Domo - Earnings Call - Q3 2019

Transcript

Speaker 0

Good

Speaker 1

day, ladies and gentlemen, and welcome to Domo's Third Quarter Fiscal Year twenty nineteen Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to introduce your host for today's conference, Ms. Julie Kehoe, Domo's Vice President of Communications and Public Relations.

You may begin.

Speaker 2

Welcome, everyone. On the call today, we have Josh James, our Founder and CEO and Bruce Felt, our CFO. Our press release was issued after the close of market and is posted on our IR website at www.domo.com/ir, where this call is being simultaneously webcast. Statements made on this call may include forward looking statements regarding our financial results, applications, customer demand, operations and other matters. These statements are subject to risks, uncertainties and assumptions.

Please refer to the press release and the risk factors and other documents we filed with the Securities and Exchange Commission, including our registration statement on Form S-one that was filed with the SEC and the Form 10 Q that will be filed for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such 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. Unless otherwise stated, we will be discussing results of operations data other than revenue on a non GAAP basis. These non GAAP measures, including our guidance for the fourth quarter and full year 2019, exclude stock based compensation, amortization of intangible assets, and reversal of a contingent liability. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

You can find additional disclosures regarding these non GAAP measures including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations page of our website, where the webcast of the replay call will also be available until midnight Eastern Time on December 2038. With that, let me hand

Speaker 3

it over to Josh. Thank you, Hello, everyone. It's good to be back with you again for our Q3 twenty nineteen earnings call, our second quarter as a public company. On today's call, I want you to take away three points. One, we executed very well in Q3.

And as the results show, we expect that strong execution will continue into Q4 and into fiscal twenty twenty. Two, demand for Domo's products and services continues to grow, and we have a very large multibillion dollar market opportunity in front of us. And three, our business is fully funded, and we're making clear and significant progress towards cash flow profitability, and we intend to make good on that promise we've been making since the IPO. On my first point, strong execution, I'm very pleased to report that we exceeded all of our Q3 financial targets, billings, revenue, net loss per share and operating cash flow as demand for our products remained solid and our team performed extremely well. I want to thank all of the Domo team members for their enormous effort and hard work in Q3.

This quarter, we saw a 29% year over year increase in billings and year over year revenue growth of 30%, led by 34% growth in subscription revenue. We talked about leverage in our model, and I'm particularly pleased that we achieved these billing and revenue levels while demonstrating significant improvement in sales and marketing productivity, with a 20% year over year decrease in sales and marketing expense. As the strong billings growth implies, our Q3 sales performance was also healthy across the board, with particularly strong performance in our U. S. Enterprise business and in EMEA.

As mentioned last quarter, our new sales leadership has been instrumental to this solid performance. Our CRO, Gene Girmire, who joined us from SAP and our GM of North American Enterprise, Jim Kowalski of Oracle and Marketo, have guided our North American Enterprise business to one of its top new ACV quarters ever, while also seeing an improvement in rep productivity as well as growth in new logo ASPs and multiyear deals. And we have seen this very positive momentum carry over into Q4. Our new customers include great brands such as the European consumer goods giant Henkel. We also signed one of the world's largest multinational telecom companies and also signed a Fortune 50 leader in the energy business.

We saw existing customers continue to expand their use of Domo as enterprises around the globe embrace digital transformation and push our products deeper into their business processes. These customers across numerous industries include well known brands such as BBVA, DENSO and CAPCOM. During the quarter, we added 21 enterprise customers, bringing our total number of customers with more than $1,000,000,000 in revenue to four thirty, up from three fifty one as of the end of the third quarter last year. My second point that I want you to take away from this call is that demand remains strong for our products. We're extremely proud to be named for the second year in a row as a Gartner Peer Insights Customers' Choice based on direct feedback and ratings from end users who have experienced purchasing, implementing and using our platform.

We see growing evidence that CIOs and IT leaders, in addition to CEOs and frontline employees, are becoming a more engaged audience for our platform and products, particularly as Domo usage transforms from team and departmental use to digitally connecting data, people, and systems across the entire business. Domo is a platform. It is a platform that has an integration layer, a massively scalable data layer, and this enables our customers to leverage AI, machine learning, and data science in ways that were previously unavailable to them. We have seen much feedback and demand in this area and are very excited about our continuing investments in the areas of AI and data science and are looking forward to more related announcements at Domopalooza. Because Domo is a substantial platform, it also enables custom applications to be quickly developed and delivered to improve operational efficiency across the business.

We built in a matter of weeks, for example, the retail division of a Global two thousand customer, a custom store ROI application that empowers store managers with real time data on their phones. The store managers can understand in a timely manner how they are performing against the key metrics that drive their business, which helps them identify opportunities for making adjustments to areas such as staffing or training. The breadth of use cases among our client base reinforces the huge potential we have across every aspect of our business. For example, at Web Summit in Lisbon last month, L'Oreal's global chief performance officer shared how Domo is enabling its global marketing team to determine where to spend marketing dollars. With all of its relevant data sources in Domo, the team is able to measure the ROI and productivity of its digital media investments to see what's working in real time and make decisions on where to spend.

