JAMF HOLDING CORP. The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and the related notes in our Annual Report on Form 10-K. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below, elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and in our subsequent Quarterly Reports on Form 10-Q, particularly in the sections entitled "Risk Factors" and "Forward-Looking Statements." The following discussion and analysis has been updated to reflect the revision of previously issued consolidated financial statements to correct for prior period errors, which the Company has concluded did not, either individually or in the aggregate, result in a material misstatement of its previously issued consolidated financial statements. Further information regarding the revision is included in "Note 1 - Basis of Presentation and Description of Business" to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Overview We are the standard in Apple Enterprise Management, and our cloud software platform is the only vertically-focused Apple infrastructure and security platform of scale in the world. We help organizations, including businesses, hospitals, schools and government agencies, connect, manage and protect Apple products, apps and corporate resources in the cloud without ever having to touch the devices. With Jamf's software, Apple devices can be deployed to employees brand new in the shrink-wrapped box, set up automatically and personalized at first power-on and administered continuously throughout the life of the device. Jamf was founded in 2002, around the same time that Apple was leading an industry transformation. Apple transformed the way people access and utilize technology through its focus on creating a superior consumer experience. With the release of revolutionary products like the Mac, iPod, iPhone and iPad, Apple built the world's most valuable brand and became ubiquitous in everyday life. We have built our company through a singular focus on being the primary solution for Apple in the enterprise. Through our long-standing relationship with Apple, we have accumulated significant Apple technical experience and expertise that give us the ability to fully and quickly leverage and extend the capabilities of Apple products, operating systems and services. This expertise enables us to fully support new innovations and operating system releases the moment they are made available by Apple. This focus has allowed us to create a best-in-class user experience for Apple in the enterprise. We sell our SaaS solutions via a subscription model, through a direct sales force, online and indirectly via our channel partners, including Apple. Our multi-dimensional go-to-market model and cloud-deployed offering enable us to reach all organizations around the world, large and small, with our software solutions. As a result, we continue to see rapid growth and expansion of our customer base as Apple continues to gain momentum in the enterprise. OnJuly 1, 2021 , we completed our acquisition ofWandera , a leader in zero trust cloud security and access for mobile devices, extending our leadership in Apple Enterprise Management. The acquisition uniquely positions us to help IT and security teams protect devices, data and applications while extending the intended Apple experience through the most robust and scalable Apple Enterprise Management platform in the market. We initially financed the acquisition with a combination of cash on hand and borrowings under the New Term Loan Facility that were repaid inSeptember 2021 with the proceeds from the 2026 Notes. See "Note 4 - Acquisitions" and "Note 7 - Debt" to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the acquisition and debt financing. Response to COVID-19
With social distancing measures having been implemented to curtail the spread of COVID-19, we enacted a robust business continuity plan, including a global work-from-home policy for all of our employees. As conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and continued uncertainty with respect to
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variants (such as the Delta variant), governments and organizations have
responded by adjusting their restrictions and guidelines accordingly. Our focus
remains on promoting employee health and safety, serving our customers and
ensuring business continuity. As we have gradually reopened our offices, we
carefully assess, and reassess, safe working conditions on a case-by-case basis
to ensure that we implement appropriate protective measures, such as capacity
restrictions, based on local government and health organization guidance. We
believe that we have the opportunity to be a leader in a new approach to work,
which is rooted in a flexible and hybrid model enabled by a digital-first
mindset that puts employee choice, health, and safety first. We believe our
internal cloud-first technology platforms have allowed for a seamless transition
to a hybrid working environment without any material impacts to our business,
highlighting the resilience of our business model. Our product portfolio and
platform has enabled our commercial customers to continue with their efforts to
work in a hybrid environment, our K-12 and higher-education customers to deliver
distance learning and our health-care customers to provide quality care via a
telehealth model, a solution that was conceptualized and released during the
current pandemic. We believe that a business like ours is well-suited to
navigate the shift to hybrid work environments, while the underlying demand for
our core products remains relatively unchanged.
Although to date we have not suffered an adverse effect from the COVID-19
pandemic, the extent to which the COVID-19 pandemic ultimately affects our
business continues to depend on future developments in the United States and
around the world, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning virus variants and the actions
required to contain and treat the virus, vaccine effectiveness, macro-economic
effects, such as supply and labor shortages and inflationary pressures. Although
the ultimate impact of the COVID-19 pandemic on our business and financial
results remains uncertain, a continued and prolonged public health crisis such
as the COVID-19 pandemic could have a material negative impact on our business,
operating results and financial condition. See "Risk Factors - Risks Associated
with Our Business, Operations and Industry - The COVID-19 pandemic could
materially adversely affect our business, operating results, financial condition
and prospects" included in Part I, Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2020 for more information.
Key Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial
performance in the future to be, driven by our ability to:
Attract new customers. Our ability to attract new customers is dependent upon a
number of factors, including the effectiveness of our pricing and solutions, the
features and pricing of our competitors' offerings, the effectiveness of our
marketing efforts, the effectiveness of our channel partners in selling,
marketing and deploying our software solutions and the growth of the market for
Apple devices and services for SMBs and enterprises. Sustaining our growth
requires continued adoption of our platform by new customers. We intend to
continue to invest in building brand awareness as we further penetrate our
addressable markets. We intend to expand our customer base by continuing to make
significant and targeted investments in our direct sales and marketing to
attract new customers and to drive broader awareness of our software solutions.
Expand within our customer base. Our ability to increase revenue within our
existing customer base is dependent upon a number of factors, including their
satisfaction with our software solutions and support, the features and pricing
of our competitors' offerings and our ability to effectively enhance our
platform by developing new products and features and addressing additional use
cases. Often our customers will begin with a small deployment and then later
expand their usage more broadly within the enterprise as they realize the
benefits of our platform. We believe that our "land and expand" business model
allows us to efficiently increase revenue from our existing customer base. We
intend to continue to invest in enhancing awareness of our software solutions,
creating additional use cases, and developing more products, features, and
functionality, which we believe are important factors to expand usage of our
software solutions by our existing customer base. We believe our ability to
retain and expand usage of our software solutions by our existing customer base
is evidenced by our dollar-based net retention rate.
Sustain product innovation and technology leadership. Our success is dependent
on our ability to sustain product innovation and technology leadership in order
to maintain our competitive advantage. We believe that we have built a highly
differentiated platform and we intend to further extend the adoption of our
platform through additional innovation. While sales of subscriptions to our Jamf
Pro product account for most of our revenue, we intend to continue to invest in
building additional products, features and functionality that expand our
capabilities and facilitate the extension of our platform to new use cases. Our
future success is dependent on our ability to successfully develop, market and
sell additional products to both new and existing customers. For example, in
2018, we introduced Jamf Connect to provide users with a seamless connection to
corporate resources using a single identity and in 2019 we introduced Jamf
Protect to extend Apple's security and privacy model to enterprise teams by
creating unprecedented visibility into MacOS fleets through customized remote
monitoring and
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threat detection and prevention. In July 2021 , we completed our acquisition of
Wandera , which enhances our Apple Enterprise Management Platform and strengthens
our position in security and mobile with expansion opportunities. Wandera
solutions include Threat Defense, Data Policy and Private Access, which uniquely
position us to address trends in digital transformation, remote work and Zero
Trust Network Access.
