Earnings Call Transcript - DOMO Q1 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Domo Q1 Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Peter Lowry, Vice President of Investor Relations. Please go ahead.

Peter Lowry, Vice President of Investor Relations

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

Julie Kehoe, Chief Communications Officer

Thanks, Pete. 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 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 the 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, let me hand it over to Josh.

Josh James, Founder and CEO

Thank you, Julie. Hello, everyone. Thanks for joining us on the call. I hope everyone is certainly in good health. What I've done today, it's going to be extremely difficult for Bruce to not be bullish. You'll see us raise guidance today, and we see potential upside in our future. In Q1, we got off to a great start to our fiscal year 2022. We had a record Q1 across many important metrics, including new business and retention. We posted 25% billings growth, 23% subscription revenue growth, and 24% total revenue growth, with a retention rate of over 90% across both the enterprise and corporate segments of our business and in every geography. Now with full recognition, it has been a humbling process and a ton of hard work from our people to create this great company and even get to this spot. I read all the reports, and despite the performance we've been putting up, I see how some people have characterized our growth profile. Now for those of you who know me, you know that I'm not generally known as an infinitely patient, unendingly understanding, not-demanding kind of guy. So, you can appreciate that it's very hard to be patient long enough to wait for all the characterizations to catch up with reality. Obviously, I'm saying that a bit in jest, but with what we have consistently been producing, I think it's important to do some math that calls out how strong and consistent our performance has actually been. Over the last four quarters, we've seen 23%, 25%, 28%, and now 25% growth in billings. I know everyone on the phone call is exceptionally good at math, and that sounds to me like billings have consistently grown each quarter by an average of 25%. For more than a year, we've been operating at that pace. As I've said many times, we're playing for more. I can't wait to see what the team does in future quarters to accelerate growth using our integrated platform to deliver BI leverage at cloud scale in record time. There's certainly a tremendous amount of work in front of us, but it's been worth it because we all feel that there is so much unrecognized and unrealized potential with what we've built here. Despite the fact that it has not been easy, we've been grinding it out. Here we are with an average of 25% billings growth over the last four quarters. The big question has always been, when is the friction going to come out of the system a little bit? When is the flywheel going to really start cranking? Where is that tipping point that I know you're bound to run into with the combined progress and potential that we have? I've seen tipping points. You can tell when they happen because all of a sudden, you have a new profile in the market. A new swagger. A new unstoppable ability to consistently grow and win. These tipping points can be a byproduct of product launches, partnerships, investments, or big customer wins that shock the market and announce the arrival of the company as a long-term leader. We've been striving for a tipping point like that at Domo. I believe that a tipping point for Domo could come in the form of a big, instantly recognizable brand that has adopted Domo broadly, driving a fantastic return on their investment in our products. I've wanted that customer so badly. We've had several candidate customers that I think could certainly evolve into that. I've seen glimpses of that potential tipping point coming. For instance, after 10 years of toil to sign 10 customers with at least $1 million in ARR, seemingly out of nowhere, in just one additional year of time, that number doubled to 20 customers with $1 million in ARR. We have several contracts with enormous multinational industry titans worth over $2 million a year and a few over $4 million a year. In fact, we're having discussions with customers about $10 million annual contracts. It might not happen this year or next, but these conversations are real and on the table. This is starting to feel like the company we've been trying to create all along. We have customers who adopt us broadly in their organization and have over a dozen upsells on their way to site-wide usage. I've been waiting for companies to have the confidence to go site-wide much earlier in their relationship with us. In order for that to happen, we need to see other companies that are already successful at scale with us. The ones that follow need to have the confidence to adopt and grow much more quickly. I've been waiting for this moment, this potential seminal moment when customers have the confidence to adopt broadly and standardize on Domo. Well, I'm excited to say that has finally happened. It's a big day for us. This quarter, we had the largest upsell in the history of our company. What makes this deal so special is that it's a top 15 global brand with broad C-suite support, tens of thousands of potential users, dozens of internal use cases, and is championed by the CIO to become their global standard. They're becoming one of our largest customers. It's certainly on us to deliver, but we've found the right people to partner with internally. We've proven the use cases over long periods of time, and we are rapidly installing across their organization. We believe this record upsell is a harbinger of things to come. This data point is a major validation of our technology and the business value we can deliver at scale. Equally importantly, it's a proof point for every other current customer and potential customer to confidently standardize aggressively and rapidly across their organization with expectations of success unseen thus far in their experiences with other technologies. These large and successful deployments should give customers more confidence in standardizing on Domo as their modern BI platform, and that we'll be able to successfully evolve with their needs. We have much more work to do with our customers. Yet, it is humbling and gratifying, the trust they put in our teams and our technology. Our customers are literally saying that we make the best companies better. It sounds like a fine tagline to me, and even representative of what we actually do. In addition to this major announcement about our record-setting upsell, we continue to see new logo growth as well. For example, we won a sizable new contract with another Fortune 500 company, a consumer product company, to provide company-wide analytics. This was a deal driven by IT, and the BI group was the primary buyer. Of all the solutions they were considering, Domo was the best able to provide the solution they needed across their entire organization. They chose us partly because of our position as an independent vendor and because of the breadth of our connectors. We bring all the customers' data together to solve complex, organization-wide business challenges. A recently commissioned report by Forrester Consulting showed a 345% return on investment for a sampling of Domo customers, with payback from their investment in less than six months. I also want to acknowledge some of our recent products and company recognitions this quarter. We announced an expansion to our AWS relationship, including our achievement of the AWS machine learning competency status in Applied AI, demonstrating our ability to create value on top of AWS services. We also announced new integrations for Amazon Redshift, similar to our earlier Snowflake news, to help customers leverage their cloud data investments. We announced access to thousands of data products with AWS data exchange in Domo to help customers more easily transform business with modern BI for all. In the Dresner Advisory Services 2021 Cloud Computing and Business Intelligence Market Study, Domo was ranked as the number one vendor for the fifth consecutive year. Our COVID-19 tracker that we launched last year won two Webby awards and recognition from Fast Company for world-changing ideas. We were also acknowledged by Fast Company for our efforts leveraging data to address extreme poverty in Nepal. Additionally, we remain committed to diversity, equity, and inclusion. For the fourth consecutive year, Domo was named to the Women's Tech Council's 2021 Shatter List for our commitment to developing and implementing measures that help break the glass ceiling for women in technology and foster gender-inclusive cultures. We've held up our commitments to the Parity Pledge, interviewing at least one qualified woman and one qualified underrepresented minority candidate for every open position at Domo. As a result, in Q1, 36% of all new hires were women or underrepresented minorities. Thank you to all our Domo sapiens who have worked so diligently. We have not yet reached our destination, but we are on the path. I am proud of what they have done and grateful to be lucky enough to work with such a passionate and capable team. In closing, I feel this is a seminal moment for Domo, a potential tipping point to push us to the next level of growth. We will continue to focus on our customers and our people here at Domo, and hope you will see accelerating growth from us soon. With that, I think I've now made it sufficiently difficult for Bruce to be Bruce. The floor is yours, my friend.

