DOMO - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to Domo's First Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] Peter Lowry, Vice President of Investor Relations, you may begin your conference.

Good afternoon, and welcome. On the call today, we have John Mellor, our CEO; Bruce Felt, CFO; and Julie Kehoe, our Chief Communications Officer. Julie will lead off with the safe harbor statement and then onto the call. Julie?

A press release was issued after the market close and is posted on the Investor Relations section of our website, where this call is also being webcast. Statements made on this call include forward-looking statements related to our business under federal security laws, including statements about financial projections, the plans and expectations for our go-to-market strategy, our expectations for our sales and new business initiatives, the impact of COVID-19 on our business and our financial condition. These statements are subject to a variety of risks, uncertainties and assumptions. For a discussion of these risks and uncertainties, please refer to documents we file with the SEC, in particular, today's press release, our most recently filed annual report on Form 10-K and our most recently filed quarterly report on Form 10-Q. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results of operations on a non-GAAP basis. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. Please refer to the tables in our earnings press release for a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measure. With that, I'll turn it over to John. John?

Thank you very much, Julie, and thanks to everyone for joining us on today's call. We started off our fiscal year well with billings growth of 25% and both total revenue growth and subscription revenue growth of 24%. The strength in the quarter was driven by a few factors, including a record gross retention rate, which Bruce will dive into, continued execution in the corporate business and further acceleration in our customer count. Today, I'll talk about the current demand drivers for the business, particularly in these times of macro uncertainty. I'll also update you on the operational priority we've been sharing with you and give some highlights from the quarter. In today's environment, agility is more important than ever. Domo is helping companies of all sizes get leverage from their existing resources to reduce cost, improve efficiencies and drive better business outcomes, all at incredible speed. This is true for our customers that are global, complex organizations, which often begin by deploying Domo in a modular fashion to fill gaps and leverage their existing systems. This is also true for our corporate customers who can deploy Domo as a complete end-to-end platform and benefit from our fully-integrated data integration, storage, management, governance, analytics and distribution capabilities. We're also seeing an increasing adoption of data apps, which combine data with workflow and package them into an experience that can be put right at the point where work gets done or they can be embedded within software applications, that are used inside of a company or exposed externally to customers and partners. Simply put, data apps solve the last mile of putting data to work, driving action and breaking free from the small percentage of adoption of traditional BI. A good example of the strategic value of data apps is O'Reilly Auto Parts, a leading aftermarket automotive parts retailer who we heard from at our recent user conference, Domopalooza. Among other things, O'Reilly highlighted how they were changing the game for their district managers to manage their stores with a data app that allows them to review store-level performance and add comments in real time to drive specific behavior at the store level. What used to be a largely off-line, excel driven and time-consuming process was transformed into a mobile experience, where data is automatically connected, integrated and put into the hands of the district managers in an easy-to-use data app that drives business outcomes. Turning to the current environment and what we are seeing in the market. While there are concerns around a possible economic slowdown or recession, we did not see customers pulling back in Q1. If anything, we've seen that the need for businesses to stay agile to manage through uncertainty is as important as ever. Simply stated, businesses have a need for speed and Domo gets them results. We are not sure how the economy will play out over the near term, but longer term, our view is that the modernization of business will continue as companies look to unlock data value across more areas of their business to reduce costs, improve efficiencies and drive better business outcomes. Now let me talk about some of the highlights from the quarter and how we are positioning ourselves for the remainder of the year in the context of the priorities we've been sharing with you. These priorities are: number one, keeping our growth engine intact; two, increasing our enterprise cadence; and three, our focus