Continue investment in growth. Our ability to effectively invest for growth is
dependent upon a number of factors, including our ability to offset anticipated
increases in operating expenses with revenue growth, our ability to spend our
research and development budget efficiently or effectively on compelling
innovation and technologies, our ability to accurately predict costs and our
ability to maintain our corporate culture as our headcount expands. We plan to
continue investing in our business so we can capitalize on our market
opportunity. We intend to grow our sales team to target expansion within our
midmarket and enterprise customers and to attract new customers. We expect to
continue to make focused investments in marketing to drive brand awareness and
enhance the effectiveness of our customer acquisition model. We also intend to
continue to add headcount to our research and development team to develop new
and improved products, features and functionality. Although these investments
may increase our operating expenses and, as a result, adversely affect our
operating results in the near term, we believe they will contribute to our
long-term growth.
Continue international expansion. Our international growth in any region will
depend on our ability to effectively implement our business processes and
go-to-market strategy, our ability to adapt to market or cultural differences,
the general competitive landscape, our ability to invest in our sales and
marketing channels, the maturity and growth trajectory of Apple devices and
services by region and our brand awareness and perception. We plan to continue
making investments in our international sales and marketing channels to take
advantage of this market opportunity while refining our go-to-market approach
based on local market dynamics. While we believe global demand for our platform
will increase as international market awareness of Jamf grows, our ability to
conduct our operations internationally will require considerable management
attention and resources and is subject to the particular challenges of
supporting a growing business in an environment of multiple languages, cultures,
customs, legal and regulatory systems (including with respect to data transfer
and privacy), alternative dispute systems and commercial markets. In addition,
global demand for our platform and the growth of our international operations is
dependent upon the rate of market adoption of Apple products in international
markets. Our acquisition of Wandera , a global company with key offices in
London , Brno and San Francisco , further expands our international presence.
Enhance our offerings via our partner network. Our success is dependent not only
on our independent efforts to innovate, scale and reach more customers directly
but also on the success of our partners to continue to gain share in the
enterprise. With a focus on the user and being the bridge between critical
technologies - with Apple and Microsoft as two examples - we feel we can help
other market participants deliver more to enterprise users with the power of
Jamf. We will continue to invest in the relationships with our existing,
critical partners, nurture and develop new relationships and do so globally. We
will continue to invest in developing "plus one" solutions and workflows that
help tie our software solutions together with those delivered by others.
Key Business Metrics
In addition to our GAAP financial information, we review several operating and
financial metrics, including the following key metrics, to evaluate our
business, measure our performance, identify trends affecting our business,
formulate business plans, and make strategic decisions.
Number of Devices
We believe our ability to grow the number of devices on our software platform
provides a key indicator of the growth of our business and our future business
opportunities. We define a device at the end of any particular period as a
device owned by a customer, which device has at least one Jamf product pursuant
to an active subscription or support and maintenance agreement or that has a
reasonable probability of renewal. We define a customer at the end of any
particular period as an entity with at least one active subscription or support
and maintenance agreement as of the measurement date or that has a reasonable
probability of renewal. A single organization with separate subsidiaries,
segments or divisions that use our platform may represent multiple customers as
we treat each entity, subsidiary, segment or division that is invoiced
separately as a single customer. In cases where customers subscribe to our
platform through our channel partners, each end customer is counted
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separately. A single customer may have multiple Jamf products on a single
device, but we still would only count that as one device.
The number of devices was 25.0 million and 18.6 million as of September 30, 2021
and 2020, respectively, representing a 34% year-over-year growth rate. The
increase in number of devices reflects growth across industries, products and
geographies, as well as the Wandera acquisition in the third quarter of 2021.
Annual Recurring Revenue
Annual Recurring Revenue ("ARR") represents the annualized value of all
subscription and support and maintenance contracts as of the end of the period.
ARR mitigates fluctuations due to seasonality, contract term and the sales mix
of subscriptions for term-based licenses and SaaS. ARR does not have any
standardized meaning and is therefore unlikely to be comparable to similarly
titled measures presented by other companies. ARR should be viewed independently
of revenue and deferred revenue and is not intended to be combined with or to
replace either of those items. ARR is not a forecast and the active contracts at
the end of a reporting period used in calculating ARR may or may not be extended
or renewed by our customers.
Our ARR was $384.8 million and $261.5 million as of September 30, 2021 and 2020,
respectively, which is an increase of 47% year-over-year. The growth in our ARR
is primarily driven by our high device expansion rates, our new logo acquisition
and the upselling and cross selling of products into our installed base.
Dollar-Based Net Retention Rate
To further illustrate the "land and expand" economics of our customer
relationships, we examine the rate at which our customers increase their
subscriptions for our software solutions. Our dollar-based net retention rate
measures our ability to increase revenue across our existing customer base
through expanded use of our software solutions, offset by customers whose
subscription contracts with us are not renewed or renew at a lower amount.
We calculate dollar-based net retention rate as of a period end by starting with
the ARR from the cohort of all customers as of 12 months prior to such period
end ("Prior Period ARR"). We then calculate the ARR from these same customers as
of the current period end ("Current Period ARR"). Current Period ARR includes
any expansion and is net of contraction or attrition over the last 12 months but
excludes ARR from new customers in the current period. We then divide the total
Current Period ARR by the total Prior Period ARR to arrive at the dollar-based
net retention rate.
Our dollar-based net retention rates were 119% and 117% for the trailing twelve
months ended September 30, 2021 and 2020, respectively. Our dollar-based net
retention rates are based on our Jamf legacy business and do not include Wandera
since they have not been a part of our business for the full trailing twelve
months. Our high dollar-based net retention rates are primarily attributable to
an expansion of devices and our ability to cross-sell our new solutions to our
installed base, particularly Jamf Connect and Jamf Protect.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the
non-GAAP measures of Non-GAAP Gross Profit, Non-GAAP Gross Profit Margin,
Non-GAAP Operating Income, Non-GAAP Operating Income Margin, Non-GAAP Net Income
and Adjusted EBITDA are useful in evaluating our operating performance. We
believe that non-GAAP financial information, when taken collectively, may be
helpful to investors because it provides consistency and comparability with past
financial performance and assists in comparisons with other companies, some of
which use similar non-GAAP information to supplement their GAAP results. The
non-GAAP financial information is presented for supplemental informational
purposes only, and should not be considered a substitute for financial
information presented in accordance with GAAP, and may be different from
similarly-titled non-GAAP measures used by other companies. A reconciliation is
provided below for each non-GAAP financial measure to the most directly
comparable financial measure stated in accordance with GAAP. Investors are
encouraged to review the related GAAP financial measures and the reconciliation
of these non-GAAP financial measures to their most directly comparable GAAP
financial measures.
Non-GAAP Gross Profit
Non-GAAP Gross Profit and Non-GAAP Gross Profit Margin are supplemental measures
of operating performance that are not prepared in accordance with GAAP and that
do not represent, and should not be considered as, alternatives to gross
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profit or gross profit margin, as determined in accordance with GAAP. We define
Non-GAAP Gross Profit as gross profit, adjusted for amortization expense,
stock-based compensation expense, acquisition-related expense and payroll taxes
related to stock-based compensation. We define Non-GAAP Gross Profit Margin as
Non-GAAP Gross Profit as a percentage of total revenue.
