Earnings Call Transcript - DOMO Q2 2026

Operator, Operator

Greetings, and welcome to the Domo Second Quarter Fiscal Year 2026 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Peter Lowry, Vice President and Investor Relations. Please go ahead.

Peter Caldwell Lowry, Vice President and Investor Relations

Good afternoon. On the call today, we're joined by Josh James, our Founder and CEO; and Tod Crane, our Chief Financial Officer. I'll start out with our safe harbor statement and then on to the call. Our press release was issued after the market close and is available on the Investor Relations section of our website. Please note, this call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties, and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business. For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K, and quarterly report on Form 10-Q, all available on the SEC website. These documents list important risk factors that could cause our actual results to differ materially from our forward-looking statements. We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results on a non-GAAP basis. These measures should be viewed as complements to, not substitutes for, our GAAP results. Please see the reconciliation of our non-GAAP results to their most directly comparable GAAP measure on our Investor Relations website at domoinvestors.com. With that, I'll turn it over to Josh. Josh?

Joshua G. James, CEO

Thank you, Pete. Hello, everyone, and thanks for joining us on the call today. I'm excited about our achievements this quarter. In Q2, we exceeded our guidance on billings and revenue and delivered our first positive non-GAAP EPS, all while generating positive free cash flow. I was particularly pleased to note that the net revenue retention for customers who first purchased Domo on a consumption contract was 108%, indicating strong potential for our consumption model. These results showcase our transformation and momentum. Over the past few years, our goal has been clear: to drive sustainable, profitable growth. We've revamped our strategy, focusing on our ecosystem, implementing a partner-centric go-to-market approach, and transitioning decisively to a consumption-based model. Let me highlight some of our advancements. Two years ago, we had no cloud data warehouse partners; today, we have five of the largest CDWs. Our consumption customers, which were previously a small fraction of our annual recurring revenue, now account for over 75%. This significant transformation in just 2 years is impressive. Sales productivity and new annual contract value are now performing exceptionally well. The new business engine is in full gear. Our turnaround can be observed in various areas over the last year. New annual contract value growth has accelerated each quarter. After a decline in Q3 of fiscal year '25, we are now on track for growth approaching 20%, the highest in 3.5 years. Our sales force productivity has improved significantly, from 19% growth in Q3 FY '25 to an astounding 67% in Q2 FY '26. Subscription revenue growth has also sped up, moving from 3% in Q3 FY '25 to 19% in Q2 FY '26. I'm very enthusiastic that with the same starting pipeline from the beginning of Q1, we closed nearly 50% more new annual contract value in Q2. Picture our business as a store: foot traffic remained the same, yet almost 50% more customers checked out. This improvement in conversion rates can be visualized as adding lanes to our highway for more new business flow. Additionally, our focus on strengthening partnerships means we have new access routes to direct that traffic onto our newly expanded highway. The most exciting part is that the impact is just starting, and we expect it to increase from here. If the best is yet to come in partner-sourced new annual contract value, what is driving our growth? First, there's a surge in demand for advanced AI solutions. Businesses desire more than simple dashboards; they want modern end-to-end platforms that harness the power of large language models and AI. Delivering real business value requires more than just a user interface; it necessitates seamless data access, robust extraction, transformation, and loading, a semantic layer, workflow automation, security and governance, and flexible delivery options. With Domo and our CDW partners, we provide precisely that. The concept of business intelligence being merely about dashboards is outdated, but the market for infrastructure and services to leverage AI remains robust, and we are experiencing positive benefits from this trend along with our CDW partners. We've stated that we were built for this moment because, unlike our traditional dashboard competitors, we created a comprehensive, integrated modern AI and analytics stack from the start. Our platform is crafted for the future of business intelligence. We've also simplified our go-to-market and R&D strategy, minimizing distractions by focusing on key priorities, particularly AI solutions and ecosystem partnerships. We're engaging with customers in a more strategic, consultative manner, resulting in longer-term contracts and boosting our revenue growth. Early positive trends from consumption are evident as we have built-in escalators in many of our multi-year consumption contracts, and we're beginning to see the benefits of those increases. The trends from consumption renewals are promising, with both gross and net retention well above our seat-based cohort. As a higher proportion of our renewals come from consumption, we anticipate further uplift. Our partner-centric approach has opened many more dialogue opportunities and undoubtedly aided us in the market. I want to share a specific example of how our partnerships are yielding exceptional outcomes. One of our larger customers was due for renewal, and we anticipated a tough conversation since they were scrutinizing all technology expenses. We learned they were also a customer of one of our CDW partners, so we initiated