Q3 2023 Jamf Holding Corp Earnings Call
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Okay.
Thank you for standing by and welcome to James Third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if you'd like to remove yourself from the.
Hugh simply press Star one again.
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.
Good afternoon, and thank you for joining us on today's conference call to discuss third quarter financial results with me on today's call are John <unk>, Chief Executive Officer, and Ian Good kind Chief Financial Officer before we begin I'd like to remind you that shortly after the market closed today, we issued a P.
Press release announcing our third quarter financial results. We also published our Q3 earnings presentation, along with an updated investor presentation that excel file containing quarterly financial statements to assist with modeling.
May access this information on the Investor Relations section of <unk> Dot com.
Today's discussion May include forward looking statements. Please refer to our most recent SEC reports, including her 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 Jim's performance you can find the reconciliation of those measures to the nearest comparable GAAP measures.
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 struggle John.
Thank you Jen and thank you everyone for joining us Jeff achieved strong results in Q3 exceeding expectations for the 14th consecutive quarter.
Year over year revenue growth was 15% non-GAAP operating income was $12 4 million, an 80% increase over the prior year period.
This resulted in a non-GAAP operating income margin of 9%, a 300 basis points improvement over the prior year period. Additionally, <unk> grew 15% year over year in Q3 to $566 $3 million.
We continue to achieve these results.
Challenging macroeconomic environment.
Testament to the strength of the <unk> platform and diligent execution by our team in Q3, we saw continued muted device expansion, but some signs of stabilization with eight of the top 10 deals, including an upsell component over 40% of our new customer pipeline generated included a security component and over 85% <unk>.
Growth for our business plan and enterprise plan combined as customers implemented trusted access.
We ended Q3, adding 900 customers and 500000 devices to our platform during the quarter, resulting in more than 74400 active customers running jam on 31 8 million devices.
These customers, 23% utilized both the security and management solution, an increase of one percentage point from the last quarter.
This increase helped drive a 6% year over year increase in Champs Asps.
We're proud of our ability to consistently add customers grow devices and expand with additional solutions I am confident in our ability to continue to achieve strong results in difficult times and I'm excited to see what we can achieve in a normal environment.
While I have been a champ for just over eight years, it's been just over two months since I became CEO I want to assure you that our focus on helping organizations succeed with Apple has not changed we will extend our leadership position by continuing to execute on our strategy. Our business has changed dramatically since our IPO with over 300.
And they are added in just three years now is the time for <unk> to enter the next phase of its evolution scaling for growth while driving profitability.
This isn't new for me.
Scale large organizations in the past and it's about a third of my career outside the United States.
This experience will help us continue to expand internationally and capture the enormous opportunity that exists for Jeff globally, I could not be more delighted to lead this team and continue building on all the successes we've achieved to date.
One of the key events during this past quarter was our nation user conference or <unk>.
September we hosted our largest ever in Austin, Texas, where we brought together our unique and tighten it Jam nation community. This year, we highlighted new innovations that further bring to life, our vision of trusted access, allowing trusted devices and trusted users to securely access corporate resources we.
We were honored to hear from some of our key strategic partners like Apple, Google and Microsoft during our keynote as they highlighted ways. They are helping organizations succeed with Apple with the help of JMP.
Also at <unk> this year <unk> the CIO at Cisco.
Rented how cisco's employee Mac choice program powered by channel makes employees happier and more efficient, while reducing costs through fewer tickets and lower cost of Mac ownership.
And Apple has recently made the math a total cost of ownership even easier by lowering the price of the 14 inch Macbook Pro which now includes the new <unk> three chip.
Additionally, we hosted our third annual Jane <unk> Investor event, where we describe Champs key growth drivers over the medium term.
<unk> is poised to make great strides growing within our customer base as well as bringing new customers into the <unk> platform.
By leaning into Champs unmatched Mac leadership, combined management and security offerings and our expertise in both the Mac and mobile ecosystems, we're able to bring the power of the platform to help our customers meet their organization's goals and position <unk> to accelerate growth as macro conditions improve.
And the Mac space Q3 was another challenging quarter for PC shipments with IDC reporting the broader PC market declining seven 6% year over year and Apple shipments declining 23, 1%. Despite this decline Apple market share for the quarter still grew 10, 6% from eight.
6% in Q2 much of apples year over year decline was the result of a tough comparison with Q3 2022, where Apple shipments grew 40% due to the end of a COVID-19 related production halt and our PC market that declined 15%.