We use Non-GAAP Gross Profit and Non-GAAP Gross Profit Margin to understand and
evaluate our core operating performance and trends and to prepare and approve
our annual budget. We believe Non-GAAP Gross Profit and Non-GAAP Gross Profit
Margin are useful measures to us and to our investors to assist in evaluating
our core operating performance because it provides consistency and direct
comparability with our past financial performance and between fiscal periods, as
the metric eliminates the effects of variability of stock-based compensation
expense and amortization of acquired developed technology, which are non-cash
expenses that may fluctuate for reasons unrelated to overall operating
performance. While the amortization expense of acquired developed technology is
excluded from Non-GAAP Gross Profit, the revenue related to acquired developed
technology is reflected in Non-GAAP Gross Profit as these assets contribute to
our revenue generation.
Non-GAAP Gross Profit and Non-GAAP Gross Profit Margin have limitations as
analytical tools, and you should not consider them in isolation, or as
substitutes for analysis of our results as reported under GAAP. Because of these
limitations, Non-GAAP Gross Profit and Non-GAAP Gross Profit Margin should not
be considered as replacements for gross profit or gross profit margin, as
determined by GAAP, or as measures of our profitability. We compensate for these
limitations by relying primarily on our GAAP results and using non-GAAP measures
only for supplemental purposes.
A reconciliation of Non-GAAP Gross Profit to gross profit, the most directly
comparable GAAP measure, is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(in thousands)
Gross profit $ 69,151 $ 55,390 $ 199,518 $ 149,064
Amortization expense 5,198 2,679 10,835 8,034
Stock-based compensation 1,945 376 2,765 452
Acquisition-related expense 17 - 17 -
Payroll taxes related to stock-based
compensation 134 - 134 -
Non-GAAP Gross Profit $ 76,445 $ 58,445 $ 213,269 $ 157,550
Non-GAAP Gross Profit Margin 80% 83% 81% 82%
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
Non-GAAP Operating Income
Non-GAAP Operating Income and Non-GAAP Operating Income Margin are supplemental
measures of operating performance that are not prepared in accordance with GAAP
and that do not represent, and should not be considered as, alternatives to
operating loss or operating loss margin, as determined in accordance with GAAP.
We define Non-GAAP Operating Income as operating loss, adjusted for amortization
expense, stock-based compensation expense, acquisition-related expense,
acquisition-related earnout, costs associated with our secondary offerings,
payroll taxes related to stock-based compensation and legal reserve. In the
first quarter of 2021, we began excluding payroll taxes related to stock-based
compensation from our non-GAAP measures as these expenses are tied to the
exercise or vesting of underlying equity awards and the price of our common
stock at the time of vesting or exercise. As a result, these taxes may vary in
any particular period independent of the financial and operating performance of
our business. Payroll taxes related to stock-based compensation were not
material prior to the first quarter of 2021. We define Non-GAAP Operating Income
Margin as Non-GAAP Operating Income as a percentage of total revenue.
We use Non-GAAP Operating Income and Non-GAAP Operating Income Margin to
understand and evaluate our core operating performance and trends, to prepare
and approve our annual budget, and to develop short-term and long-term operating
plans. We believe that Non-GAAP Operating Income and Non-GAAP Operating Income
Margin facilitate comparison of our operating performance on a consistent basis
between periods, and when viewed in combination with our results prepared in
accordance with GAAP, help provide a broader picture of factors and trends
affecting our results of operations. While the amortization expense of acquired
trademarks, customer relationships, and developed technology is
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excluded from Non-GAAP Operating Income, the revenue related to acquired
trademarks, customer relationships, and developed technology is reflected in
Non-GAAP Operating Income as these assets contribute to our revenue generation.
Non-GAAP Operating Income and Non-GAAP Operating Income Margin have limitations
as analytical tools, and you should not consider them in isolation, or as
substitutes for analysis of our results as reported under GAAP. Because of these
limitations, Non-GAAP Operating Income and Non-GAAP Operating Income Margin
should not be considered as replacements for operating loss or operating loss
margin, as determined by GAAP, or as measures of our profitability. We
compensate for these limitations by relying primarily on our GAAP results and
using non-GAAP measures only for supplemental purposes.
A reconciliation of Non-GAAP Operating Income to operating loss, the most
directly comparable GAAP measure, is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(in thousands)
Operating loss $ (29,874) $ (618) $ (50,122) $ (4,367)
Amortization expense 12,223 8,312 29,110 24,975
Stock-based compensation 15,836 2,328 22,774 3,903
Acquisition-related expense 2,459 1,092 4,784 4,328
Acquisition-related earnout 600 600 4,837 (3,100)
Offering costs - - 594 -
Payroll taxes related to stock-based
compensation 726 - 1,342 -
Legal reserve - - 4,200 -
Non-GAAP Operating Income $ 1,970 $ 11,714 $ 17,519 $ 25,739
Non-GAAP Operating Income Margin 2% 17% 7% 13%
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
Non-GAAP Net Income
Non-GAAP Net Income is a supplemental measure of operating performance that is
not prepared in accordance with GAAP and that does not represent, and should not
be considered as, an alternative to net loss, as determined in accordance with
GAAP. We define Non-GAAP Net Income as net loss, adjusted for amortization
expense, stock-based compensation expense, foreign currency transaction loss,
loss on extinguishment of debt, amortization of debt issuance costs,
acquisition-related expense, acquisition-related earnout, costs associated with
our secondary offerings, payroll taxes related to stock-based compensation,
legal reserve, discrete tax items and benefit for income taxes.
We use Non-GAAP Net Income to understand and evaluate our core operating
performance and trends, to prepare and approve our annual budget, and to develop
short-term and long-term operating plans. We believe that Non-GAAP Net Income
facilitates comparison of our operating performance on a consistent basis
between periods, and when viewed in combination with our results prepared in
accordance with GAAP, helps provide a broader picture of factors and trends
affecting our results of operations. While the amortization expense of acquired
trademarks, customer relationships, and developed technology is excluded from
Non-GAAP Net Income, the revenue related to acquired trademarks, customer
relationships, and developed technology is reflected in Non-GAAP Net Income as
these assets contribute to our revenue generation.
Non-GAAP Net Income has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our results as
reported under GAAP. Because of these limitations, Non-GAAP Net Income should
not be considered as a replacement for net loss, as determined by GAAP, or as a
measure of our profitability. We compensate for these limitations by relying
primarily on our GAAP results and using non-GAAP measures only for supplemental
purposes.
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Table of Contents A reconciliation of Non-GAAP Net Income to net loss, the most directly comparable GAAP measure, is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(in thousands)
Net loss $ (30,383) $ (5,388) $ (51,439) $ (15,718)
Amortization expense 12,223 8,312 29,110 24,975
Stock-based compensation 15,836 2,328 22,774 3,903
Foreign currency transaction loss 269 154 795 471
Loss on extinguishment of debt 449 5,213 449 5,213
Amortization of debt issuance costs 324 - 324 -
Acquisition-related expense 2,459 1,092 4,784 4,328
Acquisition-related earnout 600 600 4,837 (3,100)
Offering costs - - 594 -
Payroll taxes related to stock-based
compensation 726 - 1,342 -
Legal reserve - - 4,200 -
Discrete tax items (13) (1,389) (64) (1,666)
Benefit for income taxes(2) (1,525) (2,642) (1,525) (6,470)
Non-GAAP Net Income $ 965 $ 8,280 $ 16,181 $ 11,936
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
(2) For the three and nine months ended September 30, 2021 , our annual effective
tax rate was materially different from our statutory rate due to changes in the
domestic valuation allowance. Therefore, we used a tax rate of 4.7% for the
third quarter which reflects the annual effective tax rate catchup for the first
and second quarters due to the Wandera acquisition resulting in a tax rate of
2.2% for the nine months ended September 30, 2021 . For the three and nine months
ended September 30, 2020 , the related tax effects of the adjustments to Non-GAAP
Net Income were calculated using the respective statutory tax rate for
applicable jurisdictions, which was not materially different from our annual
effective tax rate for full year 2020 of approximately 25%.
