Jamf for the Mac. And they're using on Wandera for the mobile devices, and we still have more solution from Jam that can go in and provide even greater value by bringing in our iOS device management as well. So while we might be running within the same customer base, we're not necessarily running on the same devices today.

[Operator:]

Our next question comes from David Hynes of Canaccord.

[David Hynes:]

Congrats on the strong results. Dean, I wanted to ask you about the stat you shared around penetration for macOS. I think you said 17% to 23%, which is pretty exceptional growth. I think we typically talk about 2 to 3 point annual gains. Can you just talk about Your view of what drove that acceleration, whether it was COVID driven? How you're thinking about the pace of Mac's share gains in '21? Any color along those lines would be helpful.

[Dean Hager:]

Sure. Just for clarity, that was an IDC enterprise study in the U.S. of organizations of greater than 1,000 people. They published that study, I believe, in December or January. I can't remember the exact data of it now, but their data showed that in 2019, that was 17% penetration in 2020. It was 23%, so a 6 percentage point movement organizations 1,000 and more. And then that was reinforced by the Mac growth on units report that they did in December, which was about 50% growth for Mac and then, of course, in Q1, it was over 111% growth for Mac. So we have seen growth and we are seeing definitely an increase of Mac's use within the enterprise. And we believe that the overall driver of that is the consumerization of IT, that people no longer want to use that home what they're issued at work but rather use that work what they already love in their homes, and that is Mac. So as that movement continues, we believe that Mac growth will continue, provided that the organization has a solution to secure and manage the Mac that allows it to still work consumer-simple that Apple is so known for. That's exactly what Jamf does.

[David Hynes:]

Yes. Perfect. And Jill, I just want to make sure I'm understanding the guidance correctly. So you raised the range for the full year on revenue by $5 million. Two questions there. Did the prior guidance range already exclude that $9 million of Connect from the second half that pushes out? So that's question one. And then question two, the 9% to 11% that you talked about expected from Wandera, that would be incremental to this $335 million to $341 million, correct?

[Jill Putman:]

Yes. Good question. Yes, the previous guidance already did exclude the $9 million. We talked about that and explained it, and we did back that out on our original guidance for the year, so that we're holding consistent to that. And then the 9% to 11% would absolutely be incremental to the guidance we're giving. We have not layered Wandera into any of the information we've given other than just that $9 million to $11 million range that would be on top.

[Operator:]

Our next question comes from Sterling Auty of JPMorgan.

[Sterling Auty:]

Most of my questions have been asked, but one from my side would be, Dean, when we think about the innovation, especially when M1 chip devices were made available, you're really the only platform that could support day 1. How does that stand today? Where is your competitive differentiation from the technology side set relative to the other options on the market, especially with the new iOS 5G-enabled devices?

[Dean Hager:]

\ Yes. Thank you for the question, Sterling. Without a doubt, the M1 chip and the emergence of big, Big Sur, the operating system for the Mac shine a light on Jamf's differentiation because both the operating system and the chip were supported by all Jamf solutions the very day that they were available. There are several other providers out there that still today, even though that was released late last fall, still today do not support that chip or the operating system. And I think that is 1 of the reasons why Jamf has seen some good fortune here in our ability to be able to help customers succeed with Apple. As you look at iOS, the same is true. Our same-day readiness with all Apple operating systems as we showcased in Q1 with our -- all of our products as well is a key part of the differentiation. But overall, I believe that, that is just a small part of the overall Jamf differentiation, which is allowing things or empowering users with consumer simple Apple technology. In other words, giving them the privacy, the performance and the user experience that they want but yet doing it in a way that still delivers the security and the control and the efficiency that the organization requires. And 1 of the things that we loved about Wandera is they built solutions in the same way we did, focusing on that end user empowerment and still delivering the organization what was required.

[Operator:]

Our next question comes from Josh Reilly of Needham.

[Joshua Reilly:]

Congrats on the strong quarter. So I had a question on Connect. So obviously, that product has done quite well over the last year. How should we think about demand correlation for that product relative to growth for the cloud identity providers like Okta or Azure that the product integrates with? I'd like to get some more color on what's driving adoption there? And then I have a quick follow-up.