joint planning sessions to creatively address their needs. Together, we developed a solution that benefited both sides, transitioning the customer from a traditional licensing model to consumption, which unlocked the chance for an upsell and a three-year contract. They could leverage their existing spending commitment with our CDW partner by purchasing our product through their marketplace, allowing them to increase their platform usage without needing additional budget approvals. None of this would have been feasible without our CDW partnership, our platform's availability on their marketplace, and the flexibility built into our consumption model. Following this success, we're now actively co-selling into other departments within their organization, utilizing streamlined procurement processes and strong endorsements from our CDW partner with the IT department. This is a prime illustration of how our ecosystem strategy is benefiting us beyond just partner-sourced new business. Lastly, our improved results stem from a dedicated and motivated team. Everyone has put in tremendous effort over the past few years to bring us to this point, and our future success with the ecosystem and AI is not something anyone takes for granted. As we dig into Q2 details, international momentum was particularly robust. In Japan, we achieved record-breaking numbers, with new annual contract value nearly doubling year over year. Total contract value reached all-time highs, and renewals in this quarter had net revenue retention close to 130%. Japan is a top priority for me, and I intend to invest more time there in the coming year. We enhanced our ecosystem through deeper integrations with Snowflake and three other CDW partners: Databricks, Oracle, and Google. Recently, we shared information about our upgraded integrations with Snowflake and BigQuery. Our presence at major industry events, such as the Snowflake and Databricks conferences, was electric, as customers eagerly engaged in discussions about transformative AI use cases with our joint solutions. We garnered thousands of leads and have since had numerous meetings with sales teams across the CDWs, leading us to identify several joint selling opportunities that wouldn't have been achievable independently, including a few Palantir takeouts. Building on this momentum, we announced expanded collaboration with Snowflake for a fully managed AI-powered analytics solution in their marketplace, with similar partnerships underway with other CDW partners. Here are some highlights from a few of our Q2 customer successes. Firstly, a home improvement company referred by a CDW partner opted for Domo in a three-year deal to replace Power BI and consolidate their technology stack with our joint offering. The customer values our consumption-based pricing, which eliminates user limits and allows broad access for their sales and customer service teams. They're looking forward to expanding the use of our platform's workflows and AI capabilities for enhanced reporting and operational insights. Next, we secured a significant upsell with a rapidly growing technology customer as they expanded their Domo usage to minimize IT staff and prevent disruption during a crucial data warehouse migration. Our cloud-agnostic approach, CDW integrations, and platform features such as self-service, Workflows, and Domo Everywhere were pivotal in this win. Partner collaboration with their IT team facilitated a seamless transition to our consumption model with increased capacity, again, secured through the CDW marketplace. We also landed a major new client—a global retail company—after an eight-month evaluation of various solutions, including Looker, Power BI, Tableau, and custom-built options. They ultimately chose Domo for its user-friendliness, data aggregation capabilities, and AI-driven insights, with our proof-of-concept delivering results in days compared to months for the other contenders. The consumption model was also critical, providing access to key features necessary for their needs. Finally, a private equity firm adopted our consumption model through a multi-seven-figure deal to unlock more value, features, and cost savings as they scale Domo across their portfolio companies. They are focusing on AI agents, Workflows, and Sandbox, planning to create multiple AI use cases for broader adoption. Their commitment to a five-year consumption contract resulted in a 3.5x increase in annual contract value over that period and expanded Domo’s utilization from three companies to their entire portfolio. Each of these examples underscores the clear demand for AI-driven business value, the accelerating impact of our partner ecosystem, the advantages of our consumption model, and a shift towards long-term strategic relationships with Domo. With this strong momentum, Domo received top recognition across several esteemed industry reports and awards in Q2. We were named a leader in the Nucleus Research BI and Analytics Technology Value Matrix for 2025. Domo also received accolades as a leader in Dresner Advisory Services' 2025 Wisdom of Crowds BI Market Study, earning our ninth consecutive perfect recommendation score. Our ongoing commitment to attracting and promoting talented individuals was highlighted by being named to the Women Tech Council Shatter List for the eighth year in a row and being included in the 2025 ParityLIST, recognizing the best companies for equal advancement opportunity. Looking ahead, our strategy is straightforward: continue innovating with AI, strengthen partner relationships, encourage consumption, and construct new pathways to help more customers thrive with Domo. I'm immensely proud of the progress we’ve made over the past few years. I see clear indications that we're not just overcoming challenges; we're accelerating and are well-positioned to grow profitably in the coming quarters and years. And with that, I’ll hand it over to our Chief Financial Officer, Tod, with one D. Crane.