on data apps. The first, keeping our growth engine intact remains a strategic priority, a key driver of that is sales hiring. On that front, we have already hired enough new salespeople to meet our growth plans for the year. We are also leaning a bit more into corporate given how well that message is resonating in the market. Our planning reflects our objective to close out the year with positive annual operating cash flow regardless of the status of the economy. The second priority, getting the cadence of the enterprise new business up also remains an area of continued focus, where we are actively working on leveraging the tremendous use cases we have in our customer base. We've developed our first set of industry playbooks and enabled the team on those, and we are proactively using those in go-to-market with the objective of increasing the enterprise business to be a more predictable driver of ACV growth through our own direct selling channel and through the use of partners. And the third, our focus on industry-leading innovation with data apps. Data apps break the traditional BI model because they combine data with workflow, packaged into an experience that can be put right at the point where work gets done or embedded within software applications used inside a company or exposed externally to customer and partners. This directly supports the over 70% of people in organizations who are not served by traditional BI and analytics. Traditional BI solutions have been targeted at data analysts, who generally use a legacy tool to create reports for business leaders for decision-making, and they are usually in the form of charts and graphs. As data volumes and investments continue to increase, data apps help solve the last mile problem of getting actionable data into the hands of every person across the organization. And because data apps are built on the Domo platform, they allow organizations to modernize the data experience while capitalizing on all past investments. So whether the data resides in AWS, Azure, Snowflake or another data warehouse, Domo data apps can help unlock value from all of it. Now let me talk about a few customer highlights from the quarter. O'Reilly, who we highlighted earlier, significantly expanded their agreement with Domo to meet the growing demand for data through a 5-year company-wide enterprise license agreement. This will bring Domo from store management and loss prevention into additional functions across the organization, such as human resources, inventory control, marketing and merchandising. In addition, we also renewed what at the time was the largest upsell in our company's history with a Fortune 500 apparel retailer. This company continues to transform its business with data apps and remains a tremendous opportunity for us. Another win this quarter was with a fintech company that was looking to create a product offering that would allow its hundreds of bank and credit union customers to gain more insights and do detailed analysis on the data generated by the customers' applications. The company chose Domo because through Domo Everywhere and data apps, we were the best able to secure, quickly and at scale, provide a solution that would allow its bank and credit union customers to have a fully featured offering that looks and feels native to its existing product without the need to add new staffing or other resources. Before I hand this over to Bruce, I have a few more highlights I want to touch on. First, I'm pleased to announce that Ian Tickle has been appointed President of Global Revenue and Field Operations. Ian succeeds Wolf Maasberg, who will work closely with Ian and the team to ensure a smooth transition. Since becoming CEO earlier this year, I've spent a lot of time planning for our next phase of growth and aligning our team to best support our business objectives. I'm grateful for Wolf's collaboration in this process and thank him for everything he's done. Second, Domo continued to receive industry awards, with Dresner Advisory Services recognizing Domo as the #1 vendor in Self-Service BI for the fifth consecutive year. We believe rapidly solving the last mile engagement with timely, actionable data is where the market is heading, and this is where Domo has significant strength and differentiation; third, culture is critically important to us as we look to build a workplace where the best talent thrives. I'm pleased to announce that we received for the fifth consecutive year, a Women Tech Council Shatter List Award for our focus and progress towards building a more inclusive workplace. And we continue to honor our commitments toward a diverse, equitable and inclusive culture. In Q1, 36% of all new hires for our positions were diverse candidates. In clean, I remain incredibly proud of our entire team for focus on delivering value to our customers every day, from the innovation produced by our product team to the passion of our customer success teams, our energy is always focused on helping customers transform business by putting data to work for everyone. Now I'll hand it over to Bruce.