In another example, we're working with a major European auto manufacturer to change a dealer review process. It's typically only been run once a year due to the constraints of current systems. DOMA is being used to combine a central BI system with local in market data to provide a three sixty degree review view of the dealer landscape and allow dealerships to make changes in real time to impact performance during the year. Thirdly, one of the world's largest automotive parts manufacturers is using Domo to transform its human resources management as it looks to better leverage the skills of its worldwide talent pool of more than 160,000 employees across its 200 group companies. And in a final example, for one of the world's most valuable athletic brands, a Domo custom application is bringing together insight rich operational data from internal systems to enable gamification and competition for more than 10,000 store personnel.

That's 10,000 for more than 10,000 store personnel to improve the customer experience. I mentioned our platform enables customers and our ecosystem to quickly build complex apps directly on top of our infrastructure. Our customers have deployed thousands upon thousands of apps with custom business purposes. Sometimes we see customers solving the same business problems, and we'll take what started as one off application and productize them for our entire customer base. For example, this past quarter, we launched the Domo Retail Suite.

It's a collection of applications built off the common challenge of improving business results in a highly competitive industry through real time management of store and product performance. Now lastly, before I turn the call over to Bruce, I want to put some context around where we are as a business and address my last point, which is that it is important to understand we are a fully funded business. When we started Domo, we set out on a big journey and took on numerous challenges to build a modern technology platform that could empower organizations of any size and in any industry to create a digitally connected organization. Most people thought this was impossible. Building a platform of our scale was an ambitious goal, and we invested heavily in R and D.

Yet we are very excited to see our vision playing out as we look at how customers are using Domo and how it's expanding in their organizations across departments and roles and how much opportunity exists in front of us and down the road in helping them wherever they are in their digital transformation journey. All the upside that we originally hoped for is still intact. Now during our initial public offering, I said we were raising enough capital to fully fund our business plan. And now I want to be very clear about what that meant when I said it then and what it means now. This means that we have a clear path to get to cash flow positive by a very specific date.

Not everyone knows the date, but I know it, and we know it internally, and we will be disciplined and hit the state. And when I or we repeat fully funded over and over again, it means I and we will do anything and everything necessary to get to cash flow positive without raising money by the date that's in our plan. And when we get there, we will do so with extra cash in the bank. All in all, this quarter was another strong performance and delivery on all of our commitments. While our customers are and always will be our North Star, we expect to see continued momentum in growing our top line while increasing efficiency in all areas of our business.

Now with that, I'll turn it over to the Bruce. Over to you, Bruce.

Speaker 4

Thank you, Josh. I'm also pleased to be speaking with you this afternoon. I'll begin with our third quarter performance followed by our fourth quarter and 2019 full year guidance. We had another strong quarter. Billings grew 29% to 38,800,000.0 We're particularly pleased with the results of North American enterprise as that has been the key area of focus for improvement.

We also saw strong sales into our installed base this quarter, demonstrating our land and expand strategy is working. We're planning for more improvement in Q4. And with a seasonally strong Q4 quarter, we are planning for a 30%, three-zero percent sequential increase in billings from Q3 to Q4. Revenue was $36,800,000 a year over year increase of 30%. Subscription revenue grew 34% and represented 83% of total revenue.

Revenue growth was primarily driven by new customer additions. Consistent with Q2, international represented 22% of revenue. Our billings were supported by the fact that our dollar based net revenue retention rates were greater than 100% and up slightly from last quarter. Our subscription gross margin was 73.3%, up two forty basis points from 70.9% in Q2. Including our services business, our total gross margin was 65.2%, a 140 basis point improvement compared to 63.8% in the second quarter of this year and a significant improvement compared to 56.3% gross margin in the third quarter of last year.

Subscription gross margin improved due to economies of scale driven by increased subscription revenue and cost improvements due to management and optimization of our third party hosting services. We continue to leverage our cost structure. In Q3, we were able to decrease operating expenses by 10% sequentially even though billings increased by 9% sequentially. The largest decreases were from realizing sales and marketing efficiencies. The net effect of sequential increased revenue while reducing costs allowed us to improve our operating margin by 77 full percentage points from the same period last year.

In Q4, however, we expect our operating expenses to track with top line growth to support our seasonally strong quarter, but we don't expect them to be any higher than what we expensed in Q2 of this year. Our net loss was $27,900,000 and net loss per share was $1.06 This is based on 26,300,000 weighted average shares outstanding, basic and diluted. In regards to our quarterly net loss, I'd like to point out that we have now made $19,000,000 of net loss progress since Q1 of this year. Turning now to our balance sheet. As of October 31, we had cash and cash equivalents of $2.00 $6,000,000 On cash burn, recall our prior statements that our burn is a byproduct of significant investments in research and development that are voluntary, but we believe are value additive as we pursue a unique and large market opportunity.

At the same time, we continue to maintain a strong sales and marketing presence but we plan to get more leverage out of our sales and marketing investment by focusing on larger organizations, targeting the right personas, promoting the benefit of our platform to both users, business users and IT as they digitally transform their businesses. We used cash from operations of $30,700,000 an improvement of $5,400,000 over the prior quarter and a 17% reduction since Q1, consistent with our plan to execute our business with the cash we have on hand. We're planning to reduce our cash burn from operations in Q4 compared to Q3 by about $1,500,000 even though we expect higher expenses due to higher growth in Q4. Our basic path to profitability is to continue to grow the business with minimal increase in costs and as shown this quarter, by sometimes decreasing costs when possible. We're planning to get leverage from R and D by continuing to innovate and grow but do it within the current cost structure.

