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

Thank you, everyone, and welcome to day 4 of the Morgan Stanley TMT conference. For our next presentation, really happy to have Bruce Felt, Chief Financial Officer of Domo to join us for this conversation. Bruce, thank you so much for joining us.

No, my pleasure to be here, and I want to thank the audience for joining as well.

Great. Before we get into our conversations, a lot of interesting things to talk to Bruce about, what's going on with Domo. Before I get there, let me do some disclosures. For important disclosures, please see the Morgan Stanley research disclosure website, at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representatives. Also, there is -- while this is an audio-only call, I can take questions online. So if you submit your questions, and I see them, I will definitely try and weave them in into the discussion that we have with Bruce. So with that, Bruce, I kind of wanted to set the stage of our conversation, just walking through a couple of numbers and sort of get your take on what's going on here, all right? And so if I look at your billings growth in fiscal year '19, the year of your IPO, that was 28%. The following year, it slowed to 14%. In terms of your cost flow margin, again, in FY '19, it was a negative 192% and in FY '20, it was negative 46%. The striking thing to me, in the first 9 months of fiscal year '21, your billings growth accelerated at 21% and you basically become cash flow positive in a rapid amount of time.

So the simple question for you Bruce is, what's changed with Domo? And's how did you pull this off in the face of a really daunting pandemic?

Yes. Well, the pandemic presented us with a very kind of interesting situation. On the one hand, we knew that there had to be a macro challenge. And so we prepared for it. On the other hand, as we know, certain companies and certain industries actually excelled through to the pandemic. So in our case, because of our worry about this being another 2008, we modeled that, that is the impact that we would face on our top line and to make sure that we preserve our cash flow targets, we cut expenses. And we thought that was a prudent move, and we thought it was a prudent move, even if our fears did not come true. And what happened was, some of our peers came through and that we had a lot of customers in troubled industries that did have difficulty. So there's no doubt about that. But what ended up happening was because it was so sudden and abrupt and everybody changed the way that they were running their business and started to work from home and then have to also deal with their own top line challenges, customers could no longer or I'd say, the market could no longer wait for data the old-fashioned way. And what our challenge has historically been is we came up with a modern BI platform that just produced data quickly and put it in the hands of anybody that needed it. And we think that's what -- that's where the market was heading because it's so obvious that isn't that better than waiting for people to drill into databases and like just publish data? But the market seem kind of slow to accepting that on the one hand, just because of the historical way that people bought it. And there wasn't really, a really need for speed, unlike what we just faced. And when we did face the pandemic, people had to know, customers and the market just had to know what was going on with their business right away. And so we became really relevant in this environment. And the proof points are, we are able to pivot with apps and actually provide states with a control center, a command center, to let that state navigate through this. I mean, we found that fascinating. We had airlines and cruise lines and brick-and-mortar retail buy from us because they had to figure out what to do with their top line or how do we react to the fall off of their top line. And now even as we sit here today, we are providing companies information so that they can roll out vaccinations, for example. And so we became very relevant in this environment, and the need for speed just drove the market to our solution. And we've also seen Gartner just basically upgraded us, maybe more significantly than any other company in their quadrant. And that is really because the market's kind of moved to the need for speed, modern BI platform, give me the data right away and give it to everybody that needs it, and don't wait for anything. And so even though we cut costs, I think that market tailwind, along with, we have a new Chief Revenue Officer and new Chief Marketing Officer, they've just been iterating and testing and working and operating really aggressively and making huge progress and just running a better go-to-market sales and marketing machine. And you add the 2 together, it really allowed us to accelerate the top line even with a lot less resources and a lot less spending. So that's kind of what happened in a nutshell. And we go into any part of that as you might want to explore, Sanjit, so really.