Thank you, John. We're off to a good start in fiscal 2023. In Q1, we posted 25% billings growth and 24% revenue growth with a record subscription gross margin. One of the major drags for our performance was the strength of our corporate business, which continues to grow new business at a high rate, consistently generating new logos and had a gross retention rate of over 90%. We will continue to capitalize on the strengths of this business as we pursue our other growth drivers, such as improving our enterprise go-to-market motion, including working with our partners. Our record gross retention and record subscription gross margin bodes very well for the long-term health of our business and the lifetime value of our customer base. It provides stability to our business. It reflects a high level of customer satisfaction, and it indicates how differentiated and relevant we are in the market. We believe all these factors give us good detection against the downturn in the economy and also explains why we were able to navigate through the last downturn so well. As we had previously indicated, we are starting to see the convergence of our revenue growth and the growth we have seen in our other more forward-looking recurring revenue metrics, like ARR and billings growth, and we expect this trend to continue throughout the year. We delivered Q1 billings of $72.9 million, a year-over-year increase of 25%, driven by new customer additions, expansions into existing customers and our record gross retention rate. Net retention on a contracted ARR basis was close to 110% and was up slightly from last quarter. Our current RPO of $225 million grew 24% year-over-year, while our total RPO also grew 24%. On a dollar-weighted measure, we now have 64% of our customers under multiyear contracts at the end of Q1, up from 61% a year ago. Q1 total revenue was $74.5 million, a year-over-year increase of 24%. Subscription revenue also grew 24% year-over-year, representing 87% of total revenue and was a substantial acceleration from 19% growth in Q4. International revenue in the quarter represented 21% of total revenue, a similar mix to what we experienced last quarter. We continue to expect to exit fiscal year '23 with subscription revenue growth of about 25%. Our subscription gross margin was a record at over 84%, up 1.2 percentage points from Q1 of last year, and up 1.8 percentage points from Q4. We are very pleased with this level of gross margin given we also delivered record gross retention rates. It is indicative of our ability to cost-effectively support our customers while at the same time being able to efficiently process very large amounts of data for our customers. In Q1, operating expenses increased 21% from the last year, primarily from investments in our sales capacity and the supporting infrastructure to help them ramp and become more productive. Our non-GAAP operating expenses benefited from our executives agreeing to take bonus payments and restricted stock units in lieu of a cash payment and the reversal of certain tax-related accruals that had a combined positive impact of about $5 million. Our net loss was $7.6 million, down slightly from $8 million a year ago, and our net loss per share was $0.23. This is based on 33.3 million weighted average shares outstanding, basic and diluted. In Q1, cash provided by operations was $0.8 million. If you add that to -- add that $1.6 million of common shares purchased under our employee stock purchase plan, or ESPP, the cash generated would be over $2.3 million. This helped us to increase our cash balance to approximately $84 million. Now to discuss what we expect in Q2 and for the full year fiscal '23. For Q2, we are guiding the billings of about $72 million, reflecting year-over-year billings growth of about 20%. Our Q2 guidance factors in a tough compare due to the timing of large billings delivered in Q2 of last year. For the current fiscal year, we're maintaining our billings growth outlook of about 22% year-over-year. After Q2, this guidance assumes a slightly higher billings growth rate for the remainder of the year. On expenses, we're planning for Q2 operating expenses to increase from Q1 levels. The expense increase is to support our confidence in being able to hit our growth goals. However, should we experience any slowing of our leading top line metrics, and associate that with a macro slowdown. We already have plans in place to adjust our expenses accordingly in order to maintain our cash flow positive position for the year. We successfully navigated through the last downturn and believe we are even more prepared to navigate through the next one, should it recur. We plan for full year fiscal '23 net cash provided by operations, including the impact of employee stock purchases under our ESPP to be slightly positive. Q2 cash flow from operations may be slightly negative as we have front-loaded our sales hiring in the first half of the year. Now the guidance for our GAAP metrics. For the second quarter of fiscal year '23, we expect GAAP revenue to be in the range of $76 million to $77 million, we expect non-GAAP net loss per share, basic and diluted of $0.31 to $0.35. This assumes 33.9 million weighted average shares outstanding basic and diluted. For the full year of fiscal year '23, we expect GAAP revenue to be in the range of $315 million to $319 million, representing year-over-year growth of 22% to 24%. We expect non-GAAP net loss per share, basic and diluted, of $1.26 to $1.34. This assumes 34.1 million weighted average shares outstanding, basic and diluted. In closing, we're pleased with our performance in Q1 and continue to believe we have a highly differentiated and strategic offering in the BI analytics space. and remain well positioned to execute against our market opportunity. With that, we'll open the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Sanjit Singh with Morgan Stanley.