We plan to get overall leverage by implementing improved strategies and methods that have higher efficiency and we are of course continuing to be tight on new spending and headcount. Now to guidance. For the fourth quarter of twenty nineteen, we expect GAAP revenue to be in the range of $37,500,000 to $37,900,000 We expect our non GAAP net loss to be about 33,000,000 and non GAAP net loss per share basic and diluted of $1.23 to $1.27 This assumes 26,500,000.0 weighted average sales outstanding basic and diluted. For the full year of 2019, we expect GAAP revenue in the range of $140,600,000 to 141,000,000 representing year over year growth of approximately 30%. We now expect our non GAAP net loss to be approximately $144,000,000 and non GAAP net loss per share basic and diluted of $8.79 to $8.83 This assumes 16,400,000.0 weighted average shares outstanding basic and diluted.

Note that all our share counts are impacted by the fact that we issued 10,600,000.0 shares at the IPO and also had 14,100,000.0 shares of preferred stock convert to common on June 29 and are therefore only outstanding for part of the full year, but fully outstanding for Q3. In closing, we're pleased with our execution during the quarter and we'll continue to focus on realizing more leverage out of our cost structure next quarter. With that, we'll open up the call for questions. Operator?

Speaker 5

Thank you.

Speaker 1

And our first question comes from Sanjit Singh with Morgan Stanley. Your line is open.

Speaker 5

Hi, thank you for taking the questions and congrats, Josh and Bruce on a strong quarter. And maybe to start off, Bruce, in terms of, your comments on sales productivity, yes, had sales and marketing expense down 20%, and yet you had billings, short term billings growing 30%, which is kind of what we want to see. So I look to your Q4 guidance, it's certainly above our expectations, but it's still within a decelerating growth trend. So we're getting your views on when we might see top line revenue begin to accelerate again? And then what it would take to get back to an accelerating growth trend?

Thank you.

Speaker 4

Got it. Well, you know, we are still in the process of running the enterprise play with Dean and Jim, and we're making off to a very good early start. And we think we've yet to realize all the benefit of that. And ideally, the cumulative effect of everything that we're doing does give us into a position to see acceleration of the growth rates. Although I will say I think 30% for this year is not a bad number.

And we obviously want to take full advantage of this opportunity. So the higher the better, obviously. But I think we just have to see how the next couple quarters play out as we allow the new players to really realize what's possible. And then of course we also expect to see great things from our international leaders who are very enterprise oriented as well and the humans affect all of that should be good for all of us. So anyway, that's how we see it playing out over the next couple of quarters.

We just have some work to do. But we're looking for ideally some good results.

Speaker 3

I think it's probably worth adding to something that Bruce has said before, which is we're not playing for this growth rate. Neither of us and most of our management team, we're not here for this growth rate. 30% is not shabby, but we're not here for this growth rate. So I think as we continue to see progress with average throughput per rep, which is about where we want it and certainly we're excited about it and it's getting to be time where it's time to look at adding more heads and more reps. And as we do that, that's when we'll start seeing hopefully, we can get to the point where we have accelerating growth.

But right now, we're really pleased with the efficiency that we're getting and making sure we have the right model that as that model plays out, we know it gets it's a really profitable growing model. And so letting that play out for a few more quarters I think is probably prudent.

Speaker 4

Yeah, it's probably worth me adding one nuance here. We are not as you know, we typically do one to three year contracts and bill a year in advance. That is how we've been since we've been public. Last year in Q3 and even in Q4, we did have multi year billings which makes one, it increases the number that we had last year artificially actually and depresses the number we had this year. And for Q3 that's about a 5% growth impact, for Q4 about an 8% growth impact.

So I think it's just worth noting that the real momentum in the business is higher than what you're seeing because it just happened to happen substantially in Q4 and a little bit in Q3. And that's one reason why the growth rates aren't as appealing as we want them to be.

Speaker 5

Understood. And I appreciate the comments on both fronts, Josh and Bruce. Maybe just sticking with the theme on sales productivity, just to continue the data points from last quarter. In terms of the commercial sales force, how would you assess performance this quarter? It was really strong.

I think you guys characterized it as, a pleasant surprise on how the commercial sales force performed last quarter. And then in terms of the European sales force sort of picking up the I'm sorry, the North American sales force picking up the habits of European enterprise sales force, how much is left to go on that front?

Speaker 3

Well, now you're trying to get us in a big infight here internally by talking about, you know, all the European and international folks compared to the domestic. But that's okay. We'll let them find out to see who's better. But, yeah, I mean, this is more like if you look at rep productivity a year ago compared to today, it's just dramatically different. And, you know, it is overall improving.

