Jamf Holding (JAMF) intends to raise $ 288 million from the sale of its common stock in an IPO, according to a registration statement.
The company provides enterprise computing services for Apple devices and software applications.
JAMF enjoys strong investor support, shows resilient income in the face of Covid19 and has a reasonable IPO valuation.
To listen to an audio version of this report, click the Play button on the graphic below:
Jamf, based in Minneapolis, Minnesota, was founded to provide a comprehensive set of services that it calls Apple Enterprise Management.
The management is led by CEO, Mr. Dean Hager, who has been with the company since June 2015 and was previously CEO of Kroll Ontrack and prior to that held various leadership roles at Lawson Software, later acquired by Infor.
Below is a brief video presentation of Jamf’s cloud offering:
The company makes it easier for businesses to integrate all types of Apple products and software into their existing systems “without ever having to touch the devices.”
Jamf has received at least $ 570 million from investors, including Vista Equity Partners, a private equity firm.
The company has more than 40,000 customers in more than 100 countries as of June 29, 2020.
Jamf sells its SaaS solutions through a subscription revenue model and sells larger accounts through a direct sales force and smaller accounts through its online portal.
The company also sells through distribution partners, including Apple itself.
Sales and marketing spending as a percentage of total revenue has been uneven as revenue has increased.
The sales and marketing efficiency rate, defined as the number of dollars in additional new revenue generated by every dollar of sales and marketing spend, fell to 0.7 times in the most recent reporting period .
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 are equal to or greater than 40%, the business is on an acceptable growth path. JAMF’s most recent calculation was 36% as of March 31, 2020, so the company needs some improvement to meet the rate limit for this rule.
Management states that its net dollar retention rate “has exceeded 115% at the end of each of the last nine fiscal quarters, calculated on a rolling twelve month basis.”
A net dollar retention rate of over 100% means that for a given cohort of customers, the business adds new revenue from that same cohort over time.
A figure above 115% is impressive and shows that the company’s “land and grow” strategy is working and that its services are responsive to the market.
According to a recent management-cited IDC survey of US business IT decision-makers, it expects Apple Mac penetration to increase from 11% to 14% within two years.
In addition, more and more companies are looking to enable employees to make more use of the technology of their choice, as integration solutions for various platforms become more available and more cost effective.
Statcounter also reported that Apple operating systems “accounted for 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 mainly the reason for the growth of Apple’s use in the business, although the Mac has been a significant contributor.
The company’s competitors are typically “large multi-platform enterprise vendors and start-up vendors of Apple business solutions.” Large enterprise vendors, such as VMWare, Microsoft, and IBM typically compete with us on a particular solution (for example, device management, identity, or endpoint security) intended for cross-platform and non-specialty use for Apple. Based on Jamf’s success, a number of start-ups are following our approach to realizing a vision of the Apple ecosystem. ‘
Management says the focus on delivering a vertically integrated suite of options means it can better compete with small startups that typically focus on one feature as well as large vendors that don’t offer specialized solutions. .
Jamf’s recent financial results can be summarized as follows:
- Growing turnover
- Increase in gross margin but decrease in gross margin
- Uneven operating losses and negative operating margin
- A shift towards a strongly negative operating cash flow
Below are the relevant financial results from the company registration statement:
Source: Company registration statement
As of March 31, 2020, Jamf had $ 22.7 million in cash and $ 397.4 million in total liabilities.
Free cash flow for the twelve months ended March 31, 2020 was $ 3.5 million.
JAMF intends to sell 16 million common shares at a median price of $ 18.00 per share for gross proceeds of approximately $ 288 million, not including the sale of customary bought deal options.
Some companies have expressed interest in purchasing shares of up to $ 100 million in total at the IPO price. This is unusual for an IPO in the non-life sciences and represents a positive signal for valuation.
Assuming a successful IPO in the middle of the proposed price range, the enterprise value of the company at the IPO would be around $ 2.3 billion.
Excluding the effects of Underwriters’ Options and Private Placement Shares or Restricted Shares, if any, the free float / outstanding shares ratio will be approximately 10.32%.
According to the company’s latest regulatory filing, the company plans to use the net proceeds as follows:
The main objectives of this offering are to increase our capitalization and financial flexibility, to create a public market for our common shares and to provide access to public stock markets for us and our shareholders. We expect to use the net proceeds of this offering to repay $ 205.0 million of outstanding borrowings under our term loan facility and to pay all associated prepayment penalties and accrued and unpaid interest as of the due date. reimbursement and the remainder of this net proceeds will be used for business purposes. The contractual interest rate on the debt we intend to repay was 8.70% per annum as at March 31, 2020 and the due date is November 13, 2022. At this point, in addition to the repayment of the debt under our term loan facility, we have not specifically identified a material one-time use for which we intend to use the net proceeds and, therefore, we are unable to allocate the proceeds net between these potential uses in light of the variety of factors that will affect how this net proceeds are ultimately used by us.
The presentation by the management of the company’s roadshow is available here.
The listed underwriters of the IPO are Goldman Sachs, JP Morgan, BofA Securities, Barclays, RBC Capital Markets, Mizuho Securities, HSBC, Canaccord Genuity, JMP Securities, Piper Sandler, William Blair, Loop Capital Markets and CastleOak Securities, LP
Jamf is seeking public capital to repay debt and provide expansion capital for its growth initiatives.
The company’s financial statements show strong growth in revenue and gross profit, operating losses and uneven operating cash flow.
Management released preliminary second quarter 2020 results showing slower revenue growth but non-GAAP operating income; the trajectory of income has probably been hampered by the Covid19 pandemic and is, in my opinion, a temporary situation, although the “temporary” duration is an unknown.
Sales and marketing expenses as a percentage of total revenue increased as revenue increased; its Sales & Marketing efficiency rate also dropped slightly.
The market opportunity for providing businesses with IT services for their Apple users is significant and is expected to continue to grow at a significant rate, so the company has positive market dynamics in its favor.
Goldman Sachs is the first underwriter on the left and the IPOs conducted by the company over the past 12 months have generated an average return of 83.9% since their IPO. This is a top performance for all major underwriters during the period.
As a valuation on a basis comparable to a basket SOEs of software (systems and applications) compiled in January 2020 by the NYU Stern School, which had an average EV / sales multiple of 8.77x, the EV / income of JAMF at IPO would be 10, 32x.
The premium over the basket of SOEs is reasonable given JAMF’s strong growth rate (under normal economic conditions) and non-GAAP operating profits, so the IPO appears reasonably priced .
Given the strong investor support, resilient revenue growth in the face of Covid19, and a reasonable valuation of the IPO, my opinion of the IPO is a BUY up to $ 18.00 per share.
Anticipated IPO price date: July 22, 2020.
(I have no positions in any of the stocks mentioned as of the date of the article, I do not plan to initiate any positions within the next 48 hours, and no trading relationship with any company whose stocks are mentioned in this article. IPOs can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be inaccurate, incomplete or out of date, and does not constitute financial, legal or investment advice.)
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