Tod Crane, CFO

Thanks, Josh. We exceeded our Q2 guidance for billings, revenue, and non-GAAP EPS and were adjusted free cash flow positive. Total revenue was $79.7 million and billings were $70.3 million. I'm very pleased with the underlying performance of the business in Q2. Our highly productive sales force drove our strongest new ACV growth in several years, and productivity is now near record highs and at a level that supports sustainable, efficient growth. As CFO, my focus has been on disciplined financial execution in tandem with our return to sustainable growth. We've aligned investments with our strategic priorities, deepening our commitment to AI innovation, partner enablement, and the consumption model while maintaining rigorous cost management to improve profitability. This balance has been critical to achieving our first positive non-GAAP EPS and maintaining a positive free cash flow, milestones that demonstrate the strength and momentum of our business. Moving forward, I'm committed to scaling efficiencies and driving consistent profitable growth. This disciplined approach to growth and profitability is reflected in our continued emphasis on longer-term, more strategic contracts, which contributed to another strong RPO quarter. Current subscription RPO grew 4% year-over-year to $220.2 million, and our total subscription RPO grew 19% to $409.8 million, the highest ever. Our gross retention in Q2 was 85%. We have been around this level for the past 5 quarters, and improving retention remains a key area of focus for us. We expect gross retention to remain at a similar level in Q3 and to increase meaningfully in Q4. Our renewed focus on RPO growth and multi-year deals began about a year ago with Q4 being the first quarter where we saw significant traction. We expect this to provide a tailwind for gross retention in Q4 this year. Over time, we expect retention to improve as we see the benefit from longer-term consumption contracts. We now have over 75% of our ARR under consumption, and with 2 quarters left in the year, we feel confident we will end the year north of 85%, reaching the goal that we set over a year ago of approaching 90%. ARR net retention was over 94%, up sequentially for the fourth straight quarter. Subscription gross margin rose to 81.9%, marking the second consecutive quarter of sequential improvement. We expect this to remain stable over the near term and expand over the longer term. Operating margin in the quarter was 7.7%, the highest in company history. Our results benefited from expense management and better-than-expected revenue performance. Looking ahead to Q3, our partners have requested that we participate in some meaningful events, so we will be making investments to support and strengthen these growing partnerships. This may temporarily affect our margin and is factored into our guidance. In addition to record operating margin, we had positive free cash flow in the quarter and are on track to meet our goal of positive adjusted free cash flow for fiscal year '26. Our adjusted free cash flow in Q2 was $1.4 million, an improvement of $7 million year-over-year, and our cash balance remained steady at $47 million. Looking forward, we expect our adjusted free cash flow to be slightly positive for Q3 and Q4. Our non-GAAP net income was $0.9 million. Non-GAAP diluted earnings per share was $0.02 based on 43.6 million diluted weighted average shares outstanding. As for Q3 guidance, we expect billings of $75.5 million to $76.5 million, GAAP revenue of $78.5 million to $79.5 million, and non-GAAP net loss per share of $0.03 to $0.07, assuming 41.5 million basic weighted average shares outstanding. For the full year, we are raising our guidance for billings, revenue, and non-GAAP net loss per share. We expect billings of $317 million to $321 million, GAAP revenue of $316 million to $320 million, and non-GAAP net loss per share of $0.11 to $0.19, assuming 41 million basic weighted average shares outstanding. Last quarter, we provided specific guidance around expected progress on Rule of 40 to demonstrate confidence in our turnaround and show that we are molding the business into something that we can be very proud of. We stated that we expect to exit fiscal year '26 with billings growth and non-GAAP operating margin of 5%, and we are very pleased to now raise that guidance to 6% for both metrics. We continue to believe we are on track to exit fiscal year '27 with both metrics at 10%, with potential to raise in the future. With that, we will open the call for questions.

