Q1 2023 Domo Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to demos first quarter fiscal year 2023 earnings call.
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After the Speakers' remarks, there will be a question and answer session.
Would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad if.
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Yes.
Peter Lowry Vice President of Investor Relations you May begin your conference.
Good afternoon and welcome on.
On the call today, we have John Miller, our CEO , Bruce felt our CFO and Julie Kehoe, Our Chief Communications Officer Julie.
Julie will lead off with the Safe Harbor statement, and then onto the call Julie.
Our 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.
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 filed 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 and.
In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of timeless 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% in 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 <unk>.
Continued execution and 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.
Also update you on the operational priorities, 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 demo 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 combined 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 expose externally to customers and partners.
Simply put data out and solve the last mile of putting data to work driving action and breaking free from the small percentage of adoption of traditional B I.
A good example of the strategic value of data apps is O'reilly auto parts.
<unk> aftermarket automotive parts retailer, who we heard from at our recent user conference Domo Palooza.
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 offline 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 drive business outcomes.
Turning to the current environment and what we're 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're not sure how the economy will play out over the near term, but longer term. Our view is that the modernization of businesses 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 to 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're 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. App 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 and go to market with the objective of increasing the enterprise business to be a more predictable driver of ACB 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 B I model, because they combined 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 expose externally to customers and partners.
This directly supports the over 70% of people and organizations, who are not served by traditional bi and analytics.
Traditional b I 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 helped solve the last mile problem of getting actionable data into the hands of every person across the organization.
Because data apps are built on the domo platform.
To 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.
Okay.
O'reilly, who we highlighted earlier significantly expanded their agreement with domo to meet the growing demand for data through a five year companywide 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 markets.
<unk> 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 a 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 securely 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 resource.
Yes.
Before I hand, this over to Bruce I have a few more highlights I want to touch on.
First I am pleased to announce that Ian Tickell has been appointed president of global revenue in field operations.
And succeeds Wolf Mossberg, 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 has done.
Second domo.
<unk> continued to receive industry awards with Dresner Advisory services, recognizing domo as the number one vendor in self service be eye for the fifth consecutive year.
We believe rapidly solving the last mile of engagement with timely actionable data is where the market is heading and this is where domo has significant strengths 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 Shadow List Award for our focus and progress towards building a more inclusive workplace.
And we continue to honor our commitments towards a diverse equitable and inclusive culture.
In Q1, 36% of all new hires for open positions we're diverse candidates.
In closing I remain incredibly proud of our entire team for their focus on delivering value to our customers every day from.
From the innovation produced by our product team to the passion of our customer success teams are energy has 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 drivers 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 protection 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're 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 a R R 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 a record gross retention rate.
Net retention on a contracted air our basis was close to 110%.
It was up slightly from last quarter.
Our current RP O of $225 million grew 24% year over year, while our total RPM 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.
Year over year increase of 24% subscription.
<unk> 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 'twenty, three 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 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 23 cents.
This is based on 33.3 million weighted average shares outstanding basic and diluted.
In Q1 cash provided by operations was $8 million.
If you add that to add that 1.6 million of common shares purchased.
Under our employee stock purchase plan.
Or E S. P P J.
The cash generated would be over $2 3 million.
This helped us to increase our cash balance slightly from last quarter to approximately $84 million.
Now to discuss what we expect in Q2 and for the full year fiscal 'twenty three.
For Q2, we're guiding the billings of about <unk>.
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 than billings growth rate for the remainder of the year.
Unexpected 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.
An 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.
And believe we are even more prepared to navigate through the next one should it recur.
We plan for full year fiscal 'twenty, three net cash provided by operations, including the impact of employee stock purchases under our E. S. P P 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.
For the second quarter of fiscal year 'twenty, three 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 <unk> 31 cents to 35.
This assumes 33.9 million weighted average shares outstanding basic and diluted.
For the full year of fiscal year 'twenty, three 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 30 for.
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 b, I and analytics space and remain well positioned to execute against our market opportunity.
With that we'll open the call for questions operator.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Sanjay <unk> with Morgan Stanley . Your line is open.
