Domo, Inc. (NASDAQ:DOMO) Q4 2023 Earnings Call Transcript

Domo, Inc. (NASDAQ:DOMO) Q4 2023 Earnings Call Transcript March 6, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the Domo Q4 Fiscal Year 2023 Earnings Conference Call. Please be advised that this call is being recorded. And now at this time, I’d like to turn the call over to Mr. Peter Lowry, Vice President of Investor Relations. Please go ahead, Mr. Lowry.

Peter Lowry: Good afternoon, and welcome. On the call today, we have John Mellor, Josh James, our Founder and CEO; and Julie Kehoe, Chief Communications Officer; and David Jolley, our Chief Financial Officer. Julie will lead off with our safe harbor statement and then onto the call. Julie?

Julie Kehoe : 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 securities 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 macroeconomic and other conditions 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?

John Mellor: Thanks, Julie, and thanks to everyone for joining us on today’s call. Before we delve into our 2023 or ship succession notes. As you saw today, I have decided to step down as CEO and Josh James has been reappointed CEO. Let me say at the outset, with an honor and privilege it has been to be part of the Domo team for almost 4 years to lead as CEO over the last year. I’m so proud of what a highly engaged, talented team we have here, which operates with incredible commitment and integrity. When I became CEO, my focus was to drive ongoing innovation for customers and further drive a disciplined go-to-market strategy. One year later, we have optimized our business to tighter internal alignment and advanced our strategy for growth, all while striving to build and promote a culture of inclusivity at the highest level.

Most importantly, our team has demonstrated an unwavering commitment to our customers. One of the many reasons that I am confident Domo will continue to be a key player and market disruptor for years to come. After being a steward of the company for the last year and help me put the company in a better place, I feel like it’s a good time for Josh to run this. And I’m excited he’s happy to come back. As Domo’s founder, Josh spent more than 11 years building this company. He is passionate about Domo’s business, mission and customers. And given that he has served in this role for so many years, I know he will hit the ground running. Also joining Josh on today’s call is Delmas newly appointed CFO, and David Jolley, who succeeds Bruce Felt. Bruce and I look forward to following the company’s continued success on our Josh and David’s leadership.

I will now turn things over to Josh to discuss Domo’s fourth quarter and fiscal year 2023. Josh?

Josh James : Thank you, John. This is an exciting time at Domo, and I sincerely appreciate all your contributions over the last year. I love Domo. I know this business, and I’m excited to hit the ground running. I look forward to more in-depth conversations with all of you in the coming days and weeks. Before I begin, and as I’m sitting here reflecting on the quarter, I’m looking forward to getting Domo back to being a high-growth company. and I’m very pleased with the internal alignment that has been created as well as our sales capacity outlook in support of those goals. I’m also very much looking forward to locking arms with sales and getting on the road to meet face-to-face with customers to attract and grow new business.

As you have read today, we have a few other updates to the management team. I’d like to welcome David Jolley to the company as CFO and also thank Bruce Belt for his many contributions over the years. David Jolley is a highly accomplished financial executive with more than 30 years of experience working with and advising innovative market-leading companies. For many years, David was the office Managing Partner of Ernst & Young Salt Lake City office. During which time he was involved with many significant IPOs. He then went on to have several national leadership roles at EY, most recently serving as the Americas growth markets leader, where he worked with go-to-market teams in North Central in South America to engage with high-growth companies and world-class entrepreneurs.

In addition, Jeff Skousen has been named our Chief Revenue Officer, succeeding Ian Tickle. As before, it’s important to me to have the CRO role here in the States. We are thankful for the many contributions Ian brought to the company, including his operational rigor and the mentorship he provided to many sales leaders. That said, Jeff is more than ready to assume this position and has been one of the most consistent leaders at delivering targets and has delivered well over half the company’s ARR. He’s energetic, well liked and a fighter who does what it takes to this number. We’ve also added 2 new Board members. I’d like to welcome both Dan Strong and Rene Soto, who complement the strength of our leadership team. Dan brings more than 30 years of CFO experience for both public and private companies and Renee as Co-Founder of Reevemark, adds close to 20 years of strategic communications advising CEOs, founders and Boards.