Adjusted EBITDA
Adjusted EBITDA is a supplemental measure of operating performance that is not
prepared in accordance with GAAP and that does not represent, and should not be
considered as, an alternative to net loss, as determined in accordance with
GAAP. We define Adjusted EBITDA as net loss, adjusted for interest expense, net,
benefit for income taxes, depreciation and amortization expense, stock-based
compensation expense, foreign currency transaction loss, loss on extinguishment
of debt, acquisition-related expense, acquisition-related earnout, costs
associated with our secondary offerings, payroll taxes related to stock-based
compensation and legal reserve.
We use Adjusted EBITDA to understand and evaluate our core operating performance
and trends, to prepare and approve our annual budget, and to develop short-term
and long-term operating plans. We believe that Adjusted EBITDA facilitates
comparison of our operating performance on a consistent basis between periods,
and when viewed in combination with our results prepared in accordance with
GAAP, helps provide a broader picture of factors and trends affecting our
results of operations.
Adjusted EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our results as
reported under GAAP. Because of these limitations, Adjusted EBITDA should not be
considered as a replacement for net loss, as determined by GAAP, or as a measure
of our profitability. We compensate for these limitations by relying primarily
on our GAAP results and using non-GAAP measures only for supplemental purposes.
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A reconciliation of Adjusted EBITDA to net loss, the most directly comparable
GAAP measure, is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(in thousands)
Net loss $ (30,383) $ (5,388) $ (51,439) $ (15,718)
Interest expense, net 1,386 1,207 1,608 10,675
Benefit for income taxes (1,595) (1,804) (1,535) (4,917)
Depreciation expense 1,488 1,150 4,139 3,657
Amortization expense 12,223 8,312 29,110 24,975
Stock-based compensation 15,836 2,328 22,774 3,903
Foreign currency transaction loss 269 154 795 471
Loss on extinguishment of debt 449 5,213 449 5,213
Acquisition-related expense 2,459 1,092 4,784 4,328
Acquisition-related earnout 600 600 4,837 (3,100)
Offering costs - - 594 -
Payroll taxes related to stock-based
compensation 726 - 1,342 -
Legal reserve - - 4,200 -
Adjusted EBITDA $ 3,458 $ 12,864 $ 21,658 $ 29,487
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
Components of Results of OperationsRevenues
We recognize revenue under ASC 606 when or as performance obligations are satisfied. We derive revenue primarily from sales of SaaS subscriptions and support and maintenance contracts, and to a lesser extent, sales of on-premise subscriptions and perpetual licenses and services. Subscription. Subscription revenue consists of sales of SaaS subscriptions and support and maintenance contracts. We sell our software solutions primarily with a one-year contract term. We typically invoice SaaS subscription fees and support and maintenance fees annually in advance and recognize revenue ratably over the term of the applicable agreement, provided that all other revenue recognition criteria have been satisfied. In the fourth quarter of 2020, we reclassified the license portion of on-premise subscription revenue from license revenue to subscription revenue in the consolidated statements of operations on a retroactive basis. See additional information in "Note 1 - Basis of Presentation and Description of Business" to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The license portion of on-premise subscription revenue is recognized upfront, assuming all revenue recognition criteria are satisfied. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for more information. In addition, beginning in the third quarter 2021, we have updated how we deliver our Jamf Connect product resulting in a change in revenue recognition, with less revenue recognized upfront as on-premise subscription revenue. This revenue will now be recognized ratably over the term of the subscription, in line with the majority of our revenue. We expect subscription revenue to increase over time as we expand our customer base because sales to new customers are expected to be primarily SaaS subscriptions. License. License revenue consists of revenue from on-premise perpetual licenses of our Jamf Pro product sold primarily to existing customers. We recognize license revenue upfront, assuming all revenue recognition criteria are satisfied. We expect license revenue to decrease because sales to new customers are primarily cloud-based subscription arrangements and therefore reflected in subscription revenue. Services. Services revenues consist primarily of professional services provided to our customers to configure and optimize the use of our software solutions, as well as training services related to the operation of our software solutions. Our services are priced on a fixed fee basis and generally invoiced in advance of the service being delivered. Revenue is recognized 46 -------------------------------------------------------------------------------- Table of Contents as the services are performed. We expect services revenues to decrease as a percentage of total revenue as the demand for our services is not expected to grow at the same rate as the demand for our subscription solutions. Cost of Revenues Cost of subscription. Cost of subscription revenue consists primarily of employee compensation costs for employees associated with supporting our subscription and support and maintenance arrangements, our customer success function, and third-party hosting fees related to our cloud services. Employee compensation and related costs include cash compensation and benefits to employees and associated overhead costs. We expect cost of subscription revenue to increase in absolute dollars, but to remain relatively consistent as a percentage of subscription revenue, relative to the extent of the growth of our business. Cost of services. Cost of services revenue consists primarily of employee compensation costs directly associated with delivery of professional services and training, costs of third-party integrators and other associated overhead costs. We expect cost of services revenue to decrease in absolute dollars relative to the decrease of our services business. Gross Profit Gross profit, or revenue less cost of revenue, has been and will continue to be affected by various factors, including the mix of cloud-based subscription customers, the costs associated with supporting our cloud solution, the extent to which we expand our customer support team and the extent to which we can increase the efficiency of our technology and infrastructure though technological improvements. We expect our gross profit to increase in absolute dollars. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Sales commissions as well as associated payroll taxes and retirement plan contributions that are incremental to the acquisition of customer contracts are deferred and amortized over the period of benefit, which is estimated to be generally 5 years. We expect our sales and marketing expenses to increase on an absolute dollar basis as we expand our sales personnel and marketing efforts. Sales commissions as well as associated payroll taxes and retirement plan contributions (together, contract costs) that are incremental to the acquisition of customer contracts are capitalized Research and development. Research and development expenses consist primarily of personnel costs and allocated overhead. We will continue to invest in innovation so that we can offer our customers new solutions and enhance our existing solutions. See "Business - Research and Development" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for more information. We expect such investment to increase on an absolute dollar basis as our business grows. General and Administrative. General and administrative expenses consist primarily of employee compensation costs for corporate personnel, such as those in our executive, human resource, facilities, accounting and finance, legal and compliance, and information technology departments. In addition, general and administrative expenses include acquisition-related expenses which primarily consist of third-party expenses, such as legal and accounting fees, and adjustments to contingent consideration. General and administrative expenses also include costs incurred in secondary offerings. We expect our general and administrative expenses to increase on a dollar basis as our business grows, particularly as we continue to invest in technology infrastructure and expand our operations globally. Also, we incur additional general and administrative expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , and increased expenses for insurance, investor relations and accounting expenses. Amortization. Amortization expense consists of amortization of acquired intangible assets. Interest Expense, Net Interest expense, net primarily consists of interest charges on our outstanding debt and amortization of capitalized debt issuance costs, as well as interest income earned on our cash and cash equivalents. In the third quarter of 2021, we reclassified the unused commitment fee on our line of credit from general and administrative expenses to interest expense, net on a prospective basis. The impact to prior period financial statements was not material. 