Congrats on the really strong start to the year. I think, John, maybe to begin the question sort of around priority of the category and how Domo is sort of positioned to address that ahead of what may be a slowing spend environment? We're all sort of guessing whether that materializes or not. But in terms of what Domo provides and where does that sort of stack within IT budgets, how would you frame that? That's sort of part one of the question. And then part two, could you give us a narrative on how pricing of Domo has changed. I think the company has evolved from a per user or per seat model to more of a platform pricing approach and how that might potentially be an advantage as you try and expand your business with customers going into this year?

Sanjit, thanks for the question. So I think the first question was how do we fit into that enterprise landscape given the environment we're in now. And I think that Domo has a really quite a unique position because we are -- what we like to refer to is that last mile. I think there have been a lot of initiatives in the industry to bring data together, data lakes, data warehouses, lake houses, but the challenge remains that you've got to put the data to work. You have to put it in somebody's hands who can make a decision and run their business. And that's not just about charts and graphs. That's about what we call the data apps. It's about addressing the 70-plus percent of the people in an organization that really don't have even access to basic BI. So when it comes to an environment like this where agility is key or speed above all is key and leveraging the assets, you've got on the investments, you've got Domo just is a really solid capstone to give businesses the results that they need in short order without ripping out what they've got. So that's the -- hopefully, that addresses your first question. Let me hit the second question you asked and then if you want to dive deeper, we can. On pricing, you're correct. I mean Domo has historically been a per seat or per user license. And that's evolving to be more consumption and usage base. And we see that as a way to align our interest with our customers, right? We want to encourage adoption throughout an organization because the power of Domo is not in replacing the tools you're using to talk to data analysts, it's in augmenting your strategy to the other 70% of the people in the organization that really can use data and data apps to drive their business. And that is -- that lends itself to more of a consumption model, a usage model versus per seat. I don't want to constrain how money seats our customers have. I really want to really encourage usage.

Makes total sense. And then for Bruce, a question sort of on the guidance and more around the framing and the sort of assumptions that underpin that guidance. It was really good to hear that you sort of have a contingency plan if sort of the forward metrics to slow plan -- to toggle to sustain that cash flow position. I think that's really important to hear. In terms of the full year guidance itself, particularly with respect to the billings piece, is there -- was there any sort of change in assumptions, extra conservatism or any way you sort of fine tune the dials around coming up with the full year build guidance, given that was sort of unchanged versus the last time you guided?

Yes. It's -- well, we thought it prudent to maintain the guidance we provided before. We have a lot of optimism and our ability to harness all the power of the sales hiring that we've done on the one hand. On the other hand, we're looking at all the macro concerns as well as everybody else is. I don't say that overly weighed in on it, but it certainly was a factor. And it shed in no really way at this point because just because of how resilient, we believe our revenue stream is going in any kind of downturn with a significant amount of the business coming from renewals, another large piece coming from upselling into our current customer base with the new business have incredible momentum, selling into the non-big enterprise businesses that we think will be more resilient at the beginning of a downturn and enterprises that just turned -- seem to react much more quickly. So you put all that together, we thought it prudent just to keep guidance about where it was. It's still a good number. And we have a lot of optimism going after that number from now through the rest of the year with plenty of capacity that we built starting last year. And as John said, carrying into this year and continue just lean into our all the many growth drivers that we have.

Your next question comes from the line of Derrick Wood with Cowen.

I guess just to follow on that line of thought on the go-to-market. I forgot if it was John or Bruce, made a comment of wanting to improve the go-to-market on the enterprise side. Transactional is doing really well. But just would be curious on what levers you're looking at turning on the enterprise side, especially with Ian taking back the CRO role? And is that more of the verticalization efforts? And should we be thinking of trying to build more pipeline for larger enterprise deals in the back half of the year?