IDC anticipates the second half of 2024 will benefit from post Covid refresh cycles as well as the end of support for Windows 10.
We agree and believe the refresh cycle could be supplemented by the recent M. Three Mac launch. These factors when combined with an increased prevalence of employee Mac choice programs will give more employees an opportunity to switch to Mac at work.
A great example of this is <unk>.
Longtime Champ customer SAP utilizes the full gem platform with <unk> enterprise plan across their entire Apple fleet also.
Joined our Jane on keynote presentation to highlight how they're utilizing <unk> technology to create a consumer like experience for employees with virtual employee badges jumped trust brings digital trusted access policies to the physical world ensuring that only users unsecured devices are able to access buildings in offices.
Virtual employee badges or just one of the many value added workflows SAP is implemented for its employees leveraging jam a.
A few years ago at <unk>, our customers told us Jam pro made deploying their Apple fleet simple, but they needed an easy to deploy security solution to meet the increasing security demands of their organization.
Cyber threats continue to rise as bad actors level up their technology. According to Idc's future enterprise resiliency and spending survey and companies are 500 employees or more 50% of companies surveyed had sustained up business disrupting ransomware attack in the last 12 months and one third of that group said the attack disrupted business by one.
Week or more.
In that same survey when it decision makers were asked what were the top deciding factors when youre choosing a computer for your company security was by far the number one response.
<unk> is the only platform that delivers an Apple first integrated management and security solution that meets the needs of the modern enterprise today, our security solutions comprised 21% of our total <unk> and we anticipate security to continue to become a larger part of our total overtime much.
Much of our success in security has been predicated on our ability to deliver both management and security on one platform.
Success of Champs bundled solution is a testament to this with a growth of bundled solutions outpacing most of Champs individual products.
And we're seeing customers of all sizes and end markets embraced Champs platform for management and security while the growth in the SMB space has continued to be strong growth in the enterprise space was equally as strong in Q3, showing how janssen is gaining traction with displacing other security vendors on Apple devices.
And not only are our customers taking notice that the industry is as well jump protect was recently named a leading endpoint security vendor by Frost <unk> Sullivan and their Frost radar endpoint security 2023 report.
This is a great achievement and a testament not only to protect but an acknowledgement by the broader industry of the importance of Apple first security technologies.
We're excited to be recognized as a leader, especially after such a short time in the security space and believe this is a great step in increasing our awareness of Champs security capabilities.
In Q3 over 40% of our new customer pipeline generated from security and currently nearly half of our new customer open pipeline is for security.
Security products are also helping us increase our win rates when customers come to Champ with security in mind, we win almost twice as often as we do and customers are looking at management alone.
One item to note in Q2, we signed one of our largest ever security deals for 85000 devices with a large enterprise, which led to a very strong security quarter, making for a tough quarter over quarter comparison.
For mobile employees want to be justice productive while on the move as they are in front of their Mac, while organizations want to make sure company data is accessed from secure devices. This is the reason why Champ is leaning into delivering our platform across both Mac and mobile devices more and more of our customers are reorganizing their info second it departments with dedicated Mac in Io.
Most teams focused on deploying best in class security and management solutions, regardless of the device type.
<unk> integrated platform can help customers achieve trusted access no matter what device and employers using.
This is especially true for organizations, where users are constantly on the go for example in Q3, we expanded our relationship with the U S professional sports League, which as many users travelling to games across the country throughout the season needing access to corporate resources via mobile devices. The league was already utilizing jam for its Mac devices, but wanted a more robust.
<unk> solution for its 2500 iOS devices. The info SEC team made the decision to go with Champ after seeing the value in being able to manage a dispersed group of Mac and iOS devices from a single pane of glass.
We continue to see success from our efforts around Mac and mobile as well as management and security across the number of areas first in financial services. We continue to gain traction in this industry as it has been a laggard with respect to Apple adoption, we view the financial services space is a significant opportunity due to the under penetration of <unk>.
Today.
Financial services represents the second fastest growing segment by dollar value in Q3 and has the highest three year <unk> CAGR of our largest nine industries.
In Q3 across just by financial services wins, we added over 26000 devices. In fact, thanks to the adoption of employee choice programs. Our two largest wins for Q3 came from the financial services space. We had a key win with a large bank that has been working to uplift their security posture and overcome perceived risk.