Bruce Felt, CFO

Thank you, Josh. Yes, you could make it a little difficult for me to be Bruce. But I think that I'll be a little Bruce anyway. We had another strong Q1, driven by a number of record key metrics, as Josh has highlighted. I'll review the details behind our performance, provide an update on some of our recent financial analyst session commentary, and then discuss second quarter and fiscal 2022 full year guidance. We delivered Q1 billings of $58.2 million, a strong year-over-year increase of 25%, driven again by new customer count growth, upsells and expansions, record Q1 retention rates, and strength across all geographies with improved sales force productivity. I am particularly pleased with our billings growth against a tough compare due to the $6 million of total billings reported for state deals in Q1 of last year. Net retention remained above 100% and ticked up a bit from Q4. What is promising on net retention is the amount of growth we just experienced in new ACV from existing customers, which gives us visibility to expect higher net retention rates as revenue is recognized. We now have 61% of our customers on a dollar-weighted basis under multiyear contracts at the end of Q1, up from 54% a year ago. Our remaining performance obligations, or RPO, grew 24% compared to the same quarter last year. Current RPO or RPO expected to be recognized as revenue over the next 12 months grew 22% year-over-year. Q1 total revenue was $60.1 million, a year-over-year increase of 24%. Subscription revenue grew 23% year-over-year, representing 87% of total revenue. International revenue represented 23% of total revenue this quarter. Our subscription gross margin was a record 83%, up more than 4 percentage points from 79% in Q1 of last year and up over 1 percentage point from last quarter. We continue to manage our data center costs effectively even as volumes increase. Over the last 12 months, daily volumes have increased substantially while our data center costs decreased year-over-year as we focus on driving leverage from our infrastructure. In Q1, operating expenses increased only 1% from last year, even though revenue increased by 24%, showing our ability to drive significant leverage out of our total cost structure. The net effect of increased revenue while leveraging cost was an improvement in our operating margin of 24 percentage points from the same quarter last year. Our net loss was $8 million, down from $18.4 million a year ago, with a net loss per share of $0.26 based on 31 million weighted-average shares outstanding. In Q1, we reported adjusted cash flow from operations of $1.4 million. Our cash balance was approximately $85 million, with a decrease of $6 million due to tax-driven share repurchases related to our restricted stock unit program. Going forward, we may use a portion of cash generated for similar anti-dilutive measures while maintaining sufficient cash balances. Now let me give a brief update on some of the financial analyst session commentary we provided at our user conference, where we outlined our path to 20% plus sustained growth. One of the critical drivers is the increasing sales headcount. We're on track to hire enough sales capacity to support our 20% growth target and have hired over 20% more new representatives compared to a year ago. Our sales execution momentum continues even against the backdrop of this rapid hiring pace, as our sales force productivity increased year-over-year in Q1. Our enhanced marketing messaging resonates with our targeted customer base, and we have stronger sales and marketing alignment to capitalize on that messaging. We continue to see the market moving in the right direction and have experienced an enhanced market position from the industry analyst community. As a result, we continue to add marquee referenceable customers in high-value added use cases. As Josh mentioned, our gross retention rates were over 90%, with a year-over-year increase of almost 5 full percentage points. We're particularly pleased with the results given Q1 is our seasonally most challenging renewal quarter. In summary, our Q1 performance marks a strong start to achieving our growth goals outlined at our analyst session and validates that our strategy is working. Now to discuss what we expect in Q2 and the full year fiscal year '22. For Q2, we expect billings growth of 20% year-over-year. We're off to a good start with billings pacing well above where we were at the same time last year, partly driven by the expansion Josh spoke about and good momentum across the business. We have several drivers that could provide upside to our expected Q2 billings. For the current fiscal year, we expect billings growth of about 18% year-over-year, up from our previous guidance of 16%. On expenses, we're planning for Q2 operating expenses to increase from Q1 levels, primarily as we continue to pursue our growth initiatives, including increased sales capacity. For the year, we anticipate operating expenses to increase as well, with the largest increase in sales and marketing. We continue to plan for Q2 and full year adjusted net cash provided by operations to be slightly positive throughout the year. Now for the formal guidance. For the second quarter of FY '22, we expect GAAP revenue to be in the range of $60 million to $61 million. We expect non-GAAP net loss per share of $0.35 to $0.39. This assumes 31.8 million weighted-average shares outstanding. For the full year of FY '22, we expect GAAP revenue to be in the range of $246 million to $252 million, reflecting year-over-year growth of 17% to 20%. We anticipate non-GAAP net loss per share of $1.33 to $1.41, assuming 31.9 million weighted-average shares outstanding. In closing, we're extremely pleased with our performance in Q1 and believe we are well positioned to execute against our growth initiatives. With that, we'll open up the call for questions.

