Domo, Inc. (DOMO) Earnings Call Transcript & Summary

Good morning, everyone, or good afternoon, depending on where you are located on this fine day. Thanks for joining us. With us, we have Bruce Felt and Pete Lowry from Domo. And before we start just to remind people, we are able to take questions in online, so please feel free to submit any that you have, and I'm happy to work them into the conversation. And on that note, thank you, Domo, for joining us.

Maybe to start off, obviously, this year has been a very unusual year for many reasons. I'm giving this presentation from my guest room and not from a hotel, which I would much prefer to be doing, so we're all adjusting to that. But Domo seems to be navigating the environment pretty well right now. So can you start off there and talk about what you're seeing from a dividend perspective at this point? And how that compares to what you were seeing maybe before the pandemic started to change how we all work? And I'll hand to you, Bruce.

Sure. Can you hear me okay, Jen? Can you hear me?

I can.

Great. It works. I went into the wrong room and finally figured out how to get here. But anyway, glad to be here. Yes, it's really -- I mean, it's really interesting how this has played out for us. Coming into this year, we knew what to focus on. It was more operational improvement. It was continuing to work on our positioning in the market. We're unique in our offering to be able to really deliver to business users what they really need, how they like to consume data at a speed and pace that works for them and their business. And we're working on our way to optimize that. And then the pandemic hit. And as you know, we were as worried as everybody else as to how that was going to affect us because with the macro slowdown, of course, it had to slow down our business. I mean how could it not? But we found the opposite to be true. One thing that we were able to do is pivot quickly to package our solutions for the need at hand and the need at hand at that time was helping states navigate through the pandemic. And we did a very good job at it, and we were able to do that because our platform has incredible flexibility and reach. It allows no-code app development, and we built a crisis command center overnight. And boom, we were able to be very relevant in that environment. And we worried, at that time, as happy as we were that, that was just a onetime play. But what has happened since then is we found the market generally has been more receptive to our products and product offering and approach, than before the pandemic, and I think it just happens to be a function of the fact that we're just on the right side of where technology is going. I mean in the cloud, mobile, self-service, very easy to use, highly scalable, self-service where customers can do interact with data the way they never thought they could before. And then if you add on top of that, the amount of rigor we're putting in the sales and sales management and then on top of that, really trying to be even more thoughtful of our place in the market, that has just really given us much more momentum than we thought we would ever get. And it's been a big contributor to us having pretty good last few quarters. And so we think it will continue we think that the need for speed, which really became prominent when the macro's topsyturvy, the need to know what's going on really accelerated. So waiting in line for reports and waiting in line for data to work through all those layers of technology to finally get to an end user. We think customers just didn't -- the market just didn't have time for that. And so we played really well into that. And the other thing that seems to be working for us now more than ever before is we're starting to see a substantial number of deals coming in from X users of Domo at another company, who had moved on. And once you start using Domo at your company, you really don't ever want to go back. And if you move to another company, you really can transform the way they use data and think about data if you bring Domo in. So it's a big win for the sponsor. And we're starting to see more and more of that. And so, yes, generally, the environment's got much better for us. And as you know, Jen, we still think a lot we can do on our own to help our own cause. We think we can continue to improve how we approach the market from a sales perspective. We have a long way to go on the marketing side on how to position ourselves perfectly given what we have against the way the markets used to buying BI, which tends to be dozens and dozens of technologies in that holistic approach, so how do we fit into that. And that we've done better and better at but we have a lot of -- I think we got a lot of room for improvement. Once that improvement comes, then the environment ought to get even better for us. So let me just stop there.

Yes. No, that's great. And I apologize in advance for the leaf blower operating outside my window. Hopefully, it's not too much background noise. But I do want to just drill and you made the point about advocates coming from 1 organization going to a new organization and bringing Domo with them. And I wanted to drill into that slightly. Is there any kind of -- I mean, there's a lot of different people who are advocates and users of Domo technology, the CXOs suite has always been a focus, you put more emphasis recently in CIOs. You also have people who come from the data side of the house, data scientists or whatever. Is there any commonality to the types of people who are bringing Domo and the roles they fill and how they advocate? Is it just across the board? Or are there certain levels of seniority or ones that are really the advocates? I'm just curious to know if it's the data scientists, the C-level or the rank and file and all those?