Thanks, Derek. This is John. Let me give a little my color and then Bruce can jump in. A couple of things. I mean that -- the transactional business or the corporate business is really showing strength. And that is a real foundation on top of which to try and accelerate growth even further, which is the intent behind enterprise. And that corporate business from a growth rate, from a scale, from a retention standpoint is really strong. The enterprise is an incremental growth driver that we think can be really powerful. And that's about a slightly different approach to these customers. You're typically talking about Domo fitting into a department or into a team and proving value in this land and expand strategy. And we believe that the right approach for that is through a verticalization of the sales team so that we can go into retail. We can go into high-tech and manufacturing and talk specifically about the business pains that they're facing today, and that becomes a discussion of how quickly can I implement Domo and how quickly can I get this results, and that’s where we shine. And I couldn't be more excited to have Ian in that seat. I think this is a call that was my call. And I think, Wolff and Ian both very strong sales professionals. But this is the configuration that I believe is best for doing as growth going forward. Obvious that the corporate business is looking a lot like the enterprise business. We have 90% gross retention rates greater than 90%. We have an ARR, that's looking like enterprise ARR. We're landing 50,000 to 60,000 and then upselling them, and we're actually doing it at high volumes. So I don't mind building a, nice basic growth on the corporate business, as we continue to find, the really rich veins in the enterprise, which we know, we will find because we're already there and in transformational ways that’s some of the best brands in the world. But boy, if we can just build up sustainable growth at a reasonable level just with corporate. And then when enterprise gets added in, it really brings us into the neighbourhood of growth that we all really aspire to. I think that's a fantastic model. So we'll continue to keep that in mind. And if you're worried about a downturn, let's get short cycle, short-sales cycle, highly transactional business, how many even more, I would say, I think that's like good insurance for growth even if the macro gets a little scary through the rest of the year. And if it doesn't get scary, well, good for us, too. So that's kind of how I'm thinking about it.

Sure. Yes. I mean I think we all appreciate that velocity and visibility in that business. So that's great to see. I mean, I guess coming back to the macro picture, I mean, great to see 25% growth, but this kind of beat-and-raise momentum has come in slowed a little bit and certainly understandable. But -- if you look at different segments or different geos, are there any areas that maybe seem a tad slower this year so far?

I mean, we've had -- I mean, we've had overall good contribution from all the parts of the business. And I mean, don't forget, we just came off a 30% growth Q4. So having a 25% Q1, I think, still okay. And I can say there's still a lot of upside all the growth drivers that we've outlined historically, what we can get out with sales hiring, what we get of marketing, where we can still get out of partners. We still think there's a lot of friction we can take out of the system for enterprise, generally speaking, brand awareness is still better, the organic leads we're getting higher levels and converting at a higher rate. I mean there's just a lot still going for us. So we hope the economy doesn't get in the way. And I think we're even thinking, well, even if it starts bothering other companies that I think we're still well positioned, and we're certainly positioned properly to maintain our cash flow positive position. So we like the quarter, so far so good. It's on to Q2 and for rest of the year, and we just want to keep it up.

Your next question comes from the line of Pat Walravens with JMP.

Great. And congrats on the renewals. That's nice to hear. All right. So John, in the enterprise, it seems like you probably have to -- more enterprises will standardize on something like Microsoft, right? And so you have to deal with that in a way that you probably don't have to deal with as much in commercial. And Microsoft also says they have Power BI apps. So how do you guys distinguish yourself specifically from Microsoft when you're trying to sell the enterprise?

Yes. Good question. Nice to hear from you, Pat. Yes. I think we typically -- when you're selling into enterprise, enterprises have got one of everything. They've got more vendors beating the door down for tech than they know what to do with. So the value proposition here for Domo is about addressing a clear business pain, which is why we've aligned the sales team in the enterprise to verticals because you tend to have consistent pain among retailers or manufacturers or high tech. And so we can go in and talk to these prospects about the pain that they're having, and then it becomes a discussion of how quickly can you turn around something that addresses that pain. And when we get into a bake-off like that against Power BI we do very well. So it's the -- how quickly can you close the last mile and start to drive the business results. And it's -- we fare really well in those competitive situations.

All right. Great. And then, Bruce, one for you. So you've got $84 million in cash. And if I'm reading the balance sheet, right, $105 million in debt. And I know you touched on some of this here, but just sort of what are the key points that you'd want to make to investors about the balance sheet?

I'm sorry, about the balance sheet? Well, we have debt. It's not due for a couple more years till 2025. We have -- who wants to give us more cash, we don't want it because we don't want the interest burn. We had plenty of cash to operate from. I mean, we aren't using it really to fund the operations and we don't have really any other identified need for it. So I would say we're in great shape on the balance sheet. And we had to improve the balance sheet, we certainly could. We don't think we need to. So we think well-resourced with even more capacity if we ever needed, and we just don't want to draw on it. So that's our view of the balance sheet.

All right. Great. And then last one. So Bruce, did you take your bonus in stock?

I did. And I still own it. I don't -- I guess I helped out that way, too.