47 -------------------------------------------------------------------------------- Table of Contents Loss on Extinguishment of Debt Upon closing of the IPO, we repaid$205.0 million of the principal amount of the Prior Term Loan Facility and recorded a loss on extinguishment of debt of$5.2 million for the prepayment penalty and write off of debt issuance costs. In the third quarter of 2021, we repaid the principal amount of the New Term Loan Facility and recorded debt extinguishment costs of$0.4 million for the write-off of remaining debt issuance costs. Foreign Currency Transaction Gain (Loss) Foreign currency transaction gains (losses) includes gains and losses from transactions denominated in a currency other than the Company's functional currency. Income Tax (Provision) Benefit Income tax (provision) benefit consists primarily of income taxes related toU.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business. Other Income Other income consists primarily of sublease rental income. The sublease was terminated in the second quarter of 2020. 48
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Results of OperationsThe following table sets forth our consolidated statements of operations data for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(in thousands)
Consolidated Statement of Operations Data:
Revenue:
Subscription $ 90,700 $ 65,634 $ 245,900 $ 178,438
Services 4,083 3,897 12,015 10,616
License 838 1,017 4,671 3,811
Total revenue 95,621 70,548 262,586 192,865
Cost of revenue:
Cost of subscription(2)(3)(4)(5) (exclusive of
amortization expense shown below) 18,317 10,032 44,206 28,020
Cost of services(2)(3)(4) (exclusive of
amortization expense shown below) 2,955 2,447 8,027 7,747
Amortization expense 5,198 2,679 10,835 8,034
Total cost of revenue 26,470 15,158 63,068 43,801
Gross profit 69,151 55,390 199,518 149,064
Operating expenses:
Sales and marketing(2)(3)(4)(5) 40,856 23,773 103,640 67,558
Research and development(2)(3)(4)(5) 25,608 12,757 58,437 37,344
General and administrative(2)(3)(4)(5) 25,536 13,845 69,288 31,588
Amortization expense 7,025 5,633 18,275 16,941
Total operating expenses 99,025 56,008 249,640 153,431
Loss from operations (29,874) (618) (50,122) (4,367)
Interest expense, net (1,386) (1,207) (1,608) (10,675)
Loss on extinguishment of debt (449) (5,213) (449) (5,213)
Foreign currency transaction loss (269) (154) (795) (471)
Other income, net - - - 91
Loss before income tax benefit (31,978) (7,192) (52,974) (20,635)
Income tax benefit 1,595 1,804 1,535 4,917
Net loss $ (30,383) $ (5,388) $ (51,439) $ (15,718)
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
(2) Includes stock-based compensation as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Cost of revenue:
Subscription $ 1,716 $ 314 $ 2,384 $ 390
Services 229 62 381 62
Sales and marketing 4,833 675 6,763 897
Research and development 5,145 523 7,076 821
General and administrative 3,913 754 6,170 1,733
$ 15,836 $ 2,328 $ 22,774 $ 3,903
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(3) Includes payroll taxes related to stock-based compensation as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Cost of revenue:
Subscription $ 112 $ - $ 112 $ -
Services 22 - 22 -
Sales and marketing 270 - 416 -
Research and development 174 - 291 -
General and administrative 148 - 501 -
$ 726 $ - $ 1,342 $ -
(4) Includes depreciation expense as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(As Revised) (As Revised)
(in thousands)
Cost of revenue:
Subscription $ 302 $ 236 $ 814 $ 736
Services 43 49 124 156
Sales and marketing 608 454 1,706 1,452
Research and development 341 271 923 865
General and administrative 194 142 572 448
$ 1,488 $ 1,152 $ 4,139 $ 3,657 (5) Includes acquisition-related expense as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Cost of revenue:
Subscription $ 17 $ - $ 17 $ -
Sales and marketing 34 - 34 -
Research and development 549 - 590 -
General and administrative 1,859 1,092 4,143 4,328
$ 2,459 $ 1,092 $ 4,784 $ 4,328
General and administrative also includes acquisition-related earnout of $0.6
million for both the three months ended September 30, 2021 and 2020 and $4.8
million and $(3.1) million for the nine months ended September 30, 2021 and
2020, respectively. The acquisition-related earnout was an expense for the nine
months ended September 30, 2021 compared to a benefit for the prior year period
reflecting the change in fair value of the Digita acquisition contingent
liability due to growth in sales of our Jamf Protect product. General and
administrative also includes legal reserve of $4.2 million for the nine months
ended September 30, 2021 .
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The following table sets forth our consolidated statements of operations data
expressed as a percentage of total revenue for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 (1) 2021 2020 (1)
(As Revised) (As Revised)
(as a percentage of total revenue)
Consolidated Statement of Operations Data:
Revenue:
Subscription 95 % 93 % 94 % 93 %
Services 4 6 4 5
License 1 1 2 2
Total revenue 100 100 100 100
Cost of revenue:
Cost of subscription (exclusive of
amortization expense shown below) 19 14 17 15
Cost of services (exclusive of amortization
expense shown below) 3 3 3 4
Amortization expense 6 4 4 4
Total cost of revenue 28 21 24 23
Gross profit 72 79 76 77
Operating expenses:
Sales and marketing 43 34 40 35
Research and development 27 18 22 19
General and administrative 26 20 26 16
Amortization expense 7 8 7 9
Total operating expenses 103 80 95 79
Loss from operations (31) (1) (19) (2)
Interest expense, net (1) (2) (1) (6)
Loss on extinguishment of debt (1) (7) - (3)
Foreign currency transaction loss - - - -
Other income, net - - - -
Loss before income tax benefit (33) (10) (20) (11)
Income tax benefit 1 2 - 3
Net loss (32) % (8) % (20) % (8) %
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
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Comparison of the Three and Nine Months EndedSeptember 30, 2021 and 2020 Revenue Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 (1) $ % 2021 2020 (1) $ % (in thousands, except percentages) SaaS subscription and support and maintenance$ 83,775 $ 57,785 $ 25,990 45 %$ 222,672 $ 160,279 $ 62,393 39 % Onpremise subscription 6,925 7,849 (924) (12) 23,228 18,159 5,069 28 Subscription revenue 90,700 65,634 25,066 38 245,900 178,438 67,462 38 Professional services 4,083 3,897 186 5 12,015 10,616 1,399 13 Perpetual licenses 838 1,017 (179) (18) 4,671 3,811 860 23 Non-subscription revenue 4,921 4,914 7 - 16,686 14,427 2,259 16 Total revenue$ 95,621 $ 70,548 $ 25,073 36 %$ 262,586 $ 192,865 $ 69,721 36 % (1) Certain prior period amounts have been revised to correct immaterial errors. See Note 1 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Total revenue increased by$25.1 million , or 36%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Overall revenue increased as a result of higher subscription revenue and services revenue. Subscription revenue accounted for 95% of total revenue for the three months endedSeptember 30, 2021 compared to 93% for the three months endedSeptember 30, 2020 . The increase in subscription revenue was driven by device expansion, the addition of new customers and cross-selling, as well as approximately$5.1 million fromWandera revenue in the third quarter of 2021. This increase was partially offset by the impact to subscription revenue from a change in revenue recognition related to our Jamf Connect product resulting from updates to how we deliver the product. See additional information regarding this change in the Components of Results of Operations section. Total revenue increased by$69.7 million , or 36%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Overall revenue increased as a result of higher subscription revenue, services revenue and license revenue. Subscription