Well, thank you for taking the questions and congrats on a really strong start to the year.
I think John maybe just to begin the question is sort of around priority of the category and how domo is sort of positioned to address that ahead of what maybe a slowing spend environment. We're all sort of guessing whether that materializes or not but in terms of what domo provides or where does that sort of stack within.
M I T budgets, how would you frame that that's sort of part one of the questions and then part two could you give us the narrative on how pricing of Domo has changed.
Since the company's evolved from the per user or per seat model to more of a platform pricing approach and how that might potentially be an advantage.
You try and expand your business with customers going into this year.
Sure Sanjay Thanks for the question.
So.
The first question was how do we fit into that enterprise landscape given the given the environment. We're in we're in now and I think that Domo has a really quite a unique position because.
We are we like to refer to as that last mile.
There've 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 there and run their business and that's not just about charts and graphs thats about what we call the data it's about addressing this.
70, plus percent of the people of an organization.
Really don't have even access to basic b I. So when it comes to an environment like this where agility is key.
Key where speed above all is key and leveraging the assets you've gone and the investments you've got download just is a really solid cap stuff to give businesses. The results that they need and in short order without ripping out what they've got.
So that's the.
So hopefully that addresses your first question, let me hit the second question you asked and then net.
If you wanted to add people we can.
On pricing Youre, correct, I mean del Mar Heights.
Historically been a per seat or per user license or not.
That's evolving to be more consumption and usage based 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 Delano is not.
In replacing the tools, you're using to talk to data analysts. It's in augmenting your strategy to talk to.
The other 70% of the people in the organization that.
That really can use data and data adds to drive their business and that is that lends itself to more of a consumption model usage model versus per seat I don't want to constrain how many seats are customers, who want to really encourage usage.
It makes total sense and then for Bruce a question sort of on the guidance and more around the framing any sort of assumptions.
That underpins that guidance. It was really good to hear that you sort of have a contingency plan if sort of the.
Forward metrics.
You have a plan to toggle to to sustain that cash flow positioning it'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 assumption.
Extra conservatism or any way you sort of.
You know fine tune the dials around coming up with the full year billings guidance, given that was sort of unchanged versus the last time got it.
Okay.
Yeah.
Well, we thought it prudent to maintain the guidance we provided.
Before.
We have a lot of optimism and our ability to harness the power of the sales hiring that we've done.
On the one hand on the other hand.
You know, 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 Im showing no really way at this point, because just because of how resilient we believe.
Our revenue stream is going at any kind of downturn with a significant amount of the business coming from me from renewals another large piece.
Going from up selling into our current customer base with the new business, having incredible momentum selling it.
Non big enterprise businesses that we think.
Well.
The more resilient at the beginning of the downturn.
And enterprises that just turn that seem too.
It's much more quickly.
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.
Continuing to lean.
Our lean into R. R.
All of the many growth drivers that we have.
It makes total sense. Thanks, everybody really appreciate your thoughts.
And Youre welcome. Thank you.
Your next question comes from the line of Derrick Wood with Cowen Your line is open.
Okay.
Hey, guys I guess just to follow on that line of thought on the on the go to market.
I forget if it was John or Bruce.
Made a comment or a wanted to improve the go to market and the enterprise side transactional is doing really well.
But just would be curious on what levers you're looking at.
Turning on the on the enterprise side, especially with <unk> taken back the CRO role.
And is that more of the vertical <unk> efforts in.
Should we be thinking of.
Trying to build a more pipeline for larger enterprise deals in the back half of the year.
Yes. Thanks, Jack 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.
That is the <unk>.
It is a real foundation off of which to try and accelerate growth. Even further which is the intent behind enterprise, Matt 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 it.
A slightly different approach to these customers you're typically talking about demo fitting into a department or into 18, and proving value and this land and expand strategy and we believe that.
The right approach for that is through a vertical organization as 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 are facing today and that becomes a discussion.
How quickly can I implement.
And how quickly can I get these these results and that's where we that's where we shine.
I couldnt be more excited to have Ian in that seat.
I think this is a this is a call that was my call and I think.