<unk> of using back the bank has been coordinating with Champs and Apple to deploy over 2500 devices in specific departments over the past few quarters and plans to expand Mac across the rest of the organization in Q3. This jam customer took the extra step of deploying tamp business plan to protect all of its Max after its previous uhm provide.
Struggled to provide support for a number of new devices in the organization.
Another key financial services win was with NASDAQ NASDAQ at GMP Pro customer acquired Verifone Jam business planning customer after examining the success of Champs business plan at paraffin, NASDAQ decided to expand the business plan for both Mac and iOS across the entire company Jeff was able.
To unify nasdaq's Apple fleet into one enterprise solution.
We continue to operate in the best replacement market, we've seen in our history and it shows no sign of slowing down we saw a number of key wins from the legacy providers in Q3, including five wins totaling over 75000 devices.
While we see significant traction, replacing this legacy vendor in the commercial space our ability to replace in the education space is just as strong or four largest education deals in Q3, we are in the K through 12 space and were competitive takeaways. Each of these districts have their own reasons for switching to jam Arlington public schools saw jump as a superior.
Your solution that could seamlessly bring the best experience intuit's classrooms. The district migrated 12000, Mac and 20000 iOS devices across 34 schools to jump this quarter.
Another win with a large school district in Southern California. The district was facing a price increase while not experiencing reliable support for their 25000 devices.
<unk> wanted to provide students with all of the latest Apple features and updates while being able to manage those devices in the classroom.
<unk> was able to demonstrate superior features and ease of use deployment given the district, the confidence to make the shift to jam.
These deals represent the robust replacement market. We are currently in but similar to Q2, we continue to see muted overall growth in education due to the significant investments in deployments made by many schools in 2020.
And finally with respect to security and mobile we launched jumped executive threat protection earlier this year to help customers defend against advanced mobile threats. As a reminder, this mobile security capability is extremely unique in the industry, providing organizations with an efficient remote method to monitor multiple devices and respond to advanced attacks greatly reduce.
<unk> investigation period.
Jeff Executive threat protection is designed to identify sophisticated digital threats going beyond traditional device management and endpoint security to extend visibility into attacks that target high value users. In Q3, we saw four significant jet P deals spanning government agencies and media organizations, helping protected devices of <unk>.
<unk> officials.
Suite executives and journalists across the U S and Europe. While this solution is designed for a number of unique use cases, it demonstrates <unk> commitment to increasing our security capabilities over time, we will be looking at how to incorporate some of the jet <unk> functionality into gimp protect to benefit our broader customer base now with that I'll turn it over to Ian.
Yeah.
Thanks, John We ended Q3 with total <unk> growth of 15% year over year to $566 $3 million exceeding expectations Q3 year over year revenue growth was also 15% exceeding the high end of our revenue outlook by $1 6 million.
Similar to last quarter, the strategic core of Jam business SaaS recurring revenue remained strong in Q3 exceeding our expectations.
Less strategic revenue sources like license services and on premise revenues continued to experience year over year decline.
<unk> for license and services revenues the year over year declines were greater than anticipated.
We continue to see macro uncertainty impacting our business, resulting in reduced customer budgets and elongated sales cycles.
As we discussed last quarter.
Industries, where the macro has been both impactful to us our information and communication, which includes tech and K through 12 and education. These industry. It's remained Champs two largest and combined represent 47% of Champs total.
The softness in these two industries has been partially offset by chance next three largest industry professional services financial services, and wholesale and retail which represent 24% of jams total.
We continue to believe that momentum in these three industries combined with the anticipated return of tech hiring will help return jam to higher growth.
With respect to net retention as anticipated.
We saw a decline in total company net retention rate to 108% in Q3 due to the impact of six consecutive quarters of muted customer hiring.
Device growth at renewal, we continue to see volatility at the low end of the market while enterprise remains strong as evidenced by some of the wins John mentioned earlier.
Overall, we believe that <unk>.
Our decline is primarily driven by the difficult macro.
Gnomic environment, and we would expect our metrics to increase as the economy improves.
The remainder of my remarks on margins expense items and profitability will be on a non-GAAP basis GAAP financial results along with a reconciliation between GAAP and non-GAAP are found in the earnings release.
Q3, 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 fluctuation each quarter.
non-GAAP operating income exceeded the high end of our outlook in Q3 at $12 4 million or 9% due to increased revenue.