You know, it changes from quarter to quarter depending on which group specifically you're looking at. But overall, very positive trend. And that's one of the things that, you know, gives us the confidence to make the comments like we do in the prepared transcript, in the press release, and, you know, in answering the questions about the efficiency that we plan on continuing to see and find in the sales and marketing expense. And we're continuing to see that. And that does give us a lot of excitement, because when you're at certain numbers, you're like, Well, we're not efficient enough to even think about hiring more reps.

Well, now we're to the point where,

Speaker 4

Oh,

Speaker 3

it actually looks pretty good, and we should think about hiring more reps and continuing to put more assets in the field so that we can add more sales.

Speaker 5

And

Speaker 4

on the commercial group that we call internally the corporate group, what we've been impressed with that we weren't so sure we could count on is the productivity of that group has been remarkably resilient to these changes that we're making and how we're going to market, particularly the digital marketing spend and how we generated leads. And their productivity has been in many ways higher than what quotas typically are in a group this size. So we think that's a real asset for us. The way we want to utilize that asset is to have them focus on larger and larger accounts as well and look more like enterprise. And we get all the benefits that we get from the larger businesses.

So, again, we're pleased with what we're seeing from there because there are many scenarios that this could play out and it's playing out in a very positive way, frankly.

Speaker 5

Got it. Thank you, Bruce.

Speaker 4

Yes, you're welcome.

Speaker 1

Thank you. And our next question comes from Brad Zelnick with Credit Suisse. Your line is open.

Speaker 0

Fantastic. And I echo my congratulations on a great quarter, guys.

Speaker 6

Thanks.

Speaker 7

Josh

Speaker 0

for sure, Josh, the Retail Product Suite that you introduced this quarter, we found really interesting. And you talked about it enabling real time management at the store level and product performance. And I imagine some of this comes from the learnings that you have working with many of your retail customers, productizing that, bringing it to market. Can you maybe just comment on how large of an opportunity you see this being? And as well, should we expect to see you introduce other vertical package solutions like this?

Speaker 3

Yes. So first, I'll make a comment. Then I'm going to turn it over to Jay Hegler, who's our Chief Strategy Officer and actually is in charge of helping bring these apps to market. But, yes, definitely. I mean, really since day one, we've been talking about, you know, if we do this the right way and we bring together these, you know, five, six, seven different components that really are all could be startups in one, then we're going to have a platform that's going to allow applications to be built on top of this ecosystem that wouldn't work unless you were using us.

And you couldn't get that benefit anywhere else. And we do see customers that will be using an app from us, and they might be paying us $100,000 a year or $200,000 a year. And we know that their alternative would literally be millions of dollars to develop it up front and a couple million bucks a year to maintain it. And so we see these applications where we're working with customers knowing that they couldn't do this elsewhere or with any other technology that's out there. And so that gets us excited.

But it's kind of the it was the final you know, was one of the final things that we could do. We had to finish the rest of the platform before we could really get to applications. And so we're just starting down that path. We made a bunch of custom applications. Our customers have made thousands of them.

But we haven't actually been able to take them, productize them, take to the market. And we just did that first with retail. So I'll let Jay talk a little bit about some of the opportunity there and what we're seeing with our customers and about, you know, the opportunity for future apps and what types of apps those might look like.

Speaker 8

Yes. Thanks, Josh. We fundamentally believe that Domo should be able to put data in the hands of every one of our customers' employees. And when you look at retail, it's a it's a great example of that. There's an entirely underserved market of millions of employees that just don't have the data required to do their job the best way that they can.

So the retail suite is exactly just that. We've provided some tools that help to, help our retailing customers to really advance their position and optimize their business. So we're really excited about that. The sky's the limit really when it comes to what other types of industry applications that we can put out there. As Josh mentioned, our North Star customers, is and we really let them guide us to where they want us to go.

And so we continue to have the pulse of the customer where they want us to continue to innovate, on their behalf, and you'll see many more of those applications coming in the near future.

Speaker 3

I mean, an example that made me laugh was I was at a conference speaking, and a customer comes up to me after the conference. He's a CIO, and he's like, hey. I wanna introduce myself. We're some CIO of a, you know, Fortune 500 company, and I'm a customer. I'm like, oh, great.

Speaker 5

Nice to meet you. And he

Speaker 3

said, so I've got, you know, tens of thousands of ice cream machines. Can you guys do anything with IoT? And I'm like, yeah. We we've actually done a bunch of stuff with IoT. You know, historically, it was when we first started, it was all custom applications.

But then you start seeing, you know, opportunities, and IoT is one of the solutions that you will see an announcement from us in the future. And Jay, why don't you talk about how that you know, what that would look like and how we would combine different technologies to make that into an app? Yeah.

Speaker 8

The IoT is a cut something that people have been working on for five and ten years. I think where Domo can provide some really unique value is by taking that data and making it very usable at the end user level. And so long long, has the story been told where IoT is about aggregating collecting and aggregating the data. We wanna take that data and move it to the final mile to all of our end users. And so you'll see some interesting things, and, that will be coming out here in the in the in the coming future that really leverages the power of all the IoT platforms that are out there to really make that data, usable for all of our end customers.

Speaker 3

And then the same thing we're seeing happen with data science. Data science and leveraging what we have internally with AI and machine learning. And you'll see a lot of announcements. It's Domepaloza with us on that topic. But you know, data science usually the big challenge is 90% of the work I'm always told is in collecting and preparing the data.