These changes and the excellent team that’s already here from our other sales leaders to Wendy Stanley, our fabulous CMO, to our incredible HR leaders and all the other teams, coupled with the very recent promotions of Darren Thane to lead all of tech and product and if Marc Maun, to all our — to leading all of our client services. It puts us in a fantastic leadership position for our go-forward plans. Before David goes into more detail on the quarter, I’ll touch on a few topics, including a review of the quarter, regarding the macro, an update on our sales force and why we think we are positioned entering fiscal year ’24 despite a challenging macro environment, and then lastly, our market opportunity and why we feel we continue to be well positioned to execute on a larger opportunity.

Okay. So let me touch briefly on the quarter. In Q4, our total revenue growth was 14%. Our subscription revenue growth was 18% and billings declined 3%. It’s no secret that the macro has added complexity to the software sales process for tech companies in general, elongating deal cycles, increasing deal scrutiny and responding to end customer challenges. Like others, we saw that as well in Q4. In a moment, Dave will talk more about the dynamics behind these numbers and our response. In Q4, despite the challenging macro environment, Domo continue to concentrate on areas where there was the greatest control, which includes costs. As a result, I’m happy to report that Domo’s operating margin continued to expand. In Q4, Demo posted a sequential increase of 280 basis points, reaching an operating margin of 3.5%.

I believe a continued focus on controlling costs near term will strengthen our position as we move through fiscal year ’24, and we’ll be better positioned longer term for accelerating our growth as conditions improve. So now let me talk about why as we enter fiscal year ’24, we feel well positioned. To begin, Domo remains a great, highly differentiated business with 80-plus percent gross margins. There have been no material changes to the competitive environment for the business, and we remain bullish on Domo’s long-term prospects. Overall, the size and the quality of the pipeline is healthy. We believe that responsibly managing our growth will continue to lead to expanding margins and higher profitability longer term. Next, I want to focus on our market opportunity and why Domo remains well positioned.

As companies have become more conservative with spending, they must do more with what they have. And in many cases, they must do more with less. Our sales teams are hearing this from many customers and prospects. As we move into our fiscal year 2024 and beyond, I believe businesses will want to continue to prove rapid ROI as they make decisions, and this is where digital transformation comes in. The industry has been talking about digital transformation for more than 20 years. I’ve seen this firsthand. However, digital transformation won’t fulfill its promise until people are using data in ways that they don’t even have to think of as BI. Since Tom as founding more than 10 years ago, our vision has been to put data to work for people across entire organizations to transform the way businesses are managed.

In the early days, that looked like BI, analytics and dashboards. But traditional BI is not going to solve the adoption challenge that exists inside organizations. If we have to teach store managers or truck drivers, how to be data analysts, well, then we have failed. The future is to deliver new data experiences that work the way people do. You’ll hear many examples of this at Domopalooza, our annual customer event happening on March 29. From companies like Ford, ClearChoice Energy, Grunenthal, Regional One Health, Sephora and United Health Group. These will be human first experiences that deliver personalized insights and put those insights in the context of the job that person is doing, then connect those insights to other internal systems, so it’s not just passive consumption of data.

It’s action that leverages their time more efficiently and effectively so they can multiply their impact faster. It’s like the story of a scrap manager at an aluminum products company, who is saving his time, his company tens of millions of dollars a year by using Domo to shave 10 minutes of the time it takes each truck to move through the production process, or it’s the restaurant store manager who is using Domo to deliver better and more profitable customer experiences and operations people using Domo to improve employee satisfaction by significantly reducing the time it takes to get tips from thousands of daily transactions, deposited into the bank accounts of more than 4,000 individual employees. Beyond the value that customers are getting today, leading IT analyst firms are finally touting the value of fully integrated stacks like Domo because they eliminate the armies of people needed to implement and manage all the underlying technologies required to get well governing data from the source into the hands of people everywhere.