Trailing 12 month, Unlevered free cash flow margin was 11% compared to 14% in the prior year.
Really related to a significant shift in customer preference for annual billing in place of upfront billing for multiyear contracts.
So far in 2023, we have seen unlevered free cash flow decrease as customers move from upfront to annual billings for multiyear contracts shifting cash collections out to future years.
In Q3, this shift to annual billing was amplified and larger than we had anticipated.
It's important to note that the resulting 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 Jim just not paying the full contract value upfront.
Our effective tax rate for Q3 was one 7% consistent with our expectations as a reminder, for non-GAAP metrics, we use our domestic statutory rate for calculating tax impact which is currently 24%. Please note that we pay a negligible amount of cash taxes on our U S federal basis and paying.
Immaterial amount of cash taxes outside the U S.
Now turning to our outlook for the rest of the year over.
Over the last few years, we have invested in diversifying our business beyond Mac management and have seen strong adoption of our mobile and security solutions. However, we are still in early stages of capturing the opportunity within the large and growing market of both new and existing customers realized the value of using <unk>.
To help ensure all their apple devices are secure.
Macro uncertainty I mentioned earlier remains a factor with continued decrease growth at renewal.
Diversity across products industries, and geographies has helped us mitigate some of these declines.
On the cost side, we are committed to improving efficiency within our business, but having our scalability initiatives, helping ensure champion patient.
<unk> reaccelerate growth when macro condition.
Based on these factors our outlook for the fourth quarter and full year 2023 is as follows.
For the fourth quarter of 2020, 'twenty three we expect total revenue in the range of $148 million to $149 million representing growth of 13% to 14% year over year.
non-GAAP operating income in the range of 19, 5% to $25 million, representing a non-GAAP operating income margin up 13% to 14%.
For the full year 2023.
Total revenue range of 557, nine to $558 9 million representing growth of 17% year over year, and a $1 $9 million increase in the midpoint from the outlook, we provided last quarter.
non-GAAP operating income of 43, 8% to $44 $8 million, representing a $2 $3 million increase in the midpoint from the outlook. We provided last quarter. Additionally, this outlook results in our full year non-GAAP operating income margin of seven nine.
At the midpoint of 250 basis point improvement over fiscal year 2022.
For modeling purposes, given my earlier comments related to the NAMIC of revenue components for Q4, you should expect license and service revenues to decline at a similar percentage to Q3, while subscription revenue will represent at least 97% of total revenue.
And while we don't provide an outlook for <unk>, we would expect to end the year with AAR growth approximately two percentage points lower than our anticipated full year 2023 revenue growth.
For Unlevered free cash flow margins, we have made adjustments to our cash forecasting model primarily for customer payments scheduled given the significant shift in Q3 from upfront multiyear billing to annual billing.
Therefore, our expectations with respect to Unlevered free cash flow margin for full year 2023 have been adjusted to 11% to 12% again. This is not reflective of lower contract values shorter contracts or lost customers, but a shift in customer preference related to payment timing.
We also provide estimates for amortization stock based compensation and related payroll taxes and other metrics to assist with modeling and the earnings presentation as part of the webcast and also posted on our Investor Relations website.
As we look to 2024, you should expect <unk> to continue to improve operating margins. We will continue to be diligent with expenses as well as drive efficiencies with our scalability initiatives.
We look forward to sharing more 2024 expectations with you. When we report Q4 results in February and Mark Your calendars for March six 2024, when we will host our first Investor day at NASDAQ In New York City, and now Jon and I will take your questions operator.
Certainly one moment for our first question.
And our first question comes from the line of Matt Hedberg from RBC. Your question. Please.
Great guys. Thanks for taking my questions John.
Congrats on the quarter your comment on the success in security were really good to hear.
Given that it sounds like half your pipeline for deals are there things that youre working on with the sales force.
To accelerate these deals as they get larger and perhaps more complex.
Yes, absolutely Matt. Thanks for the question well, we certainly are and our sales enablement team is really dedicated to the teaching our sales teams to lead with trusted access because management and security really two sides of the same coin you can't have a secure device without it also being managed because if you detect a vulnerability or you need to remediate something you need to do that through the management piece of.
That so the fact that those two go together has really resonated with our customers and as I mentioned in the prepared remarks that we actually closed twice as many.
Deals with security included that if its just management alone. So again security side is really resonating with the customers, we're really ramping up our sales team to focus on that we did a while ago also.