Operator, Operator

Our first question is from Derrick Wood with TD Cowen.

James Derrick Wood, Analyst

Great. Congrats on the great traction with the new strategic initiatives. Josh, you guys had quite the presence at the Snowflake conference this year. Could you talk about how that event, along with your broader Snowflake go-to-market efforts, have materialized in Q2 closed deals versus forward pipeline build and how you're thinking about the opportunity to convert on these pipelines as you progress through the second half of the year?

Joshua G. James, CEO

Yes, absolutely. If you ever want to share a report right before earnings or at any other time, that would be great. Thanks for the coverage, Derrick. I appreciate the insight, and I really liked the note. I thought it was spot on. The Snowflake event was incredibly successful. Our goal was for everyone at Snowflake who could be a potential customer to know our name by the end of the conference, and we achieved that with a fantastic booth presence and engaging activities like Boujee Bingo, which worked exceptionally well. We generated thousands of leads. We replicated the same strategy the following week at Databricks, and now our partners are requesting us to run similar events at other locations. It brought a lot of energy and positively impacted the quarter. We've noticed significant growth in our new annual contract value, and although some of that is reflected in billings, our sales, which is what we compensate our reps for, have been increasing significantly. We’re excited about that. For this quarter, deals stemming from CDWs have just started to influence that number, but not in a substantial way. However, in Q3, we expect this to impact our numbers. We’ve transitioned from numerous leads to several in stage 2 and now many in stage 3 within the pipeline. What's interesting about these leads is they convert at a much higher rate. Insights from other partners in the ecosystem indicate that leads from CDWs close at 5, 6, or even 7 times the rate of leads they generate independently. We’ve become proficient at generating our own leads, and now that we're receiving dozens of leads from CDWs each quarter, we're confident they will turn into deals. If their close rates exceed what we currently see from our own leads, we anticipate a meaningful upside to our projections for this year and next. We're thrilled about this development. Furthermore, during our sales meetings with CDW partners, we engage with their sales managers, CXOs, and sales engineers. During these sessions, we often receive enthusiastic applause due to the excitement from the sales managers and sales engineers. Some sales executives have even told CXOs that their success in meeting targets was primarily due to their relationship with us. We're noticing a real impact and gaining broad recognition within these CDWs for the influence we can have. The key is to establish brand recognition, build trust, and ensure they start including us in their deals. We have a strong pipeline ahead. As we gain more clarity on close rates, this will likely begin to influence our guidance. For now, we’re very excited about the potential in the pipeline, and we expect to see an impact this quarter.

James Derrick Wood, Analyst

Great to hear. As a follow-up, for either Josh or Tod, with 75% of ARR now on consumption, can you walk us through how the improved growth mechanics integrate into the model? Typically, after migrating customers, there's not much of an immediate uplift, but as they increase usage, we begin to see stronger expansion. Could you clarify how quickly customers return to purchasing consumption credits after the initial migration? Also, is the 108% NRR you reported specific to new customers, or does it include both new and existing customers who shifted to the consumption model?