A lot of stuff to explore there. And so again, when I sort of look back on calendar 2020, a lot of the incumbents in the space, frankly struggled. If you look at some of the traditional market share leaders in the space. And so it looks like you guys took share. And so I'm trying to pinpoint what's going on here. And you mentioned the need for speed. Is it -- to what extent cloud versus on-prem is another element of this equation here. That's definitely been one of the common takeaways going into and then sort of hopefully coming out of the pandemic that we need to have more cloud-enabled capability to drive that faster decision-making. So is it as simple as that, that you guys are a cloud-native solution and some of your competitors aren't?

Well, yes. Cloud native absolutely helps a lot. And I don't know how you can really distribute data with speed and agility, unless you're in the cloud. And so it doesn't surprise me that the legacy guys, some of which got acquired, which also doesn't help their cause, that they just can't respond to what the market needs right now. You just can't do it if you are in the cloud. You can't get the data out. It doesn't scale. Scale is a big issue if you're on-prem. Being able to distribute to everybody is a big issue, being able to change things really quickly. And then we add on top of that, that we were designed to bring data directly from the source. So that gave -- that made our customers have much more available data than they can get from any of these other tools because these tools really rely on data already being available in a database. And that is not our model. Our model is go straight to the source, use a database if we must, put it in the cloud as needed. And get it out to people quickly and create new data sets by joining a bunch of data that's relevant. So with 1,000 connectors, there's really no data that we can't really provide to customers at scale. So that's what we call kind of the modern BI platform. It's got the end users in mind. It's not about only supporting the BI group or the IT group, it's about enabling them to get data at scale and speed out to their constituents. And if you marry that vision with the fact we are in the cloud, we stand unique. And I think that uniqueness is what's kind of shining today and allowing us to do things that our customers tell us just can't be done without us.

One of the things that a -- unfortunate times of prices, one of the things that happens is that it helps companies sort of find their identity. And it seems to me, that's been the case with Domo. And frankly, I mean, you guys are now willing to say the word BI and modern FI, right, which you and I have worked together since the IPO, that you guys were kind of hesitant to call yourselves a BI company back then. But if I sort of look at your positioning and sort of the messaging in the market, you guys are calling yourselves a modern cloud BI solution, a data integration platform, plus a low-code solution for intelligent apps. Can you talk to me, Bruce, about how you sort of arrived at that being sort of the value proposition? And what are some of the proof points that, that messaging is starting to resonate with your customers?

Yes. So we couldn't change that allowing CEOs to run their business on the phone, just run the business. We didn't really think that was BI. BI to us was just getting data available and out to people. It wasn't really in the context of a business person running the business on their phone. And the market kind of developed that way. I mean, the market really was conditioned to put together many, many sets of technologies and tools by an IT group to do many different things, to help scale, to help me secure, to help distribute, to help show. And that's the way the market develops. So we thought BI was vast, and we said we aren't vast. We really -- we saw that problem. And so we're really reluctant to call ourselves BI. But what we found was, as true to form as we were and straight to the vision as we deliver, the market still runs a lot of the spending through the BI group, the analysts or IT. And so we just realized that we were definitely limiting our ability to grow and expand within our customer base without getting the support of IT in the BI group. So we just accepted that we are solving the BI problem, finally just accept that we're in the BI space. We're just a modern stack. We just do what we think BI always was meant to do, allow the best decisions to be made and as fast as possible and ideally for our customers, way ahead of their competition, so they have a competitive advantage. So we've decided to embrace it. And I think because we embraced it, we fit much more nicely into how people buy it and how they -- we're now on the purchasing kind of strain. We can now get RFPs. And we think we've done it in a way that's additive to our vision. So we haven't stepped backwards. We think we just added IT, analysts, BI groups as real buyers of our product, even though in the end, what we're doing is delivering the business side, what they really need, and we still help the CO run their business on their phone. So we've just, yes, we've accepted it. And you can say, yes, we -- I think we've learned that why swim upstream so hard when we can actually get the wind in our sails or go downstream really easily. And so we've been running right at BI and IT much more aggressively. Our value prop's the same, but we expanded it to make -- it really worked for the CIO. And we still have a long way to go. So I mean, that's kind of the good news, bad news. I mean vendors, we got a long way to go, but vending is -- we're doing okay now. And if we really, really get the traction from the office of the CIO and the Head of BI, that can only help accelerate our growth. So that's our thinking, and that's how it's evolved over time.