Bring an overlay team on the security side to help our other territory reps learn how to fish and thats working as well and we're continuing to see some traction there so yes, you're absolutely spot on.
Great to hear maybe if I could just a quick one for Ian.
Embedded in your Q4 guidance is it sort of more of the same sort of strength at the high end of the enterprise, maybe weaker SMB and weaker education does that sort of what your underlying macro assumptions were in that guide.
Yes, Thanks, Matt for the question good to hear from you.
Exactly I mean, it's more of the same macro hasn't changed I think the other way.
Rewind the clock to last quarter. When we gave that guidance, we talked about the strength of our business and the recurring piece and that is where we continue to see it in the commercial side. Specifically, we did talk about education continues to be muted, but the commercial side with jaw dropping.
Rockford.
If we move on to kind of cross.
Sure.
So we're really excited.
Got that.
We think is achievable and that really is a good growth rate.
Thanks, guys.
Yes.
Thank you one moment for our next question.
And our next question comes from the line of Gregg Moskowitz from Mizuho. Your question. Please.
<unk>.
Hey, Thank you very much for taking my question good.
Good afternoon, guys. So I guess the first question just on the guidance and for <unk> growth for the year. I think you mentioned about two points lower than expected revenue growth. I think previously you had spoken about that these growth rates, probably being similar to each other and I know that nonrecurring.
<unk> portion has been lighter this year, but of course that would not represent a headwind on IRR on a relative basis and so I'm just kind of wondering if you could outline what has changed here in terms of the IRR expectations for half of the year.
Yeah, Greg Thanks for the question, Yeah, and I touched on it here in the last remarks, they talked about the education being more muted. This year then.
And then we originally anticipate even last quarter.
Talk about that it continues to be muted for us, but again the strength in a couple of data points for you. The strengths have been really in the security side and that is kind of words.
Coming up and catching up to revenue I'll say, but there are couple of data points for you. If you look at the business plan, that's up 87% year over year and when you look at the net new adds that was the second largest contributor to that so those are the things that education the upsells.
We've talked about but there is definitely some glimmers.
Glimmers with security and the trusted access story.
Okay. That's helpful and then for John One thing that I don't believe you touched on it.
Was it pretty much was the <unk> acquisition.
Talk about what excites you about.
Acquiring that asset and then also did that add anything just so we're aware for our models to add anything to revenue IRR deferred revenue into Q3.
The expectations that you have for that in the Q4. Thank you.
Sure Ian can talk to the guidance on on.
Where that sits with respect to <unk> and it was not a revenue play, though it was really a technology and talent play and what we wanted from that acquisition and what we did get from that acquisition was great technology around giving our customers the ability to to look across different instances from a single pane of glass and that not only helps our MSP channel.
Msp's all across the world not just in the U K of course, where data charges. So it's going to help enable those MSP partners.
But it also helps large school districts for example that want to have all these different schools or districts under one big umbrella that also helps multinational companies manage different locales from a from a.
Get us common dashboard and the single pane of glass. So it's really the technology and the talent that built that technology that was the benefit of that acquisition and we're seeing that in the feature and functionality is rolled out not only in our product, but also across our channels yes.
Yes, and I'll just add in from the outlook perspective as John noted. This was a tech purchased it didn't have a significant amount. It's really actually just had an immaterial amount of <unk> that came with it and so we did factor that in the outlook that we've provided you.
Very helpful. Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Josh Reilly from Needham and company. Your question. Please.
Hey, there thanks for taking my question nice job on the quarter here.
If youre looking at the calling of devices anytime now with another quarter of data. If there is another cycle of downtown that needs to occur following the SBB crisis earlier this year and the interest rate headwinds the tech hiring this year and these contracts seem to reflect that.
Updated levels of employment or do you think that the downturn has peaked and becomes less of a headwind in the first half of next year.
Yeah, Hey, Josh it's Ian here, yes, thanks for the question on devices.
It is interesting we've had two quarters now at about 500000 devices.
We're just talking about this earlier today again.
Again, you got to think about our business and step back there's three ways. Our business grows right. There is the new logo component. There is the upsell component and Theres. The cross sell component and we are still find new logos and.
That has been the steady stream, it's the upsell that's kind of been needed and that's been the device count and then we're getting stronger and stronger at cross sell and when we look at the markets. We have seen when we looked at our churn for example, we did look at let's call it our largest eight.