And then the final 10% is where you actually get to do the data science. Well we've got a platform that has all your data connected in real time, connected out to the systems, the source data the source systems where it came from. And in this very robust data engine that allows you to find interesting correlations and anomalies if you only ask the question. So what we did is we had a team that went and developed the ability to automatically find those correlations. And then using AI and neural networks, figure out exactly which correlations we should suggest in the first place which data sets we should look at and then propose to the customer.

So then, you know, you use Domo and your business is in the cloud and it's operating and optimizing automatically using these AI engines that we have. So the data science, opportunity is also something and and, Jay, why don't you give them a preview of what that's gonna

Speaker 8

look like? Yeah. We really want to, to help to extend the value of data scientists. You know, there's a there's a global shortage for that that level of resource, and we want to help our customers to extend the function of data science by leveraging the power of the Domo platform to take and derive these complicated datasets and make them available to the masses. We've got some new capability where we can take and allow our customers to, create custom scripts, using multiple languages, and then have those run within the context of the platform.

So we basically run those scripts as a managed service. And when think about the power of that, when you can take a data scientist or multiple, but then take their derived data sets and provide them access to the entirety of a company, you can really see how we can help extend the value of data science.

Speaker 0

Wow. There's a lot there and very cool use cases that are taking advantage of all this power inherent in the platform. If I could just follow-up, Bruce, and touch on the sales productivity gains that you're seeing, which are obviously very impressive. How should we think about decomposing that into that which comes from natural leverage in the model as you build more and more renewal business versus actually able to you know, land new business more efficiently? And then, you know, in terms of trend of productivity, what should we think of as being baked into the guidance you've provided for us?

Thanks.

Speaker 4

Yes. In our comments and thinking about how to leverage out the cost, it's all about customer acquisition costs. So it's all about new business. The leverage we get on renewals is just additive to that. So we are our basic model is to spend the dollar or our basic target I would say is to spend a dollar to a dollar 27 depending on different ways to measure it to get a dollar of new recurring ACV and at least get a dollar of total ACV.

So we're just working on many different leverage points within sales and marketing to get that either yield up or get that cost per dollar get the yield up for every dollar we spend as much as possible. And there are 10 different things we're doing. So over time I think we'll start revealing maybe more information about each one of those, but it's 10 different things. And this is why we sit on the roadshow. We have a lot of leverage we can get out of our cost structure and we see a path to do it.

And it's why Josh was so confident in his statement that we have a fully funded business plan. And for Q4, I mean, get the benefit of a Q4, which is seasonally strong. But we're doing that also with sales and marketing just really running, the enterprise playbook, which we are perfectly constructed as a product to run. And what we are seeing already is larger deals start lining up more than ever before. The task at hand is to make that dozens and dozens and dozens.

The task at hand is to get them to close. The task at hand is to do it very in efficient manner. But the kind of use cases that we're seeing and our own customers kind of promoting our product to other customers, we know we're highly confident we're going to get there. What we want to be cautious about is be careful about assuming they're coming right away because running the enterprise play takes time. And we really don't want to get over our skis on what expectations are supposed to be.

But like that's why we keep saying we like what we've seen so far. Everybody's doing what they're supposed to do. There's just so much more to continue to do and we don't quite know the timing that we are just saying wait and see and we'll report next quarter and we'll be able to give more clarity on what happened in that quarter. At that point in time we'll definitely have a point of view on next year and we'll discuss that in detail.

Speaker 0

That makes sense, Bruce. Congrats on the progress and we look forward to more in Q4. I'll jump back in the queue. Thank you.

Speaker 4

Great, thank you.

Speaker 1

Thank you. Our next question comes from Bhavan Suri Your line is open.

Speaker 6

Hey guys, can you hear me okay?

Speaker 4

Yes, hear you great.

Speaker 6

Hey thanks and congratulations. Really, really nice job there. I guess let me just touch on a high level question here around pricing. And I think we've discussed in the past, but I'd love to see if you've got some updated thoughts here. As you look at your products, if I take the Platform Plus user based model and I look at what you offer, so take the ETL piece, the data lake piece, the data warehouse piece, data prep piece, this piece, AI piece, and I take individual best of breed products and I add up those prices, your price point is materially, materially lower if I try to couple that together.

I get that I have to pay Accenture millions of dollars to actually integrate it and that's had its own issues. How are you thinking about sort of pricing? Obviously, early days, you want to get the logos, but it does feel you sort of underpriced vis a vis a competitive custom integrated suite. How should

Speaker 3

we think or how are

Speaker 6

you guys thinking about sort of where you sit in pricing vis a vis the competitive outcome which is a coupling of lots of technologies? Or do you think today it's kind of stable where it is and it's kind of where you'd like it to be?

Speaker 3

No, it's definitely not where we'd like it to be. We feel like we're dramatically underpricing and underselling the value that's there. And our sales leaders repeat that to us. And we're actually going through a strategy right now to redo the pricing that we have and just go to market differently in terms of the way that we talk with customers about it. I mean, to your point, initially, we would talk to customers, people were very confused in the market about what we are, what we do, how we do it.

