Jamf (NASDAQ:JAMF) Q1: Beats On Revenue But Gross Margin Drops

Apple device management company, Jamf (NASDAQ:JAMF) announced better-than-expected results in the Q1 FY2023 quarter, with revenue up 22.1% year on year to $132.2 million. The company expects that next quarter's revenue would be around $134.5 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Jamf made a GAAP loss of $24.2 million, improving on its loss of $25.6 million, in the same quarter last year.

Founded in 2002 by Zach Halmstad and Chip Pearson, right around the time when Apple began to dominate the personal computing market, Jamf (NASDAQ:JAMF) provides software for companies to manage Apple devices such as Macs, iPads, and iPhones.

Apple is known for making user-friendly computing devices and it is not surprising that the demand for its products has grown over the years. As their adoption became widespread across the business and education world, so did the need to manage these devices at scale. Keeping hundreds and thousands of devices up-to-date, with all the necessary apps installed and required level of security enforced can be really time consuming, and if it was to be done manually it would require a large number of IT technicians.

Jamf’s software provides the IT department with an online dashboard where they can see the status of every device, and remotely install updates, apps and security fixes. By providing the tools to make the process of managing Apple products simple and easy, Jamf drives productivity within organizations and also frees up more IT resources that could be deployed to tackle more important problems.

For example, when a public school needed to shift to remote learning, Jamf helped to deploy thousands of iPads and Macs to its students. Instead of the school’s IT team spending weeks manually setting up every device, using Jamf they were able to create a software package and automatically install it on every device within a few hours. It connected students without access to the internet to WiFi hotspots provided by the school, installed remote collaboration apps and provided the students with access to learning materials, ensuring that they were able to continue learning remotely without an interruption.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Jamf competes with cross-platform enterprise providers such as VMware (NYSE:VMW) or Microsoft’s Intune (NASDAQ:MSFT) and smaller companies like Addigy and Kandji. Apple is also showing interest in the device management space via its Business Essentials offering targeted at small and medium sized businesses.

Sales Growth

As you can see below, Jamf's revenue growth has been very strong over the last two years, growing from quarterly revenue of $80.7 million in Q1 FY2021, to $132.2 million.

This quarter, Jamf's quarterly revenue was once again up a very solid 22.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.89 million in Q1, compared to $5.77 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Jamf is expecting revenue to grow 16.3% year on year to $134.5 million, slowing down from the 34.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 16.4% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Jamf's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 77.5% in Q1.

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like Jamf to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Jamf burned through $25.9 million in Q1, increasing the cash burn by 0.6 thousand% year on year.

Jamf has generated $61.3 million in free cash flow over the last twelve months, a solid 12.2% of revenues. This strong FCF margin is a result of Jamf asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from Jamf's Q1 Results

With a market capitalization of $2.21 billion Jamf is among smaller companies, but its more than $200.3 million in cash and positive free cash flow over the last twelve months give us confidence that Jamf has the resources it needs to pursue a high growth business strategy.

It was good to see Jamf outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see the pretty significant deterioration in gross margin and free cash flow missed. Also, both revenue and adjusted operating profit guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $17.92 per share.

Is Now The Time?

Jamf may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Jamf is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. And on top of that, its impressive gross margins are indicative of excellent business economics.

Jamf's price to sales ratio based on the next twelve months is 3.8x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. In the end, beauty is in the eye of the beholder. While Jamf wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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