Wilson and are both very strong sales professionals now that this is the configuration that I believe is best for demos growth going forward.
I'll just add.
The corporate business is looking a lot like the enterprise business.
We have 90%.
Grocery Catherine rates greater than 90%.
We have an IRR, that's looking like enterprise and our.
We're landing 50 to 60000 and up selling them.
Actually doing it at high volumes.
No.
I don't I don't mind building, a nice base of growth on the corporate business as we continue to find the really rich veins and.
In the enterprise, which we know we will fine because we're already there.
And some and transformation away some of the best brands in the World.
But boy if we can.
Just buildup sustainable.
Growth at a reasonable level just with corporate.
And then when enterprise gets added and it really brings us into the neighborhood of growth that we all really aspired to.
I think that's a fantastic model. So we'll continue to keep that in mind and you know if youre worried about a downturn.
Let's get short cycle short sales cycle highly transactional business. How long. These are more I would say I think that's a good good insurance for growth, even if the macro gets a little scary.
The rest of the year and if it doesn't get scary good.
Good for us too so that's kind of how I'm thinking about it.
Sure Yeah, I mean, I think we all appreciate that velocity and visibility of that business. So that's great to see.
I guess coming back to the macro picture.
Great to see 25% growth, but.
Is this kind of beaten raised momentum has come.
<unk> slowed a little bit then 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.
You know from all the parts of the business.
And don't forget we just came off a 30% growth Q4.
So.
Having a 25% in Q1 I think is still okay.
And I can say.
There's still.
A lot of upside to all the growth drivers that we've outlined historically.
What we can get out of the sales hiring.
Marketing.
While we can still get out of partners. We still think there's a lot of friction that 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, theres, just a lot still going for us.
We hope the economy doesn't get in the way and I think we're it's even thinking well even after that.
<unk> father in other companies I think we're still well positioned and we're certainly positioned properly to maintain our cash flow positive position.
So I don't know.
We liked the quarter so far so good.
Now onto Q2.
The year and we just wanted to keep it up.
Yes, that's all very good to hear great. Thanks, guys.
Thanks.
Your next question comes from the line of Paul Raymond with JMP. Your line is open.
Oh, great. Thank you and congrats on the renewals that's nice to hear.
Alright, so John in the enterprise.
It seems like you probably have to you know 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 B I apps. So how do you guys distinguished yourself specifically.
Specifically from Microsoft when you're trying to sell the enterprise.
Yes. Good question nice, it's nice to hear from you.
I think we typically when you are selling into enterprise enterprises has got one of everything.
They've got more and more vendors, beating their door down four for tax and they know what to do with so the value proposition here for demo is about addressing a clear business pain, which is why we've aligned the sales team in the enterprise to two verticals.
As you tend to have consistent pain, among retailers or manufacturers or high tech.
And so we can 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 B I, we do very well so it's HD.
How quickly can you close the last mile and start to drive the business results in it.
We felt really well on those.
The situations.
Alright, great and then.
Bruce one for you.
No.
You've got $84 million of cash and if I'm reading the balance sheet right at $105 million in debt.
And I know you touched on some of the turmoil, but just sort of what are the key points that you'd want to make to investors about.
Balance sheet.
Yes.
I am sorry about the balance sheet.
Well.
We have we have that is not built for a couple more years. So our 2025.
We have together who wants to give us more cash we don't want it because we don't want the interest burden.
We have plenty of cash to operating problem.
Using it really to fund the operations and we don't have really any other identified.
Need for it.
So I would say we are in.
Great shape on the balance sheet.
And we had to improve the balance sheet, we certainly could we don't see we don't think we need to.
So we think.
Well resource.
But even more capacity.
Ever need it and we just talk about the draw on it.
So that's our view of the balance sheet.
Alright, Great and then last one so Bruce did you take your bonus and stock.
Hi, good.
And Oh I'm sorry.
I guess I helped out that way too.
Alright, Thanks, a lot.
Thanks Pat.
Yeah.
There are no further questions at this time. This does conclude today's conference call. Thank you for joining you may now disconnect.
Please wait the conference will begin shortly.
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