So one of the things that's happening, probably one of the most powerful things that's happening in enterprise software today is how the data analytics stack is changing and there's sort of 2 dimensions here. One's being -- it's being moved to the cloud, one; and then two, more and more data, not necessarily all of it, but more and more of it is being centralized in the data lake or a cloud data warehouse. And so the question is, in this emerging architecture, what role is Domo going to be playing in terms of getting that data that's sitting in that data lake or that data warehouse into the hands of the business decision-makers, which is kind of your classic use case in your classic play?

Yes. I think versus -- this is Josh. I'm on now as well. Sorry for being a few minutes late. We had a time zone issue. I had a -- my phone broke. I got a new phone, and I didn't realize the calendar setting was what it was. So I was off by 2 hours, so I apologize, but...

I'm happy to have you there, Josh. Thanks.

Yes. Happy to be here. I built my schedule around being here and then got suckered by that calendar change time zone thing. But anyway, yes. So on that question, that's a great question, and we actually are really well positioned for it. We're really excited about it. We got a lot of customers over the years come to us and tell us we had a big data lake project, data warehousing project. And we just realized that there's more data in Domo than there is in our data lake. And so when we say Domo provides BI leverage at cloud scale in record time, the BI leverage part's really important, because yes, we have a full stack. And we can help you, really with any of your BI needs, but we do that by providing you a lot of leverage off of what you're already doing. So if you have a data lake strategy, great, we can help out with that. We've had customers that say, no, we don't need any of this data stored at Domo other than the new stuff that we're doing. And then inevitably, 2 months in, they'll say, hey, can we use your connectors to bring these other 12 pieces of data? Can we pull it into Domo and then push it into our data lake? Well, sure. And then a few months later like, you were just going to keep it there, and we're going to start pushing other data into Domo. So it's been really nice to see how we kind of evolve and scale with customers. And Bruce was just talking about the CIO. It's been fascinating to see our relationship with CIOs evolve over time, too, because we'll get in and we'll start -- land and expand, we'll be 1 division, we'll expand in that division or that department, we'll jump the fence over to another department or to another division, and as we're doing that, it's been fascinating to partner with these CIOs and see all the challenges that they have, when they have multiple divisions, multiple departments across multiple geos, where they've all been making their own decisions, and they're not going to do, generally speaking, a giant top down. This is the way that everything has to be. They end up usually signing 3 or 4 enterprise-wide licenses. The nice thing about Domo is, when they sign an enterprise license with us, it spreads like wildfire. And there's just innumerable cases where they'll have 200, 400 people that are using alternative solutions, and we get in there. And within 6 months, within a year, we'll have 5,000 users or 10,000 users. So it's really fun to see that evolution.

That's great context, Josh. One of the -- looking -- or wanting to -- if I could just see more out of Domo sort of on the partnership front and building out that ecosystem, which I think is pretty important longer-term growth strategy. If you look at just some of your recent announcements, right? I think you made kind of 2 hires on the partnership and demand generation front, Vita Shannon from KPMG and Shelley Morrison from Accenture. What do you think will be -- Josh, what's your mission statement for these 2 hires in helping Domo elevate its presence in the market, both with partners, but also on the demand gen side?

