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

All right. Good morning. Welcome to Day 3 of the Morgan Stanley TMT Conference. It's been a really great fun conference so far, a lot of interesting conversations. Today, we have a very interesting conversation with Josh James, Founder and returning CEO of Domo. Josh, welcome back to the TMT conference. So before we get to the conversation, let me just go through the research 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 representative.

So Josh, to start off the conversation, it's the obvious one. Give us the reasons why you came back and why you're taking the helm in terms of -- taking on the CEO role once more.

Yes. I mean it was definitely -- it was definitely an interesting break and got to spend some time with some family. But more evaluated all the things that I could be doing, the one thing that I do just really love is I love running companies, I love being CEO in an interesting space, doing interesting things, have an interest in strategic conversations. And I prefer when they're a little larger versus -- the $5 million to $100 million, if not my favorite zone. It's so hard. But yes, I just really love doing that. So excited to be back and excited for the prospects and we want to get the growth back. We were at 30% when I left, and we want to get back there as quickly as we can. Definitely, the world has changed. So I want to be prudent and make sure that we're cash flow neutral at least and operating margin neutral at least, positive 0. But other than that, can we get back to growth and spend time with customers. And so just really jazz, really excited.

Yes, it makes sense. Was this sort of always the plan for you to come back? Or is this something you had to go through like decision process on -- is actually what you wanted to.

Yes, through decision process, obviously, how do you have the Board agree that was the right thing. But yes, excited to -- I guess, it was a really interesting space, and we definitely didn't finish accomplishing all the things that we set out to accomplish and -- yes, I just want to get that growth profile going and the opportunity to interact with customers is definitely something that I missed and interacting with some of our great employees, just being able to strategize and get the right growth pattern, be able to -- there's a lot of interesting potential combinations out there. There's a lot of people calling us, obviously, given the profile right now, but that leads to potentially some opportunities for partnering as well. So it's just an exciting time for us.

Makes sense. So along with your return, we have some new faces at the company. We have a new Chief Finance Officer in David Jolley. Maybe talk a little bit about David, his background and why he is the right person for the role at this time for Domo.

Yes. So David Jolley sitting right here. David can wait for those that don't know him yet, you'll get a chance to get to know David. But I guess I could have David do it, but since we have a mic, I'll give his background. But he was at Ernst & Young and the office in Salt Lake City. So I think every IPO that was done in Utah for a long time was David's, and that's how I got to know him early on. I have to know him in the late '90s, I think, actually. And then he went from -- after managing that office successfully, being a part of leadership team, the national leadership team and Ernst & Young help manage the Western region and then went on to an international role, helping with the Entrepreneur of the Year program. So all the sourcing that they did. That was a hugely successful program for them, and he managed that. So that gave him an opportunity for managing a big budget, but I think CEOs and CFOs like me. He's advised them his whole career. People like me and then also he was in Silicon Valley managing a bunch of accounts there and then in New York. So even though you're not on a mic, David, do you want to say something for a minute?

Yes, yes, sure. So I've sort of been around that high-growth entrepreneurial space in my entire career, like Josh said advising CEOs and [indiscernible] companies so it's not a new space for me. But the opportunity to be part of that internally haven't been exposed to a lot of those great companies and thing that we have sort of what I see is a similar opportunity right in our backyard with Josh and Domo and some of that. So the opportunity arose. It was -- and I have just retired for Ernst & Young so I was looking for something to [indiscernible]

We were [indiscernible] together.

That's right. So as you step into this year, this new fiscal year, if you just put on your analytical strategy hat, what's your assessment of the state of the business today? Like what are -- where are the things that are going well, what are the challenges that you're looking to address? And if you could sort of lay out your priorities for this year, the top 3 priorities in terms of what you're looking to focus the team on. Just give us that assessment.