There was a lot of noise. We get compared a lot to thin visualization layers. And it's taken us a while to figure out how to really help them understand the platform. We have an architecture slide now that we show to our customers. And the second we show them the seven samurais and the pieces and how this all fits together, it dramatically changes the conversation.

But then our pricing doesn't match that. And so putting together service orders and pricing strategies that complement the architecture and the story that's there. To your point, if you look at best in breed across all those things, it'd be dramatically different pricing. So making sure that we're doing a good job as an organization helping the customer understand that along the way. And then also just the way that we came to market initially was with per user pricing, forces it into a per user conversation, not about the value that you're getting from all these different components.

So we definitely need to do more work there. And I think, you know, this time next quarter, we'll be able to update you on some different strategies and impacts. We've been testing it, and we're seeing some good positive feedback from the market and from customers when we do approach it the right way. And so I think there's a lot of upside in the way that, you know, we approach customers.

Speaker 6

Got it. Got it. So I'll look forward to hearing about that. And then one follow-up from me. Just as you look at the changes Dean has made, you've made some go to market changes, just maybe a little more specific, so maybe a little more tactically now.

Sort of what changes has Dean made in that sort of enterprise strategy and even commercial strategy? And sort of how much more can he tweak them? Has there been any big changes? Or is it sort of small tweaks? And do you think you're sort of there?

Or do you think this sort of continues evolution for the next two to three quarters as you sort of refine that strategy?

Speaker 3

Well, let's not make Dean a god yet.

Speaker 4

And I think that Dean's listening, by the way.

Speaker 3

Dean, you're not doing a good enough job. Keep working hard, please. But I mean, the reality is and Bruce touched on this earlier in one of his comments. We have, you know, an international team that's been doing really, really well. We have a corporate team that's been doing really well.

And we've been able to kind of federal state like test out different things. And we've given autonomy to different leaders. Some of the things that's working Dean's implementing some of those things working is bringing his own brand and flair as well. He hired a great guy to run enterprise for us, Jim Pawalski. I should probably state here that we do have Dean and Jim running enterprise.

They're both from Chicago. They do get called Jimmy Dean quite often internally. But, you know, real approach is about also where the product's at and where the customers are. We've got a lot more enterprise customers that, you know, three years ago we didn't have a lot of enterprise customers that were at all. And we didn't have a lot that were happy.

And now we do. And we added all the functionality that they needed in order to we had a bunch of customers that weren't increasing in size because we didn't have enough enterprise class functionality. So the product team did a really good job adding those things. And it's allowed us to take a different approach in how we go to market. And so if you look at even one of the announcements in the press release about the CIO Council taking in CIOs and finding folks that had experience at oh, jeez, it was Microsoft and federal government and let's see British Petroleum and AIG.

And these guys came in and they looked at our we sat them down and showed them the whole product suite, and they were blown away. Literally, said things like, I thought this was a pipe dream that you guys were actually able to do all the things that you said that you could do. And another person said, This is the holy grail of, you everything that I ever wanted in BI. Another person told us they spent $5,000,000,000 doing what we do that we could do for them for a couple million bucks. So, you know, things technologies have dramatically changed.

We enable that. And it allows us to go to market in a different way. And I think that's what we're seeing now from the enterprise team. You know, we don't it's not good to walk in a different door and then backdoor into the CIO office. You need to go into the CIO office through the front door and partner with them and make them a part of the conversation.

And that dramatically alters the landscape of the relationship. So one of the things we're doing now, the second that we get in wherever we might enter, we make sure that we get the CIO to be a part of the conversation. And that certainly helps. And then I think attitude and approach of Dean and Jim, just that from their experiences, they expect big multimillion dollar deals. And there's a lot more big deals in our pipeline than we've had historically, because that's what they expect.

And they weren't here for the hard times. And they're not burdened by the past. And, you know, they want meat eating, blood sucking sales reps that they know are going to hit the numbers or get shot in the head. And, you know, that's the kind of attitude culture no excuses. We hit our numbers.

And, you know, I think that's refreshing for folks as well. You know, people want to follow and want to have good leaders. And I think that we've got that in place now. So that's also that culture has changed as well.

Speaker 6

Awesome. Awesome. Thank you, guys. Appreciate the color there. And congrats again.

Thank you.

Speaker 3

Thank you.

Speaker 1

You. Our next question comes from Jennifer Lowe with UBS. Your line is open.

Speaker 9

Great. Thank you. I wanted to ask a little bit more about the 21 enterprise wins in the quarter. And I know it's difficult to generalize, but given what you're seeing in terms of better execution, I'm curious, as you bring those new customers in, how often are you coming in the door with sponsorship from a C level executive at this point versus something more departmental And sort of related in those deals have they sort of predetermined that they wanted a cloud solution? Or are you sort of going head to head with the traditional perpetual players in the space as well?

Speaker 3

No. We're not necessarily going head to head against traditional players. Most cases, we're trying to solve something they can't figure out how to solve, or that they haven't been able to solve. I don't have a specific number for you. You know, I know anecdotally, certainly the number of C level relationships is much higher than it was, say two years ago, a year ago.