It’s more efficient to work with a stack that is fully integrated like Domo. But what I really think points to the future is when industry analyst firms talk to the rise of the composable enterprise, where modern systems are quickly configured to support a more agile data experience down to the team and individual level. At the same time, companies have millions of processes that are not modernized yet. Meaning, they are slow and inefficient, and they are costing organizations money. As an example, our team had a recent conversation with a very large enterprise that’s still using LOTUS notes. Today, the solution that we set out to create more than 10 years ago is becoming a primary ingredient in business performance, which means there is opportunity everywhere for what we do.

The barriers to digital transformation and growth are less about technology and more about a human’s ability to use that technology in the context of their job. It’s about being able to run your business from your phone. This is where Domo shines. We believe the steps we are making now across the business will make us ready to accelerate more quickly, especially when the external environment picks up. As I mentioned, later this month, we will be hosting our Annual Customer Conference, Domopalooza, and you are welcome to attend. And we, of course, invite you to our Analyst Day, which we are planning for April. Before I hand this over to David, I want to thank the entire Domo team from executive leadership to each demo sapient for their ongoing commitment to delivering outstanding care and value to every 1 of our customers around the globe and, of course, to our own business.

I’m excited to get us back to being a high-growth company and for the year ahead. Over to you, David.

David Jolley: Thanks, Josh. It’s great to be here as a part of the Duo team, and I’m excited to support you in this next chapter of Domo’s growth. I’m also really looking forward to meeting many of you over the next few weeks and months. In Q4, we posted 18% subscription revenue growth and 14% total revenue growth. The results in this quarter were driven primarily by the sales to our corporate customers, which experienced 19% revenue growth. Revenue growth from our enterprise customers experienced 9% growth. We delivered Q4 billings of $104.5 million, a year-over-year decrease of 3%. This decrease was driven by a tough compare on the one hand, but also by a challenging macro environment that affected our new business growth in our renewal rates.

Several other key metrics were above our billings growth. current RPO of $243.8 million grew 10% year-over-year, and our total RPO grew 12% to $378.2 million. Our ARR grew at a higher rate than our total RPO growth an area where we saw success was multiyear contracts. On a dollar-weighted measure, we now have 65% of our customers under multiyear contracts at the end of Q4, up from 62% a year ago. on gross retention, we faced some of our larger customers reducing their footprint in response to their business challenges causing dollar gross retention to be less than 90%, bringing our full year gross retention to 89%, down from 90% a year ago. The net retention rate dropped, but we still remained above 100%. Q4 total revenue was $79.6 million, a year-over-year increase of 14%.

Subscription revenue represented 88% of total revenue and grew 18% year-over-year, down from 22% growth in Q3. International revenue in the quarter represented 21% of total revenue, down from 22% in Q3. Our subscription gross margin was 85.7%, up 2.9 percentage points from Q4 of last year and up 1.1 percentage points from Q3. We’re pleased with the results as it reflects success in continued proactive management and optimization of our third-party hosting services. In Q4, our operating cost decreased compared to Q3, mostly due to lower personnel expenses in Q4. Our non-GAAP operating margin was up 18.4 percentage points from a year ago, and up 2.8 percentage points sequentially. Our net loss was $0.8 million, down from $13.6 million a year ago, and our net loss per share was $0.02.

This is based on 34.7 million weighted average shares outstanding, basic and diluted. In Q4, cash used in operations was $2.8 million, in part from lower cash collections as customers stretch payments which we attribute to the macro. Our cash balance declined $4.6 million from last quarter to $66.5 million. We expect Q1 cash flow from operations to be positive and our cash balances to increase from Q4. We expect full year fiscal 2024 cash from operations to be positive as well. We believe we’ve got adequate cash in order to continue to pursue our business objectives. Our fiscal year 2024 planning and guidance incorporates what we are seeing in the macro, including elongated sales cycles and more challenging renewal discussions. That said, we entered Q1 with more pipeline than we had a year ago.