Yes. So last year, one of the challenges that we had was a retention of our sales team. And I think it was something that we didn't see coming, and we ended up churning about 30% of our sales team. So you can't churn 30% of your sales team and hit growth numbers. And that was a huge challenge. They started figuring that out. And I think this year, even though we're modeling that same churn, we didn't really go and changed a lot of the metrics. I've never seen anything like that in my career. And we're all pretty confident that we're going to be able to manage that much more effectively. So we think there's some -- that's something if we do correct, there's some upside there. We also saw the performance per rep wasn't where we wanted it to be just because of a lot of the disruption, there was some negative commentary relative to our enterprise business which I don't necessarily think was entirely accurate. Well, actually, I don't think it was accurate. But I understand why it was said given that the enterprise business wasn't performing because a lot of the enterprise reps were leaving. But you look at last year and we had a 30% increase in the number of contracts over $1 million ARR. We had a 30% increase in the number of contracts between $500,000 and $1 million ARR. So there's -- it is a great business, actually, it's top of our business. And we -- me being back -- and then also Jeff Skousen in the CRO role, this is a guy that's been there for the entire time. He's managed about half the team -- a little more than half the team in most years. And he's really loved by folks and they're excited for him to be able to take the reins. Ian was great. Did a lot of great things for us, brought a lot of operational rigor. Same thing, Bruce was great. There's a lot of great things for us. But we think it's just for the next phase, we think it's the right team. And 3 things I'm interested and excited about, I guess, number one, just really getting that sales alignment, the swagger. I think there is a noticeable palpable change, and I think everyone in the company sees that and feels that. That goes a long way, actually. And I closed or helped close, you look at our top 10 customers, 8 of the top 10. And so just helping to do some of those big deals and give some of that big deal. Confidence is definitely going to help. I think the second thing, there's a real opportunity right now for us with our pricing model because historically, we've charged everything per seat. And we have this product that virally wants to spread, people want access to the data yet every time someone wants more access, they have to call us and get into the seat. And that means they've got to get approval from their managers to be able to purchase for the seat. And so there's kind of this great conflict with the model that we set up and what allows the thing to really truly be adoptive rapidly. And so we've been -- it's taken us about 5 years to figure this out because it is a complicating platform. It's hard to say there's 1 compute charge. So we had to kind of normalize all of the different things that we do down to a compute charge. But -- we went -- right before I left, I got everyone to commit that we're going to do at least 50 deals with this compute charge, and we did over 100 and it's approaching 10% of our ARR that are now in this compute model. So that's really exciting to us. And I think that leads to an opportunity for growth. When you look at like the snowflake model or my last company, the Omniture model, you wake up on the first of the year, you're like, we got 20% growth built in. That doesn't happen when you got per seat. You've got to go fight for every one of those seats. So we're excited about that opportunity. So I think those are probably the 2 big things that we're focused on. And then the third is just -- there's a lot of strategic opportunities with our product with our big customers with things like AI that we've been doing for a long time. And actually, that compute model helps with that. So we have a bunch of data science functionality in products inside our products. And the take rate on those, in the compute model is much, much higher than it was on a per seat model because per seat again, you had to call us, you had to convince your boss. You had to -- where as on compute, it's like, "Oh, it's right there. Click. Let's try this thing out. " So we're pretty excited about that.

Makes a little sense. You mentioned Jeff taking on a new Chief Revenue Officer role. How should we think about going into this year? Is he going to sort of keep the playbook? Or is he making changes, material changes across the organization to either improve sales productivity? Or is it just simply, hey, let's get -- we fix our sales capacity issues, so let's just get the ramp. So I'm going to understand like how much of an evolution versus the revolution sales that are going to undergo this year?

Yes, I think it's not a lot of changes. Again, he was managing half the group. I think this allows them to have a little bit more alignment. He is in the U.S. That creates a little bit more alignment as well with the team that's there. But just -- again, if you look at the history of the portions of our business, his portion is the one that consistently hits the number. And so him having an opportunity to see if he can bring that performance across the whole organization is something that people are genuinely excited about. He's extremely well liked, but that doesn't prevent him from getting where he needs to go. So -- and then the other great thing is I've just been there for a while. He has a great relationship with Darren Thayne who's in charge of product. He's got a great relationship with Mark Maughan. And Mark Maughan is also another promotion that I've been wanting to do for a while. We were having conversations about it right before I was leaving. But now he is responsible all of client services and all the renewal business. So that's where all the big upsells come from and having him there with a great relationship with Jeff, I think will help us. And then our CMO, Wendy has been absolutely fantastic. And she was hired while I was gone. But I've had probably a dozen people on the management team reach out to me proactively to tell me how great she is. So we're really excited about her and her performance [indiscernible], looking the metrics and see that net cost per sales accepted lead has been coming down. So we're excited. We feel really good about where we're at from a team perspective and the cohesiveness and just everyone kind of in lockstep right now.