There's a lot more CIOs that are around the table on these conversations. I've been on a lot more deals where we're talking to the CIO and we're looking at a bigger deal upfront. And we're starting to see also CXOs who are the way I'd characterize it is you go into a deal and you talk to a CXO of an enterprise company and they say they want it because they like the solution. And eventually it's going to get to someone in the CIO's office. And one of the quick questions that's going to get asked is who else do you have as a customer that's similar to us in size, scale, scope?

And we couldn't ask that question very effectively a few years ago. Now that we can answer that question much more effectively it helps those conversations move along. And so instead of running from the CXOs and running from the CIOs we know that we can actually be more effective by finding them and making them our partners.

Speaker 9

Okay, great. And then just one more for me. Know, Bruce I think in your remarks you mentioned some of the efficiencies you're realizing on the infrastructure front as you leverage third parties for some of your deliveries. I'm just curious what the latest is on the AWS migration and where that is at this point.

Speaker 4

When you mean you're talking about using AWS as our as our data backbone? Yeah. Yeah. So they're still I mean, they are our primary, hosting service and suppliers of technologies for us leveraging our product. But we are also on the Microsoft stack.

And we also, as needed, are able to use our own data centers. It's not really a strategy to migrate off, there definitely is a strategy to be agnostic and to leverage relationships we have with others to find, to get you the better deals or to actually move to more cost effective suppliers. And Google can come in the mix too. So we're always shopping for a better deal, so to speak. And then at the same time, we are also applying just a little bit of engineering resources toward being much more effective in use of these data processing services and we're getting a lot of leverage out of that.

And we're going to continue to do that and that's going to give us great opportunity to see improvements over time of our subscription gross margin. We'll just give you updates and comment on it from time to time as we see that improving.

Speaker 9

Great. Thank you.

Speaker 1

Thank you. And our next question comes from Derrick Wood with Cowen and Company. Your line is open.

Speaker 7

Great, thanks and nice job on a solid quarter across the board. Bruce, I guess I'm just going to follow-up on that last question on margins. You've made a lot of progress on subscription margin. Are we in the nearer term or medium term? Are we at kind of normalized levels now?

Or how much room do you see over the next year or so to keep driving those margins higher?

Speaker 6

We see

Speaker 4

a lot of room for more leverage actually. One, you get the natural leverage just in SaaS. As we know, stream gets larger, it just tends to be, you you get more and more efficient generally. You just get some benefits of scale. But at the same time, there are just a lot of things we can do where we can continue to grow the user count and not have costs go up or go up very little.

And we just have a very rich technical skill set in the entire company, very technically oriented. A lot of it has been in big data and data processing for decades. And we see a lot of opportunity to leverage that. And I don't know that I'll go as far as tell you what's going to happen next year. We'll definitely get to that next quarter.

But there's definitely an 80% in the cards here for subscription gross margin. And I think we really went and gun for 85. So there's incredible opportunity here. And it wasn't so obvious at the beginning when we're in the big data business. So can you really get to best in class kind of benchmarks over time?

And I think we're finding the answer is yes. It'll take us a little bit of time to do that, but the opportunity is clearly there.

Speaker 7

Wow, that's great to hear. Josh, I've got a high level question for you, and it's around cloud. And I mean, you guys have a distinct advantage of being natively built in the cloud for the cloud. Any enterprise that is looking to build more analytics in the cloud should be a prime target for you. But putting BI and analytics in the cloud is still pretty early.

So I'm just curious where you think we are with large enterprises' readiness to put their analytics in the cloud and kind of what factors could accelerate that shift?

Speaker 3

Yeah. I think it's going to be, I don't know, probably twenty years before you get fully adopted on that front. But I would probably follow just whatever AWS says. That's a pretty good barometer. You know, we were just at AWS conference, and you see the variety of companies that are there and then the types of data that they have and the types of data that they don't have yet.

We certainly see customers we're not a, you know, religiously, you've gotta be cloud or, you know, we're not gonna work with you. We don't care. I don't care where your data's at. We'll we we can bring it into the cloud, or we can leave it where it resides behind your firewall and do federated queries on it. So, you know, we see that said, our customers, there's so much efficiencies, and there's more power, and scale that comes with cloud.

And that's what happened with my last business too. It's not that we're, you know, philosophically think that it's gotta be cloud. I I don't really care. But if you're not cloud, you're not gonna get the scale. You're not gonna get, you know, the AI engines that I was that I was talking about that automatically are going through all your data and finding different anomalies and and correlations.

Like, that's not gonna happen. So, eventually, you're gonna see right now, we're just talking about storage. When you're talking about the benefits that come from being in the cloud, that's what's gonna cause more and more people to shift because I'm excited for the day when it's common knowledge that you're crazy if you don't have all your data in Domo. Like, you're crazy. You're you're you're missing out on benefits.

You're not waking up in the morning and pulling out your phone, it's suggesting three things that you need to go check out because it found some interesting patterns in your data. And I think that's the type of stuff that's going to really pull people into the cloud that, you know, might be coming kicking and screaming, digging their heels in.

Speaker 7

Great. Thanks for the color. Thanks, guys.

Speaker 3

Thank

Speaker 1

you. And our next question comes from Pat Walravens with JMP Securities. Your line is open.