For Q1, we are guiding to billings of about $69 million, which is down 5% year-over-year. For full year billings, we are providing a range of approximately $335 million to $353 million, representing a range of 4% to 9% growth. And I know, Josh, these are not the growth numbers we’re playing for, but we feel comfortable with this range. We do see a path to higher growth rates, potentially into double-digit growth. And we look forward to updating you on our growth plans as the year progresses. Looking ahead to the second half of the year, we believe we’re in a good position to accelerate our billings over the first half outlook. Now to guidance for our GAAP metrics. For the first quarter of fiscal ’24, we expect GAAP revenue to be in the range of $78.5 million to $79.5 million.

We expect non-GAAP net loss per share, basic and diluted of $0.15 to $0.19. This assumes 35.3 million weighted average shares outstanding, basic and diluted. For the full year of fiscal ’24, we expect GAAP revenue to be in the range of $323 million to $330 million, representing year-over-year growth of 5% to 7%. We expect non-GAAP net loss per share, basic and diluted of $0.27 to $0.39. This assumes 36.2 million weighted average shares outstanding basic and diluted. Our EPS guidance assumes we’ll have a negative operating margin in Q1, but a slightly positive operating margin for the full year. In closing, while we’re in somewhat of a challenging macroeconomic environment, we believe we’re entering fiscal year ’24 with a better aligned and positioned sales force, and I’m really looking forward to working with Josh to help drive our long-term growth.

With that, we’ll open the call for questions. Operator?

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Q&A Session

Operator: And we’ll take our first question this afternoon from Derrick Wood of Cowen.

Derrick Wood: Josh. Welcome back. Nice to be reconnected and John, good luck and your next chapter. Josh, could you just walk us through what your top initiatives may be to drive growth acceleration? And I think there’s particular interest on the enterprise side of things since that part of the business has faced more adversity over the last year. So as you’re getting back into the field and you look across investments from corporate to enterprise, what are some of the top initiatives you’d like to push forward?

JoshJames : Yes. Thanks, Derrick. Great to reconnect as well. Yes, I’d say a couple of things. Number one, I think it’s just going to be a real focus on growth. That’s what I like. That’s what I do. I think that’s what — I know John said he was excited getting me back for and the management team in sales, especially just going to go out and talk to a bunch of customers and close some deals. So I think it’s a lot of blocking and tackling and then there’s the macro headwinds. But if you look at a couple of the metrics inside the quarter and inside the year, there’s a few things that actually point to enterprise being a real strength. I think we’ve seen our customers in terms of the ones that are on multiyear contracts that actually increased this year in a meaningful amount.

So that shows real strength of relationship with your customers. And another thing that — another metric that really stood out to me is I’ve been just really pouring through the numbers over the last couple of days is we had almost a 30% increase in the number of companies that have over — an ARR over $500,000 last year. And we also had almost a 30% increase in the number of companies that are paying us over $1 million a year in ARR. So despite some of the macro may relationships with us, continue to increase their business with us. And I think that points to real opportunities as some of the macro headwinds start to dissipate, hopefully, here in the short term versus the long term, but we’ll have to see how that plays out. But we feel really well positioned.

Derrick Wood: Yes. Okay. And great to hear some of those stats. I guess, just on the other side, you mentioned kind of being bullish based on your sales capacity and your pipeline outlook. Just wondering if you could touch on those, especially on the sales side. I think there was some elevated churn midyear that subsided in Q3. How did that track in Q4? And I don’t know if you can give us a sense for kind of what the level of growth and productive sales capacity is as you enter the new year and what you’re thinking about in terms of hiring?

JoshJames : Yes. Last year, it was a variety of reasons why we ended up churning quite a few salespeople, and that just hit us quite hard in the capacity front. And you wake up and you’re looking at the quarter and as I was talking to John and Bruce, you wake up and look at the quarter and there’s just not the capacity there. So even if your sales teams all performing the way you’d expect and there just weren’t enough numbers because of that retention issue that we had last year. And that retention issue seems to already be getting fixed. If you look at just what’s happened in the first 5 or 6 weeks of the new year. We’re definitely in a better position relative to where we were last year and how we were trending. I think with some more of the alignment, I think maybe we were a little overindexed on enterprise last year.