Yes. I would say that's kind of 2 different, like different areas that complement each other. One is, as a business user, the way Domo like delivers data to you and the fact that it's real time, and you can interact with it, it's the way you would just imagine data ought to be delivered in 2021 going to -- 2020 going to 2021. It's just how you imagine it ought to be. And so when Domo's -- when you start using Domo, yes, this is the modern way to consume data. And then you move on to another company, you know that this is just not optimal. I mean it's spreadsheets and it's e-mails and it's PowerPoint or it's waiting in line for reports or it's like stale data. You just know that as a business user, you can do so much better if you had something like Domo. So the business usage side definitely gets pushed. When you're a technologist, and this is where we're finding even more power. If you're a technologist like a BI group supporting or somebody with a data analytics background that supports a business group, you really can make a name for yourself by bringing Domo in because we can really get the use cases that just aren't possible to get to with other technologies. I mean delivering it on your phone and having real-time information in certain cases is just paramount now and just nobody else does it the way we do it. So we're seeing -- and they really can -- they really know more about the, I guess, the data voids, I'll say, or the gaps that exist in their current infrastructure and/or businesses or the business side that's really screaming for solutions and not getting them, they know those. So when that person shows up, they're really quickly -- they're very quickly able to demonstrate value and capabilities and pull us in. So we kind of have both those vectors working for us when an X customer shows up as a new prospect.

Great. And going to one of the other themes you touched on, we're hearing this from a lot of the companies presenting yesterday and today is this idea of rapid time to value, and that's just that much more important in this environment as things are changing very quickly. And one of the things you talked about on your earnings call last week or -- last week, losing track of time was just that you were seeing a lot of pickup in new logo adds, and that was a particular area of strength in the quarter. And I'm curious, putting those 2 pieces together, are you seeing companies that are just closing a lot -- come into the pipe and close a lot faster or some of the new opportunities that you're seeing, things that have been hanging out there for a while, but they're starting going to convert now. I'm just curious how that rapid time to value is impacting what you're seeing from a sales cycle perspective? And even related to that, what the scope of that initial deal looks like?

Yes. So rapid time to value. And again, I fold that into the need for speed. I got to know now what's -- the macro is kind of crazy. Business disruption on the one side, my business is doing okay on the other side, what do I do? We can really just plug that hole really quickly. And I think that's one of the drivers for why new customers are coming to us and saying, I like what I'm hearing about you, I ought to give it a try. And they're trying it and sticking with it. They're either trying it by buying it or they're trying it through a proof of concept. Now we continue to work on to make it easier and easier for them to do it on their own. And they almost feel like by the time they're done, they're in production, so they just flipped the switch with a purchase order and boom, we got a live instance. So yes, those are drivers. The other thing that's interesting is we are seeing leads coming through the funnel, like developing in the deals quicker. And we actually have a reasonable amount of our business really comes in the quarter and closes in the quarter, which I kind of find fascinating for enterprise software. I mean it tends to be the smaller companies, but it's not unusual for a -- maybe it's not a large purchase, but it's a large company. And that's a lot of comfort does in like feeling confident about the numbers when we give guidance. When we have a lot going on at the front end of a quarter before we even give guidance, and then we know there's even -- there's pipeline support for our numbers. And then on top of that, we know we're going to get deals closed from stuff not even in the pipeline yet, that I find a lot of comfort in, and that's been getting better as this year has been progressing.

So just following up on that thought around the predictability of the business. And I know we've known each other for a long time. I know you're a conservative guy, and you never want to get over your skis. But it does feel like the flow of the business is starting to get a bit more -- you're seeing a higher volume coming through. So you're not depending as much on 1 or 2 deals to kind of hit numbers. And putting it in context, I think coming out of the last quarter, the Q4 billings guidance assume that there was a deceleration, but we've seen you outperforming pretty consistently. It's a seasonally strong quarter. So maybe can you just sort of comment on what you're seeing in terms of pipeline heading into Q4? What's kind of baked into that guide for decelerating billings growth? And what are the levers that can cause things to potentially go a bit better than that?