revenue accounted for 94% of total revenue for the nine months endedSeptember 30, 2021 compared to 93% for the nine months endedSeptember 30, 2020 . The increase in subscription revenue was driven by device expansion, the addition of new customers and cross-selling, as well as approximately$5.1 million fromWandera revenue in the third quarter of 2021, partially offset by the impact from a change in revenue recognition related to our Jamf Connect product resulting from updates to how we deliver the product. Services revenue increased as a result of higher revenue from training courses, which was impacted by COVID-19 in the prior year period. License revenue increased reflecting additional licenses compared to the prior year period, which was impacted by COVID-19. Cost of Revenue and Gross Margin Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 (1) $ % 2021 2020 (1) $ % (in thousands, except percentages) Cost of revenue: Cost of subscription (exclusive of amortization expense shown below)$ 18,317 $ 10,032 $ 8,285 83 %$ 44,206 $ 28,020 $ 16,186 58 % Cost of services (exclusive of amortization expense show below) 2,955 2,447 508 21 8,027 7,747 280 4 Amortization expense 5,198 2,679 2,519 94 10,835 8,034 2,801 35 Total cost of revenue$ 26,470 $ 15,158 $ 11,312 75 %$ 63,068 $ 43,801 $ 19,267 44 % Gross margin 72% 79% 76% 77% (1) Certain prior period amounts have been revised to correct immaterial errors. See Note 1 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Cost of revenue increased by$11.3 million , or 75%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 driven by higher cost of subscription revenue and amortization expense. Cost of subscription revenue increased$8.3 million , or 83%, primarily due to an increase of$2.9 million in employee compensation costs related to higher headcount to support the growth in our subscription customer base and theWandera acquisition, an increase of$3.3 million in third party hosting fees due to increased capacity to support our growth and theWandera acquisition, 52 -------------------------------------------------------------------------------- Table of Contents an increase of$0.4 million in computer hardware and software costs to support the growth of the business and a$1.5 million increase in stock-based compensation expense and related payroll taxes. Cost of services revenue increased$0.5 million , or 21%, as a result of higher services revenue and a$0.2 million increase in stock-based compensation expense and related payroll taxes. Amortization expense increased$2.5 million , or 94%, primarily reflecting the increase in intangible assets due to theWandera acquisition. Cost of revenue increased by$19.3 million , or 44%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 driven by higher cost of subscription revenue and amortization expense. Cost of subscription revenue increased$16.2 million , or 58%, primarily due to an increase of$6.1 million in employee compensation costs related to higher headcount to support the growth in our subscription customer base and theWandera acquisition, an increase of$6.9 million in third party hosting fees due to increased capacity to support our growth and theWandera acquisition, an increase of$0.7 million in computer hardware and software costs to support the growth of the business and a$2.1 million increase in stock-based compensation expense and related payroll taxes. Amortization expense increased$2.8 million , or 35%, primarily reflecting the increase in intangible assets due to theWandera acquisition. Total gross margin was 72% and 79% for the three months endedSeptember 30, 2021 and 2020, respectively. The decline in total gross margin was due to the increase in total cost of revenue described above as well as an impact to revenue due to a change in revenue recognition related to our Jamf Connect product resulting from updates to how we deliver the product. Total gross margin was 76% and 77% for the nine months endedSeptember 30, 2021 and 2020, respectively. Operating Expenses Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 (1) $ % 2021 2020 (1) $ % (in thousands, except percentages) Operating expenses: Sales and marketing$ 40,856 $ 23,773 $ 17,083 72 %$ 103,640 $ 67,558 $ 36,082 53 % Research and development 25,608 12,757 12,851 NM 58,437 37,344 21,093 56 General and administrative 25,536 13,845 11,691 84 69,288 31,588 37,700 NM Amortization expense 7,025 5,633 1,392 25 18,275 16,941 1,334 8 Operating expenses$ 99,025 $ 56,008 $ 43,017 77 %$ 249,640 $ 153,431 $ 96,209 63 % NM Not Meaningful. (1) Certain prior period amounts have been revised to correct immaterial errors. See Note 1 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Sales and Marketing. Sales and marketing expenses increased by$17.1 million or 72%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 primarily due to an increase of$10.0 million in employee compensation costs driven by higher headcount due to growth in the business and theWandera acquisition, an increase of$1.1 million in computer hardware and software costs to support the growth of the business, a$4.4 million increase in stock-based compensation expense and related payroll taxes, a$0.4 million increase in marketing costs, a$0.3 million increase in travel-related expenses and a$0.4 million increase in facilities expense. Sales and marketing expenses increased by$36.1 million , or 53%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 primarily due to an increase of$22.6 million in employee compensation costs driven by higher headcount due to growth in the business and theWandera acquisition, a$3.4 million increase in marketing costs, an increase of$2.4 million in computer hardware and software costs to support the growth of the business, a$6.3 million increase in stock-based compensation expense and related payroll taxes and a$0.9 million increase in facilities expense, partially offset by a$0.7 million decrease in travel-related expenses reflecting less travel due to COVID-19. Marketing costs increased primarily due to increases in demand generation programs, advertising, and brand awareness campaigns focused on new customer acquisition. Research and Development. Research and development expenses increased by$12.9 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 primarily due to an increase of$5.9 million in employee compensation costs driven by higher headcount due to growth in the business and theWandera acquisition, an increase of$0.6 million in outside services, an increase of$0.6 million in computer hardware and software costs to support the growth of the business, a$0.5 million increase in acquisition-related expenses and a$4.8 million increase in stock-based compensation expense and related payroll taxes. 53 -------------------------------------------------------------------------------- Table of Contents Research and development expenses increased by$21.1 million , or 56%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 primarily due to an increase of$10.9 million in employee compensation costs driven by higher headcount due to growth in the business and theWandera acquisition, an increase of$2.1 million in outside services, an increase of$1.2 million in computer hardware and software costs to support the growth of the business, a$0.6 million increase in acquisition-related expenses and a$6.5 million increase in stock-based compensation expense and related payroll taxes. General and Administrative. General and administrative expenses increased by$11.7 million , or 84%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . The increase was primarily due to an increase of$5.0 million in employee compensation costs driven by higher headcount to support our continued growth and theWandera acquisition, an increase of$0.8 million in computer hardware and software costs to support the growth of the business, a$3.3 million increase in stock-based compensation expense and related payroll taxes and a$0.8 million increase in acquisition-related expenses. General and administrative expenses increased by$37.7 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to an increase of$10.6 million in employee compensation costs driven by higher headcount to support our continued growth and theWandera acquisition,$3.9 million in additional expenses as a result of operating as a public company, an increase of$2.4 million in computer hardware and software costs to support the growth of the business, a$4.9 million increase in stock-based compensation expense and related payroll taxes, an increase of$0.6 million related to offering costs, an increase of$4.2 million for a legal reserve and a$7.9 million increase in acquisition-related earnout. Amortization Expense. Amortization expense increased by$1.4 million , or 25%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 primarily reflecting the increase in intangible assets due to theWandera acquisition. Amortization expense increased by$1.3 million , or 8%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 primarily reflecting the increase in intangible assets due to theWandera acquisition. Interest Expense, Net Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages)