And by AAR are we looked at those it wasn't customers, leaving it with customers being consolidated it was customers restructuring.
Restructuring.
Customers it is downtown La right.
I look at that and I know it is the macro environment that we're in but we have found ways to offset that the successes we've seen in business plan the replacement market.
The thing that Apple talked about on their call for example, where they talked about.
This wasn't a tough match shipping, but next quarter. It looks like it's going to improve and that those are things that are going to help us and I think we will drive our growth rates in the future.
Got it and then just a follow up on the device devices under management growth.
How much of that forward growth here in the third quarter is due to the tough comp from education last year versus anything going on on the commercial side of the business. Thanks guys.
Yeah, Josh I'll take that one too.
Dividing that part there is definitely a muted miss on the education when I look at what that upsell of kind of lapping last year that was deathly.
Depressed I mean, there was definitely an impact also on commercial but again on the commercial side, that's where we are selling education. That's why you see actually our average ASP go up over the quarter.
John anything to add to that I guess, the only thing would be that.
Not only us, but IDC and others believe that the refresh cycle for education is due within the next within 24.
Timeframe, probably mid 2004 timeframe I mean, those kiddos that have the ipads are not going to have that same iPad forever. So.
That refresh happens we've seen more devices go toward Apple and that obviously helps our install base.
Got it thanks guys.
Thank you one moment for our next question.
And our next question comes from the line of Raimo <unk> from Barclays. Your question. Please.
Hey, this is <unk> on for Raimo. Thanks for taking the question. One thing you guys have highlighted over the last few quarters is leaning on your partners a little bit more in building out. This channel can you speak to the progress between this quarter and last quarter that you've made here, so far and what you're seeing with customers as a result of this.
Yes, Thanks Isaac.
<unk> hi.
We've I just mentioned, we just talked about the data to our acquisition. It really help enable the MSP partners and we're seeing good growth in that area as well.
Continue to work with our channel organization, we've invested in that to get more business from the channel versus just through the channel to help them create some of that demand that's having traction as well, we're moving our sales enablement to that to that in that direction as well to get those efficiencies and some of the technology.
Endeavors that we have on our side internally are also going to enable that channel partner such as a partner program.
Partner channel partner portal, where they can register their own deals and it takes a more direct.
Direct salespeople that they don't have to be included in that loop and so more channel led deals where we've expanded our channel. We are focused on some security channel partners as well and we've seen the increase year over year in the amount of business.
Going through our channel partners.
Great. That's really helpful. Thanks, and then for Ian on cash flow should we think about this move to annual billings being the norm moving forward or is Q3 more of an anomaly versus.
What we should expect to see in the future.
Thanks for the question. It is it's interesting when we looked at the top nine billing deals within the quarter.
And when we looked at those eight of those nine moved from upfront.
Payments to annual payments.
And we were talking about this in this economy yeah.
Becoming more and more common that for companies that hold their cash interest rates are good and so does this.
Is this a shift right for now is to continue I think this is kind of a onetime shift in whats going to drive our unlevered free cash flows as we move forward is continued profitability. This year you saw we delivered based on the midpoint of our guidance were delivering 250 basis points more in profitability. This year.
And next year, where we are.
Saying that we will have more profitability in 24 versus <unk> 23, and I think that the key that we should be thinking about as we move forward.
Great. Thank you.
Yes.
Thank you one moment for our next question.
And our next question comes from the line of DJ Hynes from Canaccord Genuity. Your question. Please.
Hey, this is Luke on for DJ. Thank you for taking the question.
As mentioned Apple has of course, a big refresh cycle coming up next year in 2024.
Could you just help us think through how correlated your own business performance is with Max shipments there.
Whether there's a lag between demand for those products in your own success and just generally how that might flow through to your business next year and beyond.
Yes, Luke I'll take it.
What we don't see as a direct correlation between apples quarterly shipments of devices versus our impact but versus impact to us, but we do see that when it's over a period of trailing 12 months for example, because it just it has an influence on the on the installed base, where the uplift basically and when companies are hiring there there are offered.
Their employees are choice many of them are offering choice and more and more offering that choices I mentioned in the prepared remarks.
Previn when they ask their people at Cisco.
<unk>.
Two thirds of those employees that were asked the question shows the Mac. So when we see that refresh cycle come.
We're actually seeing even if it's a refresh cycle. The PC were seeing more of those Pcs being replaced by the Apple devices and Thats good for <unk>.