Yes. So what's scary about Q4 is, is they're just big numbers. And trying to grow over big numbers, always like causes pause in providing any kind of guidance to what can happen. But we did see enough early success in the quarter. We do have enough visibility into the renewal stream, which is still a big part of the business. We've gotten much better at pipeline management with cleaner, more accurate pipeline. We've gotten much better at deal-based forecasting, not macro forecasting, deal-based forecasting. We've gotten even -- we have analytics that points to numbers that have been incredibly accurate based on pipeline and certain characteristics of the pipeline. And when you add it all up, we felt good enough to increase from implied guidance the quarter before to increase Q4 by $6 million. And yes, we really always base it on what we know, not what we don't know. And what we've been finding is there's been more upside than we've really seen in the last few quarters. We haven't intentionally tried to do anything with the numbers to keep them "conservative," we just kind of work on what we know. But we did know enough to actually increase the number by $6 million, and we feel -- when we gave the guidance, we felt highly confident about our ability to meet or beat that number. So it's a meet or beat. We want to feel highly confident, and that we certainly did. And the only thing I can do, say, right now, and I think I said on the earnings call is -- or at least on some of the Q&A and -- was Q4 is, for whatever reason, they do -- sometimes they're just crazy, crazy good. I've never seen 1 crazy bad. I've seen a kind of okay, but crazy good -- same thing at SuccessFactors. The numbers were always so huge. And then they got huge again. And I think it's just what Q4s do. The whole Salesforce and organization is just set up to just make it happen in Q4. And I hope that's the case. And if that's the case, we're going to have another good quarter. If it's just as we see it now, it's going to be as we guided. As we see it now, it'll be as we guided. But yes, I'm rooting for the other side. I'm rooting for a very active quarter. We don't have really big deals baked into that. Very possible they come through in Q4. So I hope for that. We just don't count on that. When we did count on it before, it just didn't work out for us. So that's all the thinking behind the numbers and what might happen this quarter.

Okay. Fair enough. And maybe just to touch on some of the things that you mentioned earlier around the operational improvements that have happened at Domo over the last 12 to 18 months, both around the sales strategy and around sort of the sales process. Maybe we can start with that strategy first, where there's been sort of a pivot of instead of trying to displace the BI stack that might already be in place a large organization to kind of add value on top of what pre-exists. Can you just talk about that a bit more? How does Domo add value relative to what some of the other BI players that we hear about do?

Well, the thing -- I mean, the thing that makes us different is well, first, the whole vision was different. And even Josh will say, rightly or wrongly, I decided that we were going to solve the needs of the CEO and the management team and business people, rightly or wrongly. Because you could say wrongly from the point of view of, "Boy, there's a lot of like point solutions have done pretty good." I mean they have huge market caps, higher growth rates, you name it. But we chose this path because this path was understandable in that nobody really gave the satisfaction scores in BI and reporting have just always been some of the lowest in all software. Because everybody expects to get data in a modern way. They get it on the consumer side, but they don't get it on the business side. So that's the problem we want to solve. And we solved it. But we did it at the expense of literally not fitting into the way organizations think about bringing in technology. They bring it in, with -- by data warehouse, by this tool, by ETL layer. They just pull all the parts together for whatever to meet the needs. And this is particularly true with the largest enterprises. So our challenge has been, well, how do we fit into that when we're a complete stacked to give the -- which is required to really provide the solution, and the way that has evolved is not changing our technology whatsoever. It's -- let's just be friendly in how we ask our customers to think about how they can use Domo. Do not think of us as a replacement, think of us as an enhancement because we can sit on top of -- there is no technology -- parts of a technology stack that we cannot work with. So just add us on and let us solve for issues that aren't yet solved in your data stack. So that's been one way to move from you don't need BI or IT to even help you to, "Hey, IT and BI, why don't you use Domo just to leverage all the investment you made in your infrastructure." Huge, huge difference in positioning, no difference in technology. It does require Salesforce to really talk differently, and that just takes a long time to work its way through. And we're still working our way through. But we are getting CIO BI sponsored deals. The biggest one last quarter was CIO sponsored. I contrast that with usually CIO blocked. Like you are part of my stack, so I don't care what you do. I'm the CIO. I'm in charge of this. That's not -- I'm not making that call. I'll solve the problem some other way. That's kind of what we were facing. And so we've definitely changed our positioning in favor of getting the CIO and the BI group to help us, and part of our sales and marketing motion next year is absolutely going right at BI. Like right at BI, you don't give up any of the value that we bring to the business people, but you get the leverage of what the IT department can do for you and you remove the block that we've kind of run into time and time again. We usually overcome it, but overcoming a block is really not the way to have a high velocity, high-growth business. You really need the market pulling at you, wanting you to come in, we shouldn't have to be pushing and removing obstacles. And so if we get that right, hopefully, sometime during next year, then yes, that's when we really start getting, I think, growth rates commensurate with what we think we've built here.