Interest expense, net$ 1,386 $ 1,207 $ 179 15 %$ 1,608 $ 10,675 $ (9,067) (85) % Interest expense, net increased by$0.2 million , or 15%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 due to borrowings under the New Term Loan Facility and interest charges on the 2026 Notes.. Interest expense, net decreased by$9.1 million , or 85%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 reflecting the repayment of the Prior Term Loan Facility in the third quarter of 2020. Loss on Extinguishment of Debt Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Loss on extinguishment of debt$ 449 $ 5,213 $ (4,764) (91) %$ 449 $ 5,213 $ (4,764) (91) % Loss on extinguishment of debt of$0.4 million for the three and nine months endedSeptember 30, 2021 consists of the write off of debt issuance costs upon the early repayment of the New Term Loan Facility. Loss on extinguishment of debt of$5.2 million for the three and nine months endedSeptember 30, 2020 consists of a prepayment penalty of$2.0 million and write off of debt issuance costs of$3.2 million in connection with the early repayment of the Prior Term Loan Facility. 54 -------------------------------------------------------------------------------- Table of Contents Foreign Currency Transaction Loss Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Foreign currency transaction loss$ 269 $ 154 $ 115 75 %$ 795 $ 471 $ 324 69 % Foreign currency transaction loss increased by$0.1 million , or 75%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Foreign currency transaction loss increased by$0.3 million , or 69%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Other Income, Net Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages)
Other income, net $ - $ - $ - - % $ -$ 91 $ (91) (100) % The decrease in Other income, net for the nine months endedSeptember 30, 2021 was due to the termination of our sublease in the second quarter of 2020. Income Tax Benefit Three Months Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 (1) $ % 2021 2020 (1) $ % (in thousands, except percentages)
Income tax benefit$ 1,595 $ 1,804 $ (209) (12) %$ 1,535 $ 4,917 $ (3,382) (69) % (1) Certain prior period amounts have been revised to correct immaterial errors. See Note 1 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Income tax benefit was$1.6 million and$1.8 million for the three months endedSeptember 30, 2021 and 2020, respectively. The effective tax rates for the three months endedSeptember 30, 2021 and 2020 were 5.0% and 25.1%, respectively. The effective tax rate for the three months endedSeptember 30, 2021 was lower than the prior year period due to the application of Section 162(m) of the Internal Revenue Code, stock option activity and the domestic valuation allowance. Income tax benefit was$1.5 million and$4.9 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The effective tax rates for the nine months endedSeptember 30, 2021 and 2020 were 2.9% and 23.8%, respectively. The effective tax rate for the nine months endedSeptember 30, 2021 was lower than the prior year period due to the application of Section 162(m) of the Internal Revenue Code, stock option activity and the domestic valuation allowance. The effective tax rate for the nine months endedSeptember 30, 2021 was impacted by$0.1 million of discrete income tax benefit. The Company's annual effective tax rates for the nine months endedSeptember 30, 2021 and 2020 were 2.8% and 21.1%, respectively. 55
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Liquidity and Capital ResourcesGeneral
As ofSeptember 30, 2021 , our principal sources of liquidity were cash and cash equivalents totaling$227.1 million , which were held for for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions and strategic transactions, as well as the available balance of our Revolving Credit Facility, described in Note 7 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Our cash equivalents are comprised of money market funds and/orU.S. Treasuries with original or remaining maturities at the time of purchase of three months or less. Our positive cash flows from operations enable us to make continued investments in supporting the growth of our business. We expect that our operating cash flows, in addition to our cash and cash equivalents, will enable us to continue to make such investments in the future. We believe our cash and cash equivalents, our Revolving Credit Facility and cash provided by sales of our software solutions and services will be sufficient to meet our working capital and capital expenditure needs as well as our debt service requirements for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, and the continuing market acceptance of our products. In the future, we may use cash to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. A majority of our customers pay in advance for subscriptions and support and maintenance contracts, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As ofSeptember 30, 2021 , we had deferred revenue of$270.4 million , of which$211.0 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. OnJuly 1, 2021 , we completed our acquisition ofWandera for total consideration of$409.3 million . The total consideration consists of an initial payment of$359.3 million at close and deferred consideration of$50.0 million to be paid in$25.0 million increments onOctober 1, 2021 andDecember 15, 2021 . We initially financed the acquisition with cash on hand and proceeds from the Company's$250.0 million New Term Loan Facility. OnJuly 1, 2021 , we entered into the Credit Agreement Amendment, which amended our existing Credit Agreement. The Credit Agreement Amendment provided for a new 364-day New Term Loan Facility in an aggregate principal amount of$250.0 million on substantially the same terms and conditions as our existing Credit Agreement. The Company repaid the principal amount of the New Term Loan Facility onSeptember 23, 2021 with proceeds from the issuance and sale of the 2026 Notes. As ofSeptember 30, 2021 , there are no amounts outstanding under the Credit Agreement, other than$1.0 million in outstanding letters of credit. OnSeptember 17, 2021 , we completed our private offering of the 2026 Notes and received net proceeds of approximately$361.4 million after deducting the initial purchasers' discounts and commissions and the offering expenses paid by us. The 2026 Notes bear interest at a rate of 0.125% per year, payable semiannually in arrears onMarch 1 andSeptember 1 of each year, beginning onMarch 1, 2022 . We used (i) approximately$250.0 million of the net proceeds from this offering to repay the Company's New Term Loan Facility and to pay any associated prepayment penalties and accrued and unpaid interest to the date of repayment and (ii) approximately$36.0 million of the net proceeds from this offering to fund the cost of entering into the Capped Calls, and will use the remainder of the net proceeds for general corporate purposes, which may include working capital, capital expenditures, and potential acquisitions and strategic transactions. 56 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table presents a summary of our consolidated cash flows from operating, investing and financing activities: Nine Months Ended September 30, 2021 2020 (1) (As Revised) (in thousands) Net cash provided by operating activities$ 64,827 $ 33,099 Net cash used in investing activities (359,937) (1,836) Net cash provided by financing activities 328,905 113,819
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(865) -
Net increase in cash, cash equivalents and restricted cash 32,930 145,082
Cash, cash equivalents and restricted cash, beginning of period 194,868
32,375
Cash, cash equivalents and restricted cash, end of period
$
944
1,836
(1) Certain prior period amounts have been revised to correct immaterial errors.
See Note 1 to the consolidated financial statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q for more information.
Operating Activities
Our largest source of operating cash is cash collections from our customers for
subscriptions. Our primary use of cash from operating activities is for
employee-related expenditures, marketing expenses and third-party hosting costs.