And one of the reasons that that happens we'd like to think is because we help organizations succeed with Apple and our sole purpose here is to make sure that we help those organizations be able to accept those devices to make it easier to manage within and secure.
Within the organization and so we will see that over a trailing period and we believe that more and more people more and more employers are choosing the apple device, which benefits our.
Potential installed base.
Got it that's great and then.
Maybe a follow up with such a large portion of Apple devices outside the U S. Can you talk a bit about what needs to happen internationally to.
More effectively to capture that opportunity.
Is there anything fundamentally different about those markets, maybe from a compliance or irregular.
Regulatory standpoint.
Or is it more about just getting the right sales and marketing infrastructure in place.
Well first and foremost.
It's partnering very closely with Apple and those investments in and I'm very much aligned with their geographic leaders across Asia and Europe personally.
And they as they expand into those these are not brand new markets to jump in for in fact, we have a legal entity in India and Apple has said Thats an area that theyre expanding we have a legal entity in Japan and number of employees. There. So none of this is brand new to us it's more figuring out how to amplify that and scale that in those local markets. So.
We're obviously across Europe in many countries across Europe, as well as Asia and also in Australia and in India as well, there's fundamental differences in every market.
I've learned that from my days living and working outside the United States, but.
As long as we're partnering closely with Apple we are working with our local reseller channels again.
A bigger percentage of our business comes from the channel outside the United States than it does inside the United States and Thats by design, we really leveraged those local partners to help us get into those areas along with working very closely with Apple. So theres nothing that we that it's drastically different than what we're doing today, we just need to work on scaling that and doing so profitably.
Certainly as we mentioned in the prepared remarks.
Thank you one moment for our next question.
And our next question comes from the line of Rob Owens from Piper Sandler Your question. Please.
Hi, Thanks for taking my question. This is <unk> on for Rob.
Go back to some of the comments about the favorable favorable competitive environment you guys are seeing right now.
It seems like an important driver of new device ads given their hiring pressures in the industry Youre seeing I guess the question is how long do you think this kind of environment last there is something that phase.
Throughout 2024 is this kind of a multiyear tailwind as you think about customers coming up for new on multiyear contracts with competitors. Thank you.
Ethan I'll take that in.
You can add some color.
Really benefiting from a very robust replacement market as we mentioned one of our larger competitors.
When there is a change in liquidity event in one of those competitors.
Obviously, it creates some uncertainty and with Apple you have to continue to innovate at the pace of Apple and that's something that we've done for 20 years, and I think that Thats benefited us greatly, especially with declared a device management and other features that apple are producing.
That we're supporting and we have a timeline for all of those things. So it's been it's been very beneficial to us as we mentioned in the prepared remarks, but several of our top deals were actually replacement deals as well as those last quarter and we'll continue to lean into that.
And as with respect to the other competitors.
We see there.
We see some noise from some smaller competitors they continued to be to be noisy, we're seeing a little bit less of that just given the macro is affecting them and probably more drastically is affecting us given our scale.
That makes sense and I guess as a follow up on the security side talked about 23% of the customer base now on management security is there any difference in attach rate you're seeing between commercial and education.
Any color would be helpful. Thank you.
Yes, I can take that I mean.
Just rewind the clock right, Jim tape Internet still a newer product.
Additional versions Aragon ever be relieved.
We're focused on.
Things that.
Customers are asking for and we do think that bodes well for us in 2004. So therefore, the commercial attach rate is actually stronger than that right now and you saw in our remarks that we talked about and all of that 23% of our customers or at least using a management and at least one security product and so that provides us a lot of run way too.
We continue to cross sell into our current installed base.
And one thing I didn't mention or I didn't add onto what you asked about the multi year component to that we're not going to get all of those customers in one year.
Theres, a pretty substantial installed base out there with our competitive products. So.
As the renewals come up.
No where they are and we're talking to them regularly and so as the renewals come up we'll we'll continue to try to persuade them like we have done successfully in this past quarter.
Thank you one moment for our next question.
And our next question comes from the line of <expletive>.
Mariachi from Craig Hallum. Your question. Please.
Hi, This is Nick on for Chad Bennett. Thanks for taking our question. So John I think it was around this time last year you guys were talking about catching up on sales hiring in the year and just curious if you could talk about how those new additions are ramping throughout this year and then as you look into this year's year end, how are you thinking about sales additions.