And that makes sort of the natural next question, which is we've seen this acceleration in billings growth over the last few quarters. Certainly, Josh's -- and you have expressed a view that this business has potential to grow much faster. It's one step at a time, but relative to the investment footprint of the company, what kind of growth are you building for at this point? And what do you see as the key levers getting you there from here?

Well, we haven't given guidance to next year yet, we will. We definitely want to keep up the growth rates we've seen, if not higher. I don't know, as I sit here now that we can guide that high yet, because we're layering in the plans and building our plans to do that. We are focusing on areas that ought to keep the growth rates where we've seen or close to it, ought to. The one thing that we have now that we didn't have before is, as you might recall, when we went public, we had something like $140 million of annual burn, right, cash burn, which is now 0. That's $140 million of improvement, leverage in the business that we've gotten because we have not really increased costs. Not all of that, but some of that is now finally available to be reinvested in the business and growth. So we really are rethinking what's possible right now. And instead of being like resource constrained, where we just said, look, we're spending enough on sales and marketing, you don't need to spend more, that's just the way it is. That was kind of our approach, get more out of it. We are still saying that, by the way. I think we should be able to get a lot more out of it. But we're saying, okay, if you really can make a case to build growth in some fashion that might not be immediate ROI and might not -- it might cause costs to go up, we'll do it if the case is made. So the case has been made, for example, well, let's definitely start hiring reps. And let's kind of don't stop. I mean, we aren't saying go crazy, but just start hiring and keep hiring as a reasonable bet to make when you aren't as cash constrained. And we're going to make other bets like that we think help us grow commensurate with the opportunity and try to keep growth rates where we've seen. And again, I guess, I caution about like, what will we guide next year? I don't know. Maybe where we've been, maybe not, we just don't know yet. We have to just blend like what we think will pay off, when it will pay off, that sort of thing. But it ought to be -- we're definitely swinging for bigger numbers, definitely swinging for them.

And maybe a couple of thoughts in there. So if we think about -- on the call, you talked about this year has been a year of pretty dramatic improvement or reduction in the cash burn, improvement in the cash flow. And looking ahead, it doesn't sound like we should expect that level of expansion. There's certainly a lot of investment opportunities ahead for you. Is the view that for the next certain period of time as you sort of pivot and invest in some of these growth opportunities that really any positive cash flow will be reinvested into the business? Or is there potentially a bit more margin expansion there? How should we kind of parse through the commentary on you've gotten to this goal of cash flow profitability, but there's also a lot of investment opportunities that you can take advantage of now that you're at that breakeven level?

The main principles are we are cash flow positive. We will stay there. We plan to stay there. We want to take -- given keeping it at a level not too dissimilar to what we just produced, keeping at that level, then how much investment opportunity is there for us, and we kind of know the number. And then can we really deploy it effectively? If so, yes; if not, we'll let it flow through in the more cash flow. And that's the process we're going through right now. I think we can still basically expand margins, generally speaking, next year, and it's just the pace of like -- it won't be anywhere near the pace that we've done. It's going to be a function of that thought process. We have x amount available and still can generate cash flow, but can we deploy it effectively because we do not want to get wasteful. We don't want to get sloppy. We don't want to build up bad habits on the one hand. But on the other hand, if like, for example, we see sales productivity just hangs in there as we add in new reps, that's a very bullish sign, and we'll go like we want to keep doing that. If we see the run at BI and IT is really working, we'll definitely want to invest more in that play, more content, more people supporting it, more lead gen. So to be determined. But that's the basic thinking behind how we're deciding how much to invest and where we draw the line on how much we can invest.

And I got a related question in from the audience. And to the extent that they are comfortable discussing this. The question is around how many quota-carrying reps have you hired in the past 6 months? And have any of them been people that worked with Domo before that have returned? And what sort of the trend line we should think about going forward? Just whatever sort of color you're comfortable giving around sales reps hiring...