Speaker 4

Oh, great. Thank you very much.

Speaker 3

Hey, Bruce, can we start with and I may have missed it. Did you tell us

Speaker 4

where your headcount is now? We did not. I mean, we haven't made it really a, you know, a published metric, but we are being I mean, one way one way to grow a business one way to get the profitability faster and, is to grow the business and not add anybody to that account and sometimes let it, be a little tight and let it shrink a bit. So that's one of the tools in the arsenal, so to speak, and we'll do that when we can. If it if it if it doesn't make sense for the business, we won't.

But we have had the advantage of, growing the business without having to hire heads to support the business. Mean, we have our basic our basic position is we have enough heads. Let's just get more out of them. And that's exactly what's going on right now.

Speaker 3

Yeah. That's what I figured. Okay. And then as I look at the q four billings, I mean, this quarter,

Speaker 4

you did 29% growth. Right? But I I felt like you're, I don't know, commenting a little bit about I don't know. What should

Speaker 3

we should we expect that that that same rate of growth for q four, or should it

Speaker 4

Well, I kind of pointed you to, you know, about 50,000,000 in billings for next quarter at the end of the day. So, you know, so that has its own growth rate. And then and then I guess that's why I wanted to highlight, even though that's not up to the average for the year, it does have the headwind from the fact that we kind have of a non comparable quarter last year that had more billings in it had billings in it for future years. And you can kinda see that it happened if you looked at long term deferred revenue. I mean, it's sitting out there.

So, yeah, we just so we're just telling you where we think we can come in, right now, and that's where the number gets you to. That's where it gets you to.

Speaker 3

Okay. That's that's I think that's good. And then, do you wanna comment on when we when we should expect this thing to be, free cash flow, breakeven?

Speaker 4

Well, you know, we shared a lot of numbers pretty public. We showed that we showed that 200 that the IPO would get us there. Right now, we're just saying when we said we would get us there, we meant it. We said the last quarter we meant it. Just double down on it because we see the path to get there, and we think it's extremely achievable.

I'm ready to say it right now.

Speaker 3

Bruce won't let me for two quarters.

Speaker 4

Yeah. I won't let him. I'll let we'll let q four happen. We'll get some nice visibility in the next quarter. And, at some point in time, we'll maybe be more specific about it.

But we're highly confident that we can do that. And I would basically say we're ahead of schedule on any number that we've talked to anybody on any past model so far. So ahead of schedule. It's nice to have it. It gives us confidence to kind of reiterate it and be confident about that fact.

Speaker 3

Don't worry, Josh. I'll ask you again next quarter. Last one for me. You see Josh, did you see any signs of hesitation or macro, you know, issues out there this quarter? No.

We didn't. I'm trying to I'm just trying to quickly scan through everything that I've heard about. I I haven't heard about, you know, any real hesitation. I mean, the most exciting conversations typically that we're having are within our customer base already where, you know, they've been working with us for half a year or year and a half, and they've got a big upgrade on the horizon. And it's you know, we've got we've got some cool customers where yeah.

We've got customers in Southeast Asia that, you know, palm oil and and 25 other different businesses all combined into one and automating their business for the first time, getting data for the first time. We have big makeup manufacturers and makeup retailers that have more access to data than they've ever had. And people that are working with us getting promoted time and again. And you know, we have some customers where they have small we might be working with a regional office, and that regional office ends up doing everything analytics wise globally for them. So it's just really fun to see.

And and so maybe we'd be a little maybe we we would, not see the, you know, headwinds if they were coming, because most for the most part, we're just seeing excitement. And like I've said before, the thing that gives me the most confidence, the things that we're doing for our customers, no one else can do. And I ask question all the time to my technical folks. I'm like, who else could do this? And the answer usually is it'd have to be a combination of those three things plus a ton of consulting and custom work.

So that's what gives us a lot of confidence for the future. We just need to do a lot better job getting the word out there, figuring out the right way to package that up, figuring out the right way to find new customers much more efficiently and effectively. But we know it's going to come, because we look at what we're doing for them. And the customer will take you to the promised land. So that's where that confidence comes from.

Speaker 4

Yeah. And I'll add to that. I mean, it's I'm out of the field meeting C Suite just showing how I use my product. And it is extremely clear that there is nothing like this in the market. And our big challenge is as we explain what can be done, it's frankly not believable.

So we just have to get a better job at communicating the value that's there. And if it really is a tough macro environment, we will still stand out as a very unique value additive offering that can't be obtained anywhere else. And then on the other hand, this is where Bhavan brought up this point, you add up the whole set of technologies that it takes to deliver what we put in one platform. There is a very strong cost reduction, cost cutting rip and replace argument that we could make and we could lean into that if the market required us to do so. We don't know that it's not super productive to do it today, but our customers are kind of we're kind of leading them to water and they seem to be drinking without making that a big part of the pitch.

But we can lean on that if we really had to if the budget environment got really tight.

Speaker 3

Thank you both.

Speaker 1

Thank you. That concludes our Q and A session for today. Ladies and gentlemen thank you for participating in today's conference. That does conclude today's program. You may all disconnect.

Everyone have a great day.