Tod Crane, CFO

Thanks for the question, Derrick. The 108% is for customers that originally purchased Domo on consumption. So that would be net new customers. And as we think about how this is going to play out in the model, one thing we mentioned on the call, with gross retention, we see that meaningfully improving from its current levels in Q4. Obviously, the goal is to get to 90 plus, and these consumption contracts have been and will continue to, we believe, retain at a much better rate, both from a gross and net retention perspective. So I would expect, again, to see that meaningful improvement begin in Q4. And then from there, that improvement will continue as we go forward. But yes, I mean, just the ability for these customers to be able to expand to other users in their company more easily, to not have to go through procurement, and we mentioned as well the ability to buy our product on this marketplace of our CDW partners, all these things are contributing to us being able to more easily retain and expand our existing customers.

Joshua G. James, CEO

And then even the customers that are not new logo customers, the ones that do transition over, that group as well has a higher NRR than our seat-based customers. So overall, the whole thing is better. It's just really interesting to highlight. The ones that come in with no expectations, with no experience with seat-based, and then when we transition them, we sometimes have to give caps and get through one more version of the contract before we start seeing all the upside. But we just think that, that new logo cohort, it's actually a decent-sized cohort. So we think it's pretty reflective of how things are going to look over time.

Operator, Operator

Our next question is from Brett Huff with Stephens.

Brett Richard Huff, Analyst

Josh, Tod, and Pete, congrats on another nice set of proof points reflecting the inflection point. So congrats on the results.

Joshua G. James, CEO

Thank you.

Brett Richard Huff, Analyst

Can you elaborate on the net revenue retention and discuss the use cases you're observing for both new and existing customers? Are you noticing a focus on one prominent use case, or is it more diverse? Do we have any insights into usage patterns yet? This question relates to the comprehensive opportunity you’ve mentioned.

Joshua G. James, CEO

Yes. Those comprehensive use cases consist of multiple scenarios. One aspect we believe contributes to the growth in net revenue retention is that we've just begun to structure our business around assisting customers in adopting the product and discovering additional use cases. The seat model significantly alters our approach to customer interactions. We're enthusiastic about this shift as it enables us to engage more effectively, and we’ve been transitioning many of our team members to more technical roles. This trend is similar to the experiences seen with personnel from Snowflake and Databricks, who often possess a stronger technical background. As a result, we're bringing in more technical experts to connect with our customers, and this has been advantageous with the few dozen new hires we've made. We've noticed improvements and increased net revenue retention whenever they interact with our team. Additionally, historically, we've approached customers regarding just one use case, often without IT involvement. However, partnering with the CDWs has strengthened our existing relationships, as all of our representatives are now identifying which CDW partners are within the accounts we serve. We're reaching out to those representatives, visiting together, and this collaboration is enabling us to uncover new use cases within those organizations. We’re seeing significant efforts yielding impressive results when we engage alongside our CDW partners.

Brett Richard Huff, Analyst

That's super helpful. And then, Tod, one for you. Just give any more commentary around the guidance. First of all, thanks for the additional clarity on the 6%. That sounds awesome. As you guys think about this year and into next year, what's built into that assumption-wise? Is it very visible stuff? Is it a little bit of things that we're anticipating? Kind of give us a sense of where your assumption levels are there.

Tod Crane, CFO

Yes. And we continue to find leverage in the model. As we get more and more focused on our strategic initiatives, that allows us to also be more focused with how we allocate our resources internally. So we're constantly looking at where we're getting the best ROI, how can we shift resources there, scaling up and down in different areas of the company as we need to, to make sure that we're progressing towards our goals. So yes, it's really just that. It's just there's leverage in the model, and we're continuing to align that with the goals that we have.

Operator, Operator

Our next question is from Patrick Walravens with Citizens Bank.

Kincaid LaCorte, Analyst

Congratulations on the quarter. This is Kincaid on for Pat. Just wanted to dig into that international market a bit. You called out Japan. I was curious if there's any other regions that you're seeing a lot of success in. And then what verticals are doing well, in particular, internationally?