Operator, Operator

Your first question will come from Sanjit Singh of Morgan Stanley. Please go ahead.

Sanjit Singh, Analyst

Congrats on a really strong start to the year. Josh, just to start with you. Let's talk about this expansion deal, which hopefully is a harbinger of things to come. Could you elaborate a bit on the potential size of this deal, either from a dollar basis or, if you can't talk about dollars, users would be great. But then more importantly, how long did it take to win this deal? What were the key factors to get this deal over the line? And was it competitive in terms of this upsell?

Josh James, Founder and CEO

Yes, you bet. And thank you for calling us out in your reports as your number one choice for software in the mid-market; we appreciate that. This deal is really exciting. It represents the biggest upsell and is almost the largest deal we've ever done. It's one of our top five largest customers now. It's a transformational deal because of how it's happening too. There were several POCs across the organization demonstrating what we could do, how quickly we could do it, and at what scale. The whole stack we built provides all that BI leverage in record time, which gave them the confidence. Several business leaders validated what the CIO wanted to do and gave the CIO the confidence to make this a global standard. Although this contract is robust as it is, there is tons of upside for us with this customer. We have very few large-scale enterprise customers where we have complete site-wide distribution—only just a couple. But to know the vast majority of our enterprise customers have this potential is exciting. This deal is already done, and we're currently in the process of installations across multiple locations. But the most thrilling aspect is we believe we'll be able to replicate this with a lot of our customers. The tipping point I talked about earlier is now starting to materialize because we can show, through big, blue-chip customers, what we can do.

Sanjit Singh, Analyst

Well, congrats on that, and I'm looking forward to seeing how that evolves for the broader opportunity at Domo. My next question is probably for Bruce, but Josh, feel free to chime in as well, which is around the question of growth rates. We have billings growth of 25%, RPO growth of 21%, current RPO growth of 22%. If you look at your bookings growth, that was a massive number at 38%. Bruce, when I consider the 18% billings growth in terms of the full-year guidance, which of those numbers represents the trajectory of the business as you see it?

Bruce Felt, CFO

Well, first, thanks for the question. I don't quite get your last number, but we can discuss that separately. But yes, as Josh pointed out, you can see the direction we're headed. We've posted an average of 25% growth, and after things came together during the quarter that allowed us to achieve that, we have visibility that supports our 20% guidance. We have a lot in the pipeline that gives us confidence for continued growth. Our objective is to establish a pattern of sustained growth over time; we’ve moved the numbers into a better bracket than we ever had.