Yes.
Sure Nick.
Thanks for the question and the ramping I mean, we've we've really leaned into as I mentioned earlier on the call in the sales enablement side teaching our reps to lean in with trusted access and Thats, both management and security.
And they're doing just that so we've seen.
We've seen good ramp there and we'll continue to evaluate our sales organization. Our go to market organization in general and see how we can scale that and scale that profitably and that's one of our focuses that we have obviously for next year planning and beyond that we'll talk about much more at the Investor day in March.
Got it and then maybe if you could talk about some of the underlying trends you're seeing within your net retention rate just any color you can provide on the relative trends in that metric.
The commercial segment versus education, I mean, I understand the commercial's, probably a higher rate, but are you seeing any more of a stable stabilization in one of the segments.
Yes. Thanks for the question on IRR, Yes, so just a couple of things overall, obviously, we're seeing the same.
<unk> macroeconomics are impacting our up sell to give you a little color stats around that when I compare this.
NR this year compared to last year.
Say like 80% of that related to up sell and so when I when I look at that like 80% is truly macro next 15% as downtown and the rest is loss. So it's not a huge percentage of that relates to customers, leaving and even when it looks like sequentially. It's al.
Lower upsell. So the macro has really been waiting on that and if you remember and rewind the clock to last quarter. When I talked about is that we had seen I'll call. It a 200 basis point decline each quarter and that this quarter. We thought it would decline about 100 basis points, that's where we're at.
I've said that probably are going to be about the same thing in Q4, because at the trailing 12 months and we are lapping these time I see that that similar trend.
For Q4, and what I would say.
Over all further rate that's going to come back as the macro improves and just one other further point on education versus commercial.
Our cross selling is really helping strengthen that in commercial and so I think that seeing a slightly different dynamic than what we're seeing in education education, just got that post COVID-19 in hangover, but the growth of our business and the mix and where more of our <unk> coming from the commercial in the future.
Got it I appreciate the answers.
Thank you one moment for our next question.
And our final question for today.
Comes from the line of.
At Walgreens from JMP Securities. Your question. Please.
Hi, Thanks for taking my question. This is Oliver on for Pat.
So a bit of a follow up from some previous question you've spoken a lot about getting our growth from your cross sell as a future driver. So in terms of cross selling your security solutions, and particularly protect to existing commercial customers. How are those conversations going upon renewal and are there more situations now where.
Our protect maybe heavily discounted or even essentially free for some larger customers for one year or things along those lines to get the products to stick.
Now, yes, Hey, this is Ian I can take that one.
When products come out for new it's actually I would say.
Other direction. So we're seeing really good traction with the business plan and they're like Hey, we see the full suite and we're seeing the value of that again, that's up 87% year over year and was our second largest.
Add within net new <unk> for the quarter I think the other thing to recognize and we pointed this out in the prepared remarks, we were just recognized by Frost <unk> Sullivan for endpoint protection.
And that bodes well and people are understanding to have a product that both John said. This has two sides of the same coin management security go hand in hand, and Thats, what were seeing resignation with our customers.
Great.
I'll just add to that Oliver is that.
Not only were seeing that uplift in the business plan.
But this is on the security side, but this is the absence of device expansion and so what we expect is when the market does return that because we've been able to successfully sell cross sell those security products into our existing install base when that device expansion does return we will be able to have both management and security on those expanded devices and thats really what were what.
We're anticipating at some point.
Okay, and then maybe one follow up.
You focused on in debt at <unk> was self directed selling so just wondering how your progress has been.
That goal of more self directed selling.
Just to clarify I think you were talking about maybe like partner portals or customers.
Okay. Yeah. Thanks, so on that we talked about some of our.
Initiatives within sales and marketing and some of those being.
Putting in are helping our streamlining our customer journey and making it simplified such as in product purchasing we already actually have that functionality in a couple of products that is something that will come over time, though for our other products, what we want to get in place even before that as things like a partner portal and Thats kind of Thats coming along that's definitely keep them.
And as we talk about future profitability and scalability that is something that definitely play within the next year I'll just say on that one and that's an opportunity for us for our partners and John talked about this earlier they have the ability to really scale and drive more sales. So we are on that journey and that's one of the things we have.
Talked about is the key driver for additional profitability into the future.
Great. Thank you.
Thank you.
Does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen for your participation you may now disconnect. Good day.
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