jamf(JAMF) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents Jamf Holding Corp.'s unaudited consolidated financial statements, revised due to sales commission capitalization errors Consolidated Balance Sheets Total assets grew to $1.53 billion due to acquisitions and convertible notes, increasing liabilities to $783.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $227,148 | $194,868 | | Goodwill | $846,057 | $541,480 | | Other intangible assets, net | $276,750 | $202,878 | | Total assets | $1,530,079 | $1,074,285 | | Liabilities & Stockholders' Equity | | | | Deferred revenues (Current) | $211,029 | $160,002 | | Convertible senior notes, net | $361,474 | $— | | Total liabilities | $783,310 | $263,271 | | Total stockholders' equity | $746,769 | $811,014 | | Total liabilities and stockholders' equity | $1,530,079 | $1,074,285 | Consolidated Statements of Operations Q3 2021 revenue grew 36% to $95.6 million, but net loss widened to $30.4 million due to increased expenses Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 (As Revised) | Nine Months 2021 | Nine Months 2020 (As Revised) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $95,621 | $70,548 | $262,586 | $192,865 | | Gross profit | $69,151 | $55,390 | $199,518 | $149,064 | | Loss from operations | $(29,874) | $(618) | $(50,122) | $(4,367) | | Net loss | $(30,383) | $(5,388) | $(51,439) | $(15,718) | | Net loss per share, basic and diluted | $(0.26) | $(0.05) | $(0.44) | $(0.15) | Consolidated Statements of Cash Flows Operating cash flow increased to $64.8 million, investing used $359.9 million for acquisitions, and financing provided $328.9 million from notes Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 (As Revised) | | :--- | :--- | :--- | | Net cash provided by operating activities | $64,827 | $33,099 | | Net cash used in investing activities | $(359,937) | $(1,836) | | Net cash provided by financing activities | $328,905 | $113,819 | | Net increase in cash, cash equivalents and restricted cash | $32,930 | $145,082 | - Cash used in investing activities for the nine months ended Sep 30, 2021, included $352.7 million for acquisitions, net of cash acquired, primarily related to the Wandera purchase[22] - Cash from financing activities for the nine months ended Sep 30, 2021, included $373.8 million in proceeds from convertible senior notes and $250.0 million from bank borrowings, which were subsequently repaid, partially offset by a $36.0 million purchase of capped calls[22] Notes to Consolidated Financial Statements Notes detail accounting policies, revision of prior financial statements due to sales commission errors, acquisitions, $373.8 million convertible notes, and a $4.2 million legal contingency - The company identified and corrected immaterial errors related to certain commissions that were incorrectly capitalized in prior periods, resulting in a revision of previously issued financial statements to expense these costs as incurred, understating prior sales and marketing expenses and overstating deferred contract costs[38][39] - On July 1, 2021, the company acquired Wandera, a zero trust cloud security provider, for total cash consideration of $409.3 million, and the acquisition added $310.8 million in goodwill[95][96][101] - On September 17, 2021, the company issued $373.8 million of 0.125% Convertible Senior Notes due 2026, with net proceeds used to repay a $250.0 million term loan and purchase $36.0 million in capped call transactions to reduce potential dilution[128][129][140] - The company accrued $4.2 million for a legal contingency related to allegations of patent infringement, with the potential loss in excess of the accrued amount estimated to be up to $2.3 million[144] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 36% revenue growth, strategic acquisitions, increased operating expenses leading to wider net loss, and strong liquidity bolstered by operations and convertible notes Key Business Metrics Key metrics show strong growth as of September 30, 2021, with devices on platform up 34% to 25.0 million, ARR up 47% to $384.8 million, and dollar-based net retention at 119% Key Business Metrics as of September 30 | Metric | 2021 | 2020 | YoY Growth | | :--- | :--- | :--- | :--- | | Number of Devices (millions) | 25.0 | 18.6 | 34% | | Annual Recurring Revenue (ARR, millions) | $384.8 | $261.5 | 47% | | Dollar-Based Net Retention Rate | 119% | 117% | +2 p.p. | Non-GAAP Financial Measures Non-GAAP Gross Profit was $76.4 million (80% margin) and Non-GAAP Operating Income was $2.0 million (2% margin) for Q3 2021, with Adjusted EBITDA decreasing to $3.5 million Non-GAAP Financial Measures Reconciliation (in thousands) | Measure | Q3 2021 | Q3 2020 (As Revised) | Nine Months 2021 | Nine Months 2020 (As Revised) | | :--- | :--- | :--- | :--- | :--- | | Gross Profit (GAAP) | $69,151 | $55,390 | $199,518 | $149,064 | | Non-GAAP Gross Profit | $76,445 | $58,445 | $213,269 | $157,550 | | Operating Loss (GAAP) | $(29,874) | $(618) | $(50,122) | $(4,367) | | Non-GAAP Operating Income | $1,970 | $11,714 | $17,519 | $25,739 | | Net Loss (GAAP) | $(30,383) | $(5,388) | $(51,439) | $(15,718) | | Non-GAAP Net Income | $965 | $8,280 | $16,181 | $11,936 | | Adjusted EBITDA | $3,458 | $12,864 | $21,658 | $29,487 | Results of Operations Total revenue for Q3 2021 increased 36% YoY to $95.6 million, driven by subscription growth, while gross margin declined to 72% and operating expenses rose 77% to $99.0 million Revenue Comparison (in thousands) | Revenue Type | Q3 2021 | Q3 2020 (As Revised) | % Change | | :--- | :--- | :--- | :--- | | Subscription | $90,700 | $65,634 | 38% | | Services | $4,083 | $3,897 | 5% | | License | $838 | $1,017 | (18)% | | Total Revenue | $95,621 | $70,548 | 36% | - Sales and marketing expenses increased 72% in Q3 2021 YoY, primarily due to a $10.0 million increase in employee compensation costs from higher headcount and the Wandera acquisition, and a $4.4 million increase in stock-based compensation[255] - Research and development expenses increased significantly in Q3 2021 YoY, driven by a $5.9 million increase in employee compensation costs and a $4.8 million increase in stock-based compensation, largely related to business growth and the Wandera acquisition[257] - General and administrative expenses for the nine months ended Sep 30, 2021 increased by $37.7 million YoY, driven by higher headcount, public company costs ($3.9M), a legal reserve ($4.2M), and a $7.9M increase in acquisition-related earnout expense[260] Liquidity and Capital Resources The company had $227.1 million in cash, with liquidity significantly impacted by $361.4 million net proceeds from convertible notes used to repay a $250.0 million term loan and purchase $36.0 million in capped calls, while operating cash flow was strong at $64.8 million - Principal sources of liquidity as of September 30, 2021, were $227.1 million in cash and cash equivalents and an available revolving credit facility[271] - Completed the acquisition of Wandera for $409.3 million, initially financed with cash and a $250.0 million term loan, which was subsequently repaid with proceeds from the 2026 Notes offering[274] - Issued $373.8 million of convertible senior notes in September 2021, receiving net proceeds of approximately $361.4 million[275] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are related to foreign currency exchange rates and interest rates, with most sales in U.S. dollars mitigating revenue risk, and no current hedging instruments - The company's primary market risk exposures are from potential changes in foreign currency exchange rates and interest rates[294] - Most sales are denominated in U.S. dollars, but operating expenses are in various foreign currencies, creating exposure to fluctuations in exchange rates, and the functional currency of the newly acquired Wandera is the British Pound (GBP)[295] - The company has not entered into any hedging arrangements for foreign currency risk and does not believe a 10% change in rates would have a material impact[295] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to a material weakness in internal control over financial reporting related to sales commission accounting, leading to a revision of prior financial statements - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021[297] - A material weakness was identified in internal control over financial reporting concerning the accounting for sales commissions, as the company did not have effective controls to identify commissions that should have been expensed rather than capitalized[298][299] - This material weakness resulted in the revision of previously issued consolidated financial statements for years 2018, 2019, 2020, and interim periods in 2020 and 2021[299] - A remediation plan is in process, including hiring a third-party consultant to help standardize and automate the commissions process, but it is not yet complete[300] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 8 of the financial statements for information on legal proceedings, which discloses a $4.2 million accrued contingency related to patent infringement allegations - Information regarding legal proceedings is incorporated by reference from Note 8 to the consolidated financial statements[303] Risk Factors This section updates the company's risk factors, adding significant new risks including an identified material weakness in internal control over financial reporting and increased indebtedness from $373.8 million in convertible senior notes - A new risk factor has been added regarding the identified material weakness in internal control over financial reporting, which could adversely affect investor confidence and the stock price if not remediated[305] - The company's indebtedness of $374.8 million as of September 30, 2021, could adversely affect business and growth prospects by requiring diversion of funds for debt service[307] - The company may not have the ability to raise funds to settle conversions of the 2026 Notes in cash or to repurchase them upon a fundamental change, which could lead to a default[311] - Conversion of the 2026 Notes may dilute the ownership interest of existing shareholders or depress the stock price[316] Unregistered Sales of Equity Securities and Use of Proceeds On September 17, 2021, the company completed a private offering of $373.8 million aggregate principal amount of its 0.125% Convertible Senior Notes due 2026, sold to qualified institutional buyers under Securities Act exemptions - On September 17, 2021, the company sold $373.8 million of its 2026 Convertible Senior Notes in a private offering exempt from registration under Section 4(a)(2) of the Securities Act[325] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[328] Mine Safety Disclosures This item is not applicable to the company - Not applicable[329] Other Information The company reports no other information for this item - None[330] Exhibits This section lists the exhibits filed with the report, including the indenture for the 2026 Convertible Senior Notes, the form of the Capped Call Confirmation, and certifications by the CEO and CFO