For the nine months ended September 30, 2021 , net cash provided by operating
activities was $64.8 million reflecting our net loss of $51.4 million , adjusted
for non-cash charges of $73.2 million and net cash inflows of $43.1 million from
changes in our operating assets and liabilities. Non-cash charges primarily
consisted of depreciation and amortization of property and equipment and
intangible assets, amortization of deferred contract costs, non-cash lease
expense, share-based compensation and a $4.8 million adjustment to contingent
consideration. The primary drivers of net cash inflows from changes in operating
assets and liabilities included an increase of $59.5 million in deferred revenue
due to growth in subscription revenues, an increase of $6.7 million in accounts
payable and accrued liabilities due to growth of the business and a decrease in
trade accounts receivable of $3.2 million due to timing of cash receipts from
our customers and higher collections. These changes were partially offset by an
increase of $18.1 million in deferred contract costs due to an increase in
capitalized costs and an increase of $8.1 million in prepaid expenses and other
assets.
For the nine months ended September 30, 2020 , net cash provided by operating
activities was $33.1 million reflecting our net loss of $15.7 million , adjusted
for non-cash charges of $36.3 million and net cash inflows of $12.5 million from
changes in our operating assets and liabilities. Non-cash charges primarily
consisted of depreciation and amortization of property and equipment and
intangible assets, amortization of deferred contract costs, amortization of debt
issuance costs, provision for bad debt expense and returns, loss on
extinguishment of debt and share-based compensation, partially offset by
deferred taxes and a $3.1 million benefit related to an adjustment to our Digita
earnout. The primary drivers of net cash inflows from changes in operating
assets and liabilities included a $47.2 million increase in deferred revenue and
a $3.2 million increase in other liabilities. These changes were partially
offset by an increase in trade accounts receivable of $18.3 million , an increase
in deferred contract costs of $14.0 million , an increase in prepaid expenses and
other assets of $4.2 million and a decrease in accounts payable and accrued
liabilities of $1.2 million .
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Investing Activities
During the nine months ended September 30, 2021 , net cash used in investing
activities was $359.9 million driven by the acquisition of Wandera , the
acquisition of cmdReporter and purchases of equipment and leasehold improvements
for updates to office space and hardware and software.
During the nine months ended September 30, 2020 , net cash used in investing
activities was $1.8 million due to purchases of equipment and leasehold
improvements to support our higher headcount with additional office space and
hardware and software.
Financing Activities
Net cash provided by financing activities of $328.9 million during the nine
months ended September 30, 2021 was primarily due to proceeds from the issuance
and sale of the 2026 Notes and from the exercise of stock options, partially
offset by cash paid for the purchase of the Capped Calls, debt issuance costs
and contingent consideration.
Net cash provided by financing activities of $113.8 million during the nine
months ended September 30, 2020 was due to proceeds of approximately $326.3
million from the IPO after deducting underwriting discounts and commissions and
$2.2 million of proceeds from the private placement, partially offset by the
repayment of $205.0 million principal amount of our Prior Term Loan Facility,
the payment of debt extinguishment costs of $2.1 million , the payment of
offering costs of $6.6 million and the payment of debt issuance costs of $1.3
million related to the Credit Agreement.
Contractual Obligations and Commitments
As of September 30, 2021 , our principal commitments consist of obligations under
operating leases for office space, noncancelable minimum annual commitments with
AWS for hosting services and other vendors for support software, and our
convertible senior notes. In "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" included in our Annual Report on Form 10-K
for the year ended December 31, 2020 , we disclosed our total contractual
obligations as of December 31, 2020 . Except for our obligations under our
convertible senior notes as disclosed in Note 7 of the notes to our consolidated
financial statements included in Part I, Item 1 of this Form 10-Q, there have
been no material changes to the contractual obligations as disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2020 .
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope
and terms pursuant to which we agree to indemnify customers, channel partners,
vendors, lessors, business partners and other parties with respect to certain
matters, including, but not limited to, losses arising out of the breach of such
agreements, services to be provided by us or from intellectual property
infringement, misappropriation or other violation claims made by third parties.
See "Risk Factors - We have indemnity provisions under our contracts with our
customers, channel partners and other third parties, which could have a material
adverse effect on our business" in our Annual Report on Form 10-K for the year
ended December 31, 2020 . In addition, we have entered into indemnification
agreements with our directors and certain executive officers that will require
us, among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors, officers or employees.
No demands have been made upon us to provide indemnification under such
agreements and there are no claims that we are aware of that could have a
material effect on our consolidated balance sheets, consolidated statements of
operations and comprehensive loss, or consolidated statements of cash flows.
JOBS Act
We currently qualify as an "emerging growth company" pursuant to the provisions
of the JOBS Act. For as long as we are an "emerging growth company," we may take
advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not "emerging growth companies,"
including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, exemptions from the requirements of holding advisory
"say-on-pay" votes on executive compensation and shareholder advisory votes on
golden parachute compensation.
The JOBS Act also permits an emerging growth company like us to take advantage
of an extended transition period to comply with new or revised accounting
standards applicable to public companies. We have elected to use the extended
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transition period for complying with new or revised accounting standards and,
therefore, we will not be subject to the same new or revised accounting
standards as other public companies that comply with such new or revised
accounting standards on a non-delayed basis.
On June 30, 2021 , the last day of our second fiscal quarter in 2021, the market
value of our common stock held by non-affiliates exceeded $700.0 million .
Accordingly, we will be deemed a large accelerated filer as of December 31, 2021
and will no longer qualify as an emerging growth company and be able to take
advantage of the exemptions from the reporting requirements described above or
the extended timeline to comply with new or revised accounting standards
applicable to public companies beginning with our Annual Report on Form 10-K for
the year ending December 31, 2021 .
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements. The preparation of our
financial statements in accordance with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. We base our estimates on experience and other assumptions that we
believe are reasonable under the circumstances, and we evaluate these estimates
on an ongoing basis. Actual results may differ from those estimates, impacting
our reported results of operations and financial condition.
Except for the accounting policies for leases that were updated as a result of
adopting the new accounting standard, there have been no material changes to our
critical accounting policies and estimates disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2020 . For more information, refer to
"Note 2 - Summary of Significant Accounting Policies" to the consolidated
financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently
issued accounting standards not yet adopted, see "Note 2 - Summary of
Significant Accounting Policies" to the consolidated financial statements
included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of exposure due to potential changes in inflation
or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Exchange Risk
The functional currency of our foreign subsidiaries except for Wandera Ltd. and
its subsidiaries is the U.S. dollar. The functional currency of Wandera is the
British Pound ("GBP"). Most of our sales are denominated in U.S. dollars, and
therefore our revenue is not currently subject to significant foreign currency
risk. Our operating expenses are denominated in the currencies of the countries
in which our operations are located, which are primarily in the U.S. , United
Kingdom , Czech Republic , Poland , and the Netherlands . Our consolidated results
of operations and cash flows are, therefore, subject to fluctuations due to
changes in foreign currency exchange rates and may be adversely affected in the
future due to changes in foreign exchange rates. To date, we have not entered
into any hedging arrangements with respect to foreign currency risk or other
derivative financial instruments. During the three and nine months ended
September 30, 2021 and 2020, a hypothetical 10% change in foreign currency
exchange rates applicable to our business would not have had a material impact
on our consolidated results of operations and cash flows.
Impact of Inflation
While inflation may impact our net revenue and costs of revenue, we believe the
effects of inflation, if any, on our results of operations and financial
condition have not been significant. However, there can be no assurance that our
results of operations and financial condition will not be materially impacted by
inflation in the future.
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