Yes. I mean, we're being -- whether we want to or not, we're being elevated. We're approaching -- as we're approaching these big companies and working with them for multiple years and then having these conversations with the CIO, we had a conversation just a few days ago with one who said, this is great. We're excited about the contract. We're getting ready to sign with you. Can you work with Deloitte? And they handle all of our outsourcing. And we know the CEO, we'd like to connect you with them. And that's really how partnerships get -- become really effective, when a customer like that or a partner like that sees a very important customer of theirs, call and say, we need you guys to work together. And so that is definitely starting to happen. And so it was important for us to get some leaders that could manage those relationships. And that's one piece. The big SI is certainly one piece. The big technology partners, like the Snowflakes of the world, that's another piece. And then there's a lot of smaller solution providers that will go in, like the -- we had $10 million of revenue last year from smaller partners that brought us into government contracts, for instance, and said, hey, we're working on a testing solution. Another one calls, we're working on a vaccination solution. And we need software that does ABC, all the way to Z. Can you guys put that together for us and using all of Domo for the back end so we can manage all of the data, but have this experience that we can give to our customers and that they can give to their customers. And so that's really, I mean, taking advantage of Domo Everywhere, taking advantage of all of the UI capabilities that we have with our apps. And then also taking advantage of that stack on the back end, to be able to bring the data in from any source. So it's pretty amazing how quickly we're able to build full solutions by just configuring the software that we have and then getting big annual contracts out of that.

As you -- you sort of mentioned Snowflake as one of the partners, I think you recently reached premier status with them. But sort of talked about working with the cloud hyperscalers, whether it's Google, Snowflake, Amazon. How early are you in those relationships? And what do you think it will take to become -- working with them more closely to drive larger expansion deals?

Yes. I mean, there's -- we're not overly early. It's not -- these relationships, we've been working on for a year or 2 in some cases. And so I think we're to the point where we know how to jointly interact with customers. And that's a really important first step, that when you work together with a customer, both parties end up getting what they want, both parties end up getting relationships that are stronger. Technology integrations that bring more breadth of data or more scale of data. And that's what we're seeing with the Snowflakes of the world. With -- there's -- it's an ever-changing landscape. So there's been -- I think the thing that's really unique about us is, we're the only independent at scale modern BI company -- cloud BI company. And so that presents a lot of opportunities to us. And it's going to continue to -- they'll continue to evolve, but there's going to be a tipping point, we can see it coming and it's just exciting to see the very material progress that we made last year with partners that we've talked about before and excited about what's seeing what comes from that as well in the future.

To key off your comment there, Josh, around your sort of sort of positioning as the only independent cloud-based BI company out there in the market. And I think that's definitely true. In terms of just, from a devil's advocate perspective, a lot of your competitors got, are now backed by or have been acquired by kind of the larger platform companies. And so as you -- does that sort of -- does your independent SaaS sort of fortify your advantage? Or does it put you at a disadvantage because you are competing with these, in some sense, these much larger platform companies with the relationships and the go-to markets and bundling that element. How are you thinking about competing with these larger platform companies, whether it's the Salesforces of the world or Google acquiring Looker?

Yes. I mean, I think it's been a tremendous asset for us, and it's tremendously exciting on a go-forward basis, certainly because I'm not, never in my career, 25 years, wherein a different company's had a competitor acquired and have them get stronger, vis-à-vis head-to-head competition with us. It just hasn't happened. And I don't expect it to happen in the future either. And that doesn't mean they're not good acquisitions for the acquirers. They check all the boxes the acquirers have. But what we've seen in our space is, everybody coming to the vision that we had. When we started it, we were the only ones talking about the integrations in these different pieces. And now it's becoming the stack that people want to have, but the stacks that other people have also comes with applications that they sell on their own, or things that are really competitive and to a multi-cloud environment. And when you look at a multi-cloud environment, you want somebody that's agnostic and independent. And that's where we are. And so as we're having these customers -- these conversations with customers and they're trying to figure out how to reconcile all of the expenses that they have in that stack, and which pieces their costs are going up too quickly and which pieces are -- that go to getting the efficiency out of. We're the one that's sitting in the middle of that. So I think long term, we're really well positioned.

The topic that we're touching was just the great performance year-to-date in a challenging environment that Domo has seen in fiscal year '21. And the big question is just like the operational improvements, the better, like sales execution, the rigor, whether that's going to be sustainable going forward. So I was wondering if you could talk through some of the program's initiatives that Ian Tickle, your Chief Revenue Officer, has put into place to drive more consistency in the organization that will prove durable going into next year and beyond?