To find the right marketing leader for the Domo has been like kind of a journey...

Yes, journey. That's a good way to say it. It's been a journey.

I've worked; on your IPO, I've been covering the company every single quarter since you've been public. One of the things I've seen across this year is sort of toggling and you sort of alluded to it between enterprise and commercial. And in some years, some quarters, it's like commercial is doing really well. Let's invest in that. We have -- and then on the other hand, there's a lot of great blue chip companies that we serve. We can go get with our platform. And so this sort of back and forth between enterprise and commercial. It felt volatile, I guess we might probably beep the word. What's the right balance in terms of investing like both opportunities because I think under the prior regime, there's really an emphasis on commercial because that was the higher velocity sales motion. That was driving the transactional business. Enterprise seem to be -- deals going to be harder to come by. So going forward, when we think about investments being commercial and enterprise, how does that shake out over time?

Yes. I don't know if we've done any favors the way that we've talked about enterprise versus commercial. I don't think it's been as volatile as it's been perceived to be. It's just enterprise and corporate, enterprise and commercial. The difference is that everyone enterprise and commercial are the differences that exist. But it's both great businesses for us. They're both about half of our business. Is there lumpiness sometimes in enterprise? Yes. Sometimes there's lumpiness. Have we over hired in one? Sometimes and over hired than the other sometimes? Yes, we have. But not as an indictment on either. It just might be -- maybe we haven't done a great job on the narrative in terms of yes, we over hired a little bit in corporate. But corporate is a great business, but we over hired a little bit. Maybe we over hired a little bit on enterprise, but we didn't have the right leader in one of the teams and they didn't hit their number, and so we didn't hit the number. That's not an indictment on enterprise. It's just -- it's -- we might have over-indexed on something with a few heads. But the reality is they're both great business. I mean commercial has been -- I was standing behind commercial for a long time and stand behind Jeff Skousen for a long time. There were -- at some point in time early on, people didn't like the commercial business. But I knew Jeff. But I knew he was hitting his number, and I knew the customers. And our commercial business looks like enterprise. The retention rates are similar, the upsells are similar. They're not as good as the upsells in enterprise, but they're both really, really good businesses. And you're going to see us continue to do, invest in both of those businesses. Again, I brought that point up at the beginning. And the reason I brought it up because I know there's this narrative out there. You can't have this narrative out there to have 30% increase in million-dollar deals, 30% increase in $500,000 to $1 million deals. And we have 500 enterprise customers. If you look at the enterprise customers, you'd recognize every single brand. And I go through this list and then I look at our top 10 customers, and there's a customer in there that's paying us $3 million a year, and it's a brand, but it's not a huge company. And they're paying $3 million a year. So you look at the other 500 accounts, you like every single one of those customers should be paying us $3 million a year at least. So there's a huge opportunity just within our enterprise customer base that yes, I want new logos, but we could grow that business for a long time at the rates that we want to grow our entire business.

And in the past, I think there's been attempts at something like a product-led growth, high velocity sales model. You've -- and I think that was like challenging at the time for where the product was at the time of several years ago now.

Yes, it was.

But as you sort of mentioned this sort of moved away from a seat-based model to more of a compute-based or usage-based model does that align with a more PLG motion. And what is it going to take to build that muscle to maybe your cost of sale in your corporate commercial business can serve to come down?

Yes. And that's -- I'm really glad you asked that question because of course, we wanted to have PLG, but it was just at the beginning you're like, I did not know where to start. So we just kept chipping away and chipping away and chipping away at that. And you can go to the website and you can sign up and you can get a free trial and get going with the product. Now that we've got compute that we can bring in there as well, you're going to see us do that this year, where there's a compute associated pricing model associated with free trial. It will be up to this amount of compute so that we can get some of those lower cost leads because we've seen our customers. We have a lot of customers paying us millions of dollars, $2 million, $3 million, $5 million, $6 million, $7 million a year. And each one of those customers, almost all of them started out at between $25,000 and $200,000. And this thing is viral. It does spread. So that's another thing that we need to work on and that I'm excited about with Mark Maughan is we need to work on, okay, we have customers that go on that journey, how can we facilitate that, how can we get them started on that? And that's where we keep coming back to it, you sit around a white board, if you were a whiteboarding with a strategy about how to get more adoption, you'd always get to, well, we need to get more users inside each customer. You look at our retention and if you look at how -- what our retention rate is in the different buckets based on the number of users, it is dramatically different. If there's 200 users at a customer versus if there's 25 to 50, dramatically different. And yet we charge you every time you want to add a user. It's just counter intuitive, but it was the only way we did price this thing initially. So now that we have this ability to have compute and increase those number of users without the friction, we think that will help us quite a bit.