Operator, Operator

Our next question will come from Derek Wood of Cowen. Please go ahead.

Derek Wood, Analyst

Congratulations on the great start to the year! I'll start with you, Josh. One of the things we keep hearing about is how differentiated your low-code, no-code capabilities are around building analytic apps and doing it quickly. Are you seeing more of these platform use cases? How does this platform approach get you into new budgets and users, and how is that creating market differentiation against other BI vendors?

Josh James, Founder and CEO

It really demonstrates our ability to evolve with our customers. Most customers already have various systems in place. Our low-code, no-code ability to create applications—specific business intelligence applications—allows us to meet specific needs without customers seeking out external, costly solutions. They see our ability to leverage their data and create great BI applications, and that's exactly what happened with this upsell. We assembled a couple of apps as part of the POC, and there's nothing else like it in the market.

Derek Wood, Analyst

It's great to hear about the marquee win; sounds like a multimillion-dollar deal. As you look forward at your pipelines and think about transactional deal flow and large deal flow, have there been other substantial deals you're working on now? How do you perceive the growth motion between transactional deals and larger opportunities as you anticipate the rest of the year?

Bruce Felt, CFO

Yes. I'm going to have Ian Tickle, our Chief Revenue Officer, respond to that question. Great question.

Ian Tickle, Chief Revenue Officer

We've seen good progress ensuring we have a nice blend of opportunities in the pipeline. We're doing excellent work with marketing to balance new logos across multiple revenue bands while building our upsell engine. There's solid traction across all sectors at this moment.

Operator, Operator

Your next question will come from Bhavan Suri of William Blair. Please go ahead.

Bhavan Suri, Analyst

Great, solid job across the board! I want to touch on partnerships first. You've mentioned partnerships potentially contributing 50% by fiscal '25. How are you seeing traction with partners currently? Is the evolution towards focusing on Domo playing out as you anticipated?

Ian Tickle, Chief Revenue Officer

The work we're doing together with marketing is creating nice traction for us. Domopalooza was a great showcase of how we're resonating with the market, and we're excited about the opportunities we have moving forward.

John Mellor, Chief Marketing Officer

There's a virtuous cycle when we receive large customers, creating priority with the large ecosystem partners, whether they're tech or systems integrators. Conversations are progressing smoothly. We're opening doors and pushing towards what we see as major opportunities.

Bruce Felt, CFO

Ian, it's worth sharing the conversations we’re having about the installation of the big customer we mentioned.

Ian Tickle, Chief Revenue Officer

The system integrator side is moving in a positive direction. Our partner ecosystems have been well-established with new logo opportunities. In matching systems integrators and consultants with our offerings, we create expanded opportunities that help drive business adoption and digital transformation. SIs are excited about this development, enabling us to build these relationships positively.

Bhavan Suri, Analyst

One last one for me. As technologies evolve, do you see a risk where customers might create their solutions based on API standardization rather than relying on Domo? Or is the complexity still too high?

Ian Tickle, Chief Revenue Officer

I don’t believe there’ll be any standardization for a long time. These customer environments are complex. We're providing BI leverage for organizations at all levels, facilitating their data usage effectively. While connector and API standardization will continue to evolve, customers still need a comprehensive platform to manage it, and that's where we excel.

Operator, Operator

Your next question will come from Jack Andrews of Needham. Please go ahead.

Jack Andrews, Analyst

I'll echo my congratulations on the results. I wanted to ask about the uptick in retention. Could you provide some more detail in terms of whether this increase is happening organically, or if there are specific tactics being implemented to drive that higher?

Bruce Felt, CFO

This has been a multiyear effort, and it's primarily due to the commitment of our team focused on customer satisfaction. Their efforts have driven the increases we've seen over the last few years. I wanted to send a specific acknowledgment out today to our client services team for their hard work. They've done an incredible job.

Ian Tickle, Chief Revenue Officer

I completely agree with Josh. Our team has built excellent relationships, even in a remote work environment. The relationships we've built with our client success, support, and education teams have generated impressive performance across the globe.

Jack Andrews, Analyst

Just as a follow-up, Josh, regarding the marquee customer you mentioned. Could you expand on your comment about finding the right partners internally? Do you believe there's a replicable approach across other large upsell opportunities that you feel you've decoded?

Josh James, Founder and CEO

First, it has to pass the sniff test with the CIO, meaning it makes logical sense. Then the business leaders need to endorse the value—essentially, they have to agree on the budget allocation. You need collaboration from multiple departments since they all contribute to the overall decision. We've developed a way to create confidence around these large contracts by highlighting previous successes at scale that align with their needs. It drives comfort in the areas of change and investment in Domo’s capabilities because we want customers to adapt more rapidly and broadly.

Operator, Operator

And we have no further questions at this time. This will now conclude today's conference call. Thank you all very much for joining. You may now disconnect.