Joshua G. James, CEO

We have seen success in certain areas in Asia Pacific and more broadly in EMEA. Japan stands out significantly compared to software companies of our size, achieving results that are double or triple the norm. We have established strong relationships and a high retention rate there, supported by an excellent team and management. This market continues to perform exceptionally well for us, which makes it an exciting experience. Regarding industries, our performance is similar to what we observe in the U.S., with a wide range of sectors represented. In Japan, we see a strong presence in industrials, oil and gas, technology, and retail. Every market has its unique characteristics. Japan often requires extensive services upfront and thorough implementation processes. As a result, some of our most successful implementations are in that region. Decision-making in Japan may take longer, but once clients commit, they tend to remain loyal if we meet their needs. Overall, Japan has proven to be a great market for us, and our name resonates well there, contributing to our success.

Kincaid LaCorte, Analyst

That is very true. And then just as you're at this inflection point, I'm curious if there's verticals or customers that you're starting to win as you move to this consumption model that you weren't really getting that much traction with, with the seat-based model. Or anything you're seeing in that sense?

Joshua G. James, CEO

I'm going to ask RJ, our CRO, to answer that question and talk about some of the places where we've been successful with the consumption model as it allows people to bring a lot more users in and then experiment with different use cases, whereas the old seat model, the budgeting process kind of is almost the revenue prevention department in some ways. But RJ, will you give us some additional insight?

R. J. Tracy, CRO

Yes. So we have a ton of different companies that have had a hard time scaling, as mentioned. And so as we're going into these accounts, there's a few areas that this has had a big impact on. And one is just, as it was mentioned earlier, going wall-to-wall in these accounts. And the consumption model has enabled us to grow uninhibited. So oftentimes, we'd have accounts where they're trying to make a financial decision. They've got free licenses of Power BI or another visual layer. And in a lot of cases, we were going up against those vendors and they considered them to be free. And now we've taken that off the table. So it just allowed us to scale. As far as a lot of the use cases, I would say, we weren't part of the IT conversations. So we're winning a lot of deals now, and we're seeing a lot of opportunity with buyers that we weren't winning before, with use cases that we weren't part of before, including integration and ETL use cases. A lot of companies were coming to us originally for just visuals, not even knowing that under the covers, we had a very strong integration layer, very strong ETL layer. And now a lot of the deals we're seeing are starting off with that integration. And then they're saying, 'Oh, wait, but you guys do AI, too?' And we're like, 'Yes, we do AI.' And they're like, 'And you guys can build agentic solutions?' And yes, we can build agentic solutions, and it's opening up the door. And consumption enables that because now all that technology is exposed. And before, it wasn't exposed unless you paid for it. And now it's exposed, and we're seeing a lot greater adoption across the entire platform.

Operator, Operator

Our next question is from Yi Fu Lee with Cantor Fitzgerald.

Yi Fu Lee, Analyst

Indeed, a very productive quarter and making notable progress across CDWs and hyperscaler partnership ecosystem. So Josh, my question revolves mainly around the new products or, as you said, highways you added during the quarter and this month. So obviously, feel free, RJ, if you have any comments on the pipeline as well. Josh, I want to start with the AWS strategic collaboration with Domo as well as Google BigQuery enhanced data integration. Can you give us a little more color? I understand the AWS opportunity is more of Agent Catalyst that you launched during Domopalooza. How big of an opportunity is that? And what are you seeing in the pipeline between these 2 hyperscalers?

Joshua G. James, CEO

Thank you for the question. RJ has been managing these relationships, so I’ll have him provide more details on that. I can mention that our partnerships with Google and Snowflake have been quite significant. The situation with Google has surprised us positively; we didn’t expect it to progress as it has. Establishing this partnership and ensuring that their representatives are rewarded for introducing us in deals is beneficial since we contribute to driving consumption. Large cloud vendors like Oracle primarily focus on where data resides and whether it will continue driving their cloud services. Any vendor, even those competing with other applications they offer, generally remains unconcerned as long as it promotes cloud consumption. This alignment has opened new opportunities for us, and we see substantial potential because it not only unlocks capacity but also increases brand awareness among individuals who previously directed their customers to our competitors. We’re excited about this potential as we have completed the first step, which was the initial unlock. Now, we need to focus on recognition, awareness, and developing customer use cases, and we are making rapid progress in those areas. Our goal now is to expand this information and boost awareness.

