JAMF - Jamf Holding Pursues Growth Amid Increasing Operating Losses

• Jamf Holding Corp. recently reported Q2 2022 financial results.
• The firm provides a range of IT software and services for Apple products used in organizations worldwide.
• Revenue continues to grow, but operating losses have worsened markedly, so I'm on Hold for JAMF until management makes progress toward operating breakeven.

A Quick Take On Jamf

Jamf Holding Corp. ( JAMF ) recently reported its Q2 2022 financial results on August 7, 2022, beating expected revenue and EPS estimates.

The company provides IT services for companies using or interfacing with Apple products.

With worsening operating losses in the most recent quarter, I'm on Hold for Jamf until management can make meaningful progress toward operating breakeven.

Jamf Overview

Minneapolis, Minnesota-based Jamf was founded to provide a comprehensive set of services it calls Apple Enterprise Management.

Management is headed by Chief Executive Officer Mr. Dean Hager, who has been with the firm since June 2015 and was previously CEO of Kroll Ontrack and prior to that held various senior roles at Lawson Software, later acquired by Infor.

The firm enables enterprises to more easily integrate all types of Apple products and software into their existing systems 'without ever having to touch the devices.'

Jamf sells its SaaS solutions via a subscription revenue model and sells larger accounts through a direct sales force and smaller accounts via its online portal.

Company products include:

• Lifecycle Application Management

• Inventory & Device Management

• Identity & Security Management

• Threat Prevention & Remediation

• Visibility & Compliance

The firm also sells through channel partners, which include Apple itself.

Jamf's Market

According to a management-cited recent IDC survey of U.S. commercial IT decision makers, it expects the penetration of Apple (AAPL) Mac computers to increase from 11% to 14% by the end of 2022.

Additionally, more enterprises are seeking to allow employees to use more of the technology of their choice, as solutions to integrate various platforms become more available and cost-effective.

Statcounter also reported that Apple OSs "comprised 22% of global web traffic (both business and consumer) in December 2019, up from 4% in January 2009."

The increase in the use of mobile devices is mostly the reason for Apple's use growth in the enterprise, although the Mac has been an important contributor.

Management says its focus on providing a vertically integrated suite of options means it can compete better against small startups that are usually focused on one functionality as well as against the large providers who do not offer specialized solutions.

Jamf's Recent Financial Performance

• Total revenue by quarter has risen steadily over the past 5 quarters:

• Gross profit by quarter has also risen markedly in recent reporting periods:

• Selling, G&A expenses as a percentage of total revenue by quarter rose sharply in the quarter just ended:

• Operating losses by quarter have remained negative and worsened sharply in Q2 2022:

• Earnings per share (Diluted) have followed a similar negative and worsening trajectory as operating income:

(All data in above charts is GAAP)

In the past 12 months, JAMF's stock price has fallen 18.3% vs. the U.S. S&P 500 Index's drop of around 3.6%, as the chart below indicates:

Valuation And Other Metrics For Jamf

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

Jamf's most recent GAAP Rule of 40 calculation was 17% as of Q2 2022, so the firm needs significant improvement in this regard, per the table below:

(Source - Seeking Alpha)

Commentary On Jamf

In its last earnings call (Source - Seeking Alpha ), covering Q2 2022's results, management highlighted record revenue growth despite hardware supply chain issues slowing down projects.

Management saw a growing replacement market driven by market consolidation and ongoing product upgrades by Apple.

CEO Dean Hager said that the company's competitive market has seen considerable consolidation, leading to slower update times from competitors.

The firm also dealt with a "challenging market for recruiting and retaining talent."

As to its financial results, Q2 revenue grew 34% year-over-year, with ARR (Annualized Recurring Revenue) growth at 40% due to a variety of factors including "device expansion, new logo acquisition, upsell and cross-sell efforts and the impact of the Wandera acquisition."

The company's net dollar retention rate was an impressive 117%, indicating strong product/market fit and high sales & marketing efficiency.

Non-GAAP gross profit margin was flat year-over-year, but operating costs increased due to headcount growth in sales and R&D functions, so GAAP operating losses worsened considerably.

For the balance sheet, the company finished the quarter with $182.3 million in cash and equivalents and long-term debt of $363.3 million. Trailing twelve-month free cash flow was $36.1 million.

Looking ahead, management expects revenue of $476 million at the midpoint of the range, which if achieved would represent 30% topline growth.

Regarding valuation, the market is valuing JAMF at an EV/Sales multiple of around 8.24x.

The SaaS Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 7.5x at June 30, 2022, as the chart shows here:

So, by comparison, JAMF is currently valued by the market at a premium to the SaaS Capital Index, at least as of June 30, 2022.

The primary risk to the company's outlook is a potential macroeconomic slowdown or recession, which may slow hiring and thus device expansion, reducing its revenue growth trajectory.

JAMF's stock has produced relatively high volatility over the past year and appears to be valued roughly in line with SaaS companies.

Also, the firm's recent worsening operating losses are a concern.

It is difficult to discern a meaningful upside catalyst to the stock given a potentially slowing economy and increasing company losses.

I'm on Hold for Jamf until management can make meaningful progress toward operating breakeven.

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