We haven't given specific numbers. We keep playing around with a number of 100 reps. Sometimes it's higher, sometimes it's lower. But our low point on reps was when we made the cuts back in March or so, that was the low point. And we kept it -- we didn't do much in Q1. And then after Q1 results, we decided, it's okay to like start adding back on reps. And we said we got to really pick up the pace towards the later part of the year. And we're in the pickup the pace motion right now. From our low point -- and even at the low point, we still did okay. So productivity of the entire sales force went up on average and stayed up. We've probably added -- I don't mind saying, we've added at least 10% since then, maybe more. We want to keep adding. And if it works the way -- I hope it does, but I don't know yet. But if it works the way I hope it does, then that add just goes all the way through next year. Okay. And that's how I hope it plays out. But we aren't going to predetermine that we can add 10% and 10% and 10% more reps, and it all works out. It generally doesn't. So we just have to be very, very aware of who we're hiring, the type we're hiring, how fast they get on the board, how much pipeline we're building, how the focus on BI is working. Another focus for next year is our published product under the Everywhere umbrella. It also affects the type rep we get. It's a different rep that's very, very comfortable talking to the CIO versus one that's comfortable talking to the CEO. They just tend to be different. So all that comes into play. But yes, we want to -- we're asking and the sales force is accepting the idea that we got to get the capacity up if we want any shot at keeping growth rates where they are.

And just coming back to the cash question. You have a lot more left in the bank. But I know there's also probably opportunities out there to look at things like M&A or whatever -- I mean you've got a lot of organic developments, so maybe it's not as much as other companies. But do you see sort of -- I think you're at $80 million to $85 million in cash on the balance sheet at this point. Is that sufficient to accomplish all of the things you want to do strategically and sort of that sort of M&A-type scenario? Or is there a situation where you may look to add that up a bit?

I think it's enough. When we went public, we said that would be 0. When we got the cash flow positive, and as you might recall, that was not well received. But we did $84 million better off that opening position. I don't think -- I mean M&A is really not the cards. I think we have so many fundamental things to do in the core business. And we're already good at product. It's hard to imagine what M&A would help. If there's a go-to-market M&A opportunity like somehow solidifies partnerships or something like that, I could maybe entertain that thought, maybe. But we don't need cash because of any M&A driver. We don't need more cash really for any reason other than to feel like we have more insurance in the bank. But I think $84 million when we're right at cash flow positive, even though we have debt, I mean, I recognize that. I think that's plenty of operating room for us to do what we need to do. So I do not envision any really capital markets play as I sit here right now.

Okay. And one of the things that you kind of alluded to earlier was around partnerships, and you've managed to sort of make this shift from trying to disrupt the BI stack to having some pretty attractive partnerships with other players like a Snowflake. You've also been doing a fair amount in the SI side of the house. Where are some of the wins at this point on the partnership side across these different types of partners? And to the extent that, that's an investment area over the next year, where would you like to see your partner ecosystem be a year from now? What are you investing towards?

Yes. Partners is the big, wide open opportunity for us that's yet to be tapped. What we have been successful at is we've been successful at getting partners to help us get deals done. So the federal deal we did was via a partner. The big retail play had a world-class brand name consulting company, advising them, who is very open to Domo as being the solution and quite supportive in the end. I don't know that we could have done that in the past. I think we just hadn't have enough presence in the market, enough scale, enough demonstration our capabilities to even get that much. So that's good, but that's not good enough. What we really want are some really substantive relationships with companies that are -- that can really move the needle on us on a lead generation point of view. And if I could have 5 of those in place at the end of next year, I'd be happy. And for us to get that -- we really need to bring in the talent that's just right for us today. That really understands where we sit in the ecosystem, and what are the best relationships for us to go after. And it can be technology companies as partners. It could be the big infrastructure guys, it could be system integrators. They're all choices, but the name of the game is to really to cement it with a few that really see what can be done with Domo, and they really commit their practice to it. And we -- on the other hand, it's our job to support them in building up that practice and being there to really accelerate their vision of what can be done. And I think we still need more talent in the organization on the partner side and that I'm willing to -- that's a cost without a return right away. That is an area I'm willing to invest in to get that right because that's long-term leverage if we can really get that to be a lead generation engine for the business.

Okay. Great. Well, I think we're at time. So Bruce, thank you so much for joining today. This is great. I appreciate the insights as always. And I hope you have a great rest of your day, and thank you, everyone, for joining.

Yes. Thank you, everybody. Thanks for inviting us, and we look forward to continuing the dialogue. All right. Have a good rest of the conference. Bye now.

Thank you. Bye.