Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Domo Inc (DOMO, Financial) exceeded its revenue guidance and achieved positive adjusted free cash flow for Q1.
- The company reported a significant increase in net retention for consumption renewals, reaching over 115% in Q1.
- Over 90% of new contract dollar value in Q1 was on the consumption model, with over 30% of total ARR now on consumption.
- Domo Inc (DOMO) has seen strong momentum and upsells on consumption conversions, with a notable 30% upsell from an account-based marketing firm.
- The company has established strong partnerships with cloud data warehouse (CDW) providers, leading to increased pipeline generation and deal closures.
Negative Points
- Q1 billings were below target, primarily due to one large nonrenewal, which significantly impacted gross retention.
- Gross retention dropped to 83%, and net retention was 88%, reflecting challenges in maintaining customer contracts.
- Non-GAAP operating margin was negative 9.2%, down 7.2 percentage points from the previous year.
- Non-GAAP net loss increased to $12.3 million compared to $6.1 million a year ago.
- The company faces a challenging market environment, with continued pressure on traditional go-to-market channels and the need to lean into partner channels.
Q & A Highlights
Q: Can you provide more details on the percentage of ARR tied to single use cases versus wall-to-wall deployments?
A: Joshua James, CEO: For enterprise customers, we are excited about the net retention rate (NRR) for consumption cohorts, which is higher than we've ever seen. We feel that the vendor consolidation phase is behind us, and the environment feels more normalized, similar to three or four years ago.
Q: Why is there no full-year guidance despite the projected improvement in gross retention?
A: David Jolley, CFO: There are many variables, including the recent nonrenewal of a large contract and the early stage of our cloud data warehouse (CDW) partnerships. We need more visibility into how these partnerships will impact our business before providing full-year guidance.
Q: Why consider a strategic sale or private equity (PE) buyout now, given the challenging market environment?
A: Joshua James, CEO: We want to clarify our willingness to sell to maximize shareholder value. We are one of the few independent companies in our space, and there is significant interest from potential buyers. We are open to exploring these options to optimize long-term value.
Q: What is driving the acceleration in consumption model adoption, and how will it impact billings and net retention?
A: Joshua James, CEO: We are seeing great retention and net retention rates from our consumption customers. We are now being more deliberate in transitioning renewals to the consumption model, which should accelerate adoption and positively impact billings and retention.
Q: Can you provide more details on the large nonrenewal and its impact?
A: Joshua James, CEO: The nonrenewal was CFO-driven due to cost-cutting and tech consolidation, not a product-market fit issue. Our enterprise business remains strong, with a 33% increase in accounts paying more than $500,000 or $2 million over the last 12 months. We expect improved retention moving forward.
Q: What are the biggest variables affecting the lack of full-year guidance?
A: David Jolley, CFO: The biggest variable is the expansion into the partner channel, which opens up significant opportunities. We need more visibility into how these partnerships will impact our business before providing more discrete guidance.
Q: What is the current interest rate on your debt, and when is it due?
A: David Jolley, CFO: The face amount of the debt is $100 million, with some accrued interest, bringing it to around $119 million. It is due in April 2026.
Q: What are you seeing in terms of new business pipeline and sales cycle length?
A: Joshua James, CEO: We are seeing increased partner leads and improved ability to close deals as part of overall data strategies. The sales cycle feels more stable compared to 180 days ago, especially around AI readiness and data preparation.
Q: Have you hired a banker to explore strategic options for a potential sale?
A: Joshua James, CEO: We have not hired a banker but have had conversations with strategics and private equity firms. We are open to exploring these options to maximize shareholder value.
Q: What will the cash burn look like in Q2, and are you committed to being free cash flow positive for the year?
A: David Jolley, CFO: We are committed to being free cash flow positive for the year. There may be some variability in the next couple of quarters, but we plan to add to our cash balance this year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