R. J. Tracy, CRO

Yes, I want to emphasize that we have a significant opportunity to collaborate with AWS and Google in various ways. We can engage in deals with different CDW partners while the workloads may reside on GCP or AWS. This collaboration allows us to work alongside AWS and a CDW partner, enabling us to optimize spending across both vendors' marketplaces. The potential is enormous, and both AWS and Google are exceptional partners who excel in collaboration, which allows us to adopt a customer-first strategy. In many instances, we can combine BigQuery with Snowflake since different departments may have chosen software that best meets their specific needs. Domo can integrate with both solutions, delivering a cohesive experience for the end user. We believe the opportunity with all these players is substantial.

Yi Fu Lee, Analyst

I know it's early to say, RJ and Josh, but you’ve made significant progress with the fully managed solution at Snowflake. It’s impressive how this relationship has matured. I was curious about your experiences at Databricks and the positive feedback you’ve received as diamond sponsors. Do you think these partnerships with hyperscalers will eventually surpass the importance of some CDWs? How do you see that dynamic unfolding?

R. J. Tracy, CRO

I mean we're going to continue to lean in where the partners lean in. And we have had a couple of partners that have taken off faster, but part of that is because our integrations got done first. But we're building teams around all of the different hyperscalers and CDWs, and we're going to continue to lean in and we'll lean in hard on the partners that lean back and we don't know what that means quite yet, but...

Joshua G. James, CEO

Yes, I think a big part of it is also who's selling solutions. And the solutions are what really drive the consumption and the solutions would take advantage of all the agentic solutions that we offer, all the AI that we offer, the governance and the security. And so to the extent that the CDWs are out there selling solutions and want solutions to be sold to their customers, that's where we play exceptionally well. And the hyperscalers historically, they've been more focused on helping you scale. The CDWs have been trying to shift more towards selling solutions. So we work well in both areas. I think the CDWs are growing a little bit more quickly right now with us.

Yi Fu Lee, Analyst

Got it. Thanks, Josh and RJ, for that. Let me wrap this up with Tod on the financial side. Tod, thanks for the update on the 6%, 6% operating margin as well as billings growth to exit this year and NRR, net retention rate at 108%. I was wondering, Tod, if you could give us some comments. Obviously, it sounds like the new consumption cohort is reaccelerating growth. How will we think about the model going forward? Meaning like when will we see higher growth rates in terms of the top line going forward? I understand you mentioned being on a profitable growth path going forward. But could you give us a little bit more color on that?

Tod Crane, CFO

Yes, absolutely. We will combine our efforts to improve gross retention and continue growing our new annual contract value. Specifically in the fourth quarter and beyond, we expect to gain significant benefits from our initiative to push for more multi-year deals to increase our remaining performance obligations. Additionally, our customers will be able to purchase our products for their marketplaces, which will support our retention rate and act as a growth driver. On the new business front, we anticipate similar support from consumption and from collaborating with our partners like CDW and hyperscalers. We are also experiencing positive momentum from AI and the advanced features of our platform. As infrastructure spending increases faster than other IT budget areas, we provide essential infrastructure for deploying and creating AI use cases and agents. We expect this positive trend to continue.

Operator, Operator

Our next question is from Max Michaelis with Lake Street Capital Markets.

Maxwell Scott Michaelis, Analyst

Most of them have already been answered, but I guess just one from me. I guess when we look at your total customer base, I mean, are you seeing any sort of differences in customer buying behavior maybe from your larger enterprise customers compared to your smaller customer cohorts, SMBs?

Joshua G. James, CEO

I think the main difference is that larger enterprises are looking for partners. They have long-term strategies and data plans, and it's important to align with their IT strategies and preferred vendors. Once that alignment is achieved, the vendors we collaborate with tend to seek input from business users who are looking for relevant solutions. Historically, we've been successful in this area, although we haven't had the same level of recognition. Now, being associated with CDW partners and recognized hyperscalers allows us to integrate our spending within those marketplaces, enhancing our speed to close deals.

Operator, Operator

Thank you. This concludes our question-and-answer session and today's conference call. You may disconnect your lines at this time. We thank you for your participation.