[Dean Hager:]

Sure. Clearly, as more and more organizations are adopting cloud identity providers in the cells, being able to use that 1 single cloud identity for your authentication, whatever you happen to be authenticating to, is a really useful security tool and also a user experience tool. So you've seen great adoption of Jamf Connect as organizations have been adopting cloud identity because essentially we can use that cloud identity to authenticate to the Mac. So we don't -- we're not an identity provider ourselves But we leverage and partner with the identity providers to create a better overall experience on the Mac. With Wandera, we're actually going to take that to a next level because once you authenticate to the device itself, using your cloud identity, you will also have private access connection into all of your work resources both in the network, at work and also through the cloud using Wandera Private Access. And that's once again going to be a solution that creates a great user experience and actually improve security at the same time.

[Joshua Reilly:]

Okay. Great. And then just a follow-up on that, how much of the outperformance in the on-premise subscription revenue was related to Connect product revenue versus actual on-premise subscriptions? Any color there would be helpful.

[Jill Putman:]

Yes, I'll take that one. It was really a combination of the 2, both Pro and Connect. Nothing unusually large on either side of that.

[Operator:]

Our next question comes from Koji Ikeda of Bank of America.

[Koji Ikeda:]

Just a couple of questions here. On Wandera, Dean, I think you said in your prepared remarks that iOS is about 80% of the business. What's the other 20% of the business? Is that Mac or is there anything else in there?

[Dean Hager:]

Thanks. Great question. The remaining 20% would be a mix of pretty much all the other endpoints that you'd be familiar with, Windows, Android, Mac, would make up that remainder of 20%.

[Koji Ikeda:]

Okay. Got it. And then I guess, a lot of questions on Wandera, but I wanted to switch gears a little bit and talk about CMD Security. I saw that you guys completed that acquisition, it's still new. But is that fully integrated within the tech stack? I mean, I guess, any sort of color from initial reaction from customers, partners, anything on early adoption would be helpful.

[Dean Hager:]

Yes. Thanks for the question. Just for everybody's information, we acquired the assets of CMD Security, closed that acquisition in the first quarter, the product called CMDreporter essentially grabs telemetry from security telemetry from the Mac and is able to hand that off to whatever the security log-in system or SIM is for the organization. And that is something that was very well received by our customers when we closed. It was a small tuck-in acquisition. And the word that we got from our customers is the exact type of combination of Jamf with them, delivers, again, where the integration delivers greater value to the customers. So nothing quantifiable to give you just yet. But overall, just anecdotal, we've received terrific response from our customers on that.

[Koji Ikeda:]

Got it. Congrats on a great quarter and the Wandera acquisition.

[Dean Hager:]

Thanks a lot. Appreciate it.

[Operator:]

Our next question comes from Pat Walravens of JMP Securities.

[Joey Marincek:]

This is Joey Marincek on for Pat. Just two from our end. So first, I want to dig in on net retention, which continues to be strong. What is driving that? And then second -- secondly, can you just give us an update on Mondada and how that's playing.

[Dean Hager:]

Absolutely. Thanks for the question. First of all, on retention, I'm assuming you mean the net revenue retention. I'll just speak first to overall just without -- our retention of customers, what drives that is just great customer support and a product that does what you say it does. So by providing those products and that support to our customers, that's the #1 thing we do for net revenue retention. Beyond that, I'll let Jill handle the rest of that question, and then I'll take up on Mondada.

[Jill Putman:]

Yes. So our drivers are really device growth. That's our primary driver of net retention as well as on the add-on products that we sell. But then kind of mix over top of that is the mix of commercial and our education business with our commercial business, a, growing faster and at a higher price point that tends to kind of pull it forward. And going through COVID here if we saw a little bit of softness anywhere, it was really offset by some of those growth factors. And then when we think about our commercial versus education. There's really nothing significantly different about the retention rates across those two verticals as well. So just absolute consistency over the last several quarters from single verticals.

[Joey Marincek:]

And then just on Mondada, if you can just give us an update on that?

[Dean Hager:]

Yes, I'm sorry. We've already integrated the solution and provided more value to our customers. We're today supporting over 500 application titles for the Mac, and it's just been tremendous reception from our customers and appreciation for so quickly taking, again, a small tuck-in acquisition and delivering customer value. And we're not done yet. We actually have ideas for greater improvement for the installation and updating on the Mac itself. So the initial integration done, customer value delivered, and we're not done innovating on that front.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.