Yes. So he's -- I mean, Ian's brought a -- just an operating discipline unlike anything that we've seen before. And he's also extremely data-driven. And I think the background for all that, of why he has a different approach is, he's really a general manager for us for all of Europe. So he really thought holistically about the business, which includes thinking about renewals, why you're doing the -- while you're in the middle of the sales process. So for example, we're all importantly, cadence is just managing the numbers, but he moved it to a monthly cadence. And that really had a substantive difference and just how quickly we were able to respond to things that are going on within a quarter. So it's now -- we're just much more responsive to changes in the business, observing what's working or not working. And that kind of rigor has just really helped the sales execution. And then we're seeing a very similar parallel happening on the marketing side, where John Mellor came in, not to be our CMO, but he assumed the role and he use just the basic principles of how you really monitor return on your spend. I'm talking to him about marketing CAC all the time. We're continuing to work on attribution models, sticking to like just core principles on messaging and being -- repeating those that work and that rigor, the combination of the 2 rigors just as absolutely helped the operations side of the business. And then when you add in, we think if the market kind of shifted in our favor, I'd say that's kind of the one-two punch for what -- why you've been seeing our performance improve so much this year.

I think on the last earnings call, I think Josh sort of mentioned that having reached cash flow positive, it's going to allow the team to play offense. Can you help us better understand what that means, in terms of what are you looking to better invest in, where you previously might have felt constrained because you're all in the sort of multiyear march towards core cash flow breakeven?

Yes, I mean it was dramatically different, constrained, which areas were we constrained, all areas. It was 100% defense. And let's sell as much as we can to help us get out of the cash flow negative position that we were in and float on top of it. It was a challenging environment, and we're really proud of the team for how well that they performed in that kind of environment over that, especially those first several quarters of last year, that was just -- it was a really difficult environment. And I think what's exciting about going forward is, there were several things that we wanted to do that we were constrained for doing, for instance, hiring additional reps. We couldn't hire the additional reps that we knew would need to be in place for 9 months before they really start performing. And that's a meaningful investment to make when you're trying to get the cash flow burned down. So now that you look at the amount of cash that we dropped to the bottom line to help dig it out of that hole, leading up to Q3 of last year and just kind of extrapolate out what those next 24 months could look like, it's a lot of money that you have to invest into your future growth. So making some of the hires, like the ones that you just saw us announce, being able to bring in additional reps. Those are 2 really important things. And then exploring relationships with partners and adding additional functionality that we believe we can upsell to customers, being able to market and sell those additional features and product sets are going to be something that I think drives the revenue for a long time here.

Got it. With our last question, because we're almost up against our allotted time. You guys have mentioned, just from an overall perspective, that you guys want to grow 20% or better over a longer-term horizon. And so the question, Josh, is like what needs to happen within Domo, what do you guys need to execute on? What do you need to see from customers in terms of their attitudes? And what do you see from the market to get on that sustainable, durable path to be that type of grower in software?

I think we're there. I think we're north of 20%, it's not -- when you look at building a company that can do that. I mean, if you look at those last several quarters, we were in that spot ready. And I think some of the things that Bruce was just talking about, that Ian and John have done, just to help transform our culture, frankly, to where companies that I've run before, Bruce has run before. We just didn't have it here. And now that we really understand that this is providing great BI leverage at cloud scale in record time. You look at the customers that we have, the way that they're evolving and growing. We just need more of the same. We don't need anything transformational. You want to get north of 30%, north of 40%, then yes, that will take us another year before we can probably talk about that. But I think we're in -- we feel really good about the spot that we're in relative to just growth opportunities. I mean, having and being really a growth company. I think it is that already.

Well that's great. Well, Josh, thank you for joining us. I know you're traveling internationally. Bruce, it's always good to talk to you and have you both at the Morgan Stanley TMT conference. For those listening in, thank you as well. Still some great presentations, including Splunk and Snowflake this afternoon. So be sure to catch those. And again, thank you, Josh and Bruce for joining us, and thank you, everyone on, listening to us online.

Thank you as well. Bye.

Thank you. Yes, appreciate it.