I mean wasn't it part of it? That's also the way customers were used to buying, right? Like in sort of broadly the BI category to proceed.

Yes, for sure.

So it means convincing customers to consume everyone might have been more of a challenge in 2019.

It was. But now today.

But now it's like it's the opposite, right?

There's definitely a bunch of customers that were going to either churn or we're going to stay flat. And we give them compute and they get excited like, "Oh, this will be a lot easier to sell internally." Like, what? You're paying us more. Yes, I know their terms are easier. I mean it doesn't make sense, sometimes, but the customers, they love it.

Yes, makes a little sense. Let's talk a little bit about the market, the category and how it's evolving, whether what we would call modern BI. But essentially, we have this wave of large language modules where people are getting answers to questions in a very natural way and structured form and what does that sort of imply for -- or the implications for this category with guys like yourself on the lookers and the thought spots of the world who've been in sort of more in that next sort of wave 2 of BI. How are you guys going to have to evolve? And what is -- is there any sort of risk associated with large language models and things like Open AI and ChatGPT?

Yes. I mean this is a real opportunity for us, for sure. The fact that historically, and I would guess if you go to any companies that you know or look inside your own, how many disparate data systems there are? Are they connected? Do they talk to each other? That's what we started off doing. That's what we brought to the table. And there's no company that has the ability to bring data together more effectively than us. And it's not multiple different technologies. It's one stack we bring the data together. So if you can get in there and ask questions in a very natural way and have a system that's able to go in and have all the meta data around the data. It's not just some big -- a bunch of data in a data warehouse and you have no idea how it got there. We actually know exactly how it got there. We know exactly what that data is. So finding correlations and interesting combinations of that data, finding trends, finding actions that maybe you should take, having those actions suggested to you, there's a huge opportunity, and we're definitely leaning into this in a big way for sure.

Let's go a little about Domo Everywhere, the sort of as you were at the end of your last year, there was really a theme around not just dashboards, but let's build applications to improve decision-making for a marketing person, an operations person in sort of that embedded analytics opportunity. How is Domo Everywhere?

Domo Everywhere.

How is that motion played out in your view? And what if anything needs to be enhanced on that front?

Yes, that's definitely continuing to be a focus. It's one of the things that really is very unique about us. Domo Everywhere is great because but what happens is our customers are looking at the data and they're like, if we could just get this out to our customers, it would be very helpful to our customers. It would be very helpful to our partners. And in many cases, they're like -- and we could probably charge for this data. So being able to have that not just as a dashboard, but then turning that into an app and having this low-code, no-code app that you can build on top of this data is really quite helpful. So if you look at companies like Nike, who have thousands upon thousands of store members and store managers with an app on their phone, it's not called Domo, it's just the Nike team app, and they click on that and it shows, "Oh, man, the neighboring Nike store sell a lot more purple Nikes, whatever reason, that's the #1 seller. Ours are in the back or ours on the side shelf. Let's move those to the end cap." Has a material impact on the business. And it's because it's not -- they don't think they're doing data analytics, right? It's just -- it's exactly what they need. And the ability for our customers to build those kind of apps for our partners to build those kind of apps for us, to build those kinase is something that's really unique. So that's very exciting. And Domo Everywhere continues to be one of the fastest-growing part of our business for sure.

What's your vision in terms of that use case being a percentage of the business over time? That become the majority of the business over time or?

It's definitely the tip of the spear. It's the tail that wags the dog. It's what makes the rest of the platform that we have -- relationship that we have with them. It's not possible without that entire platform, but it's also the fruit at the end of that entire experience because if you look at the retention that we have with customers who have built these custom apps, it's through the roof. They don't go anywhere because they've built something that's very specific to their company. So we will absolutely continue to do that and do more of that because it really plays to our strength as well.

Great. I do want to go out to the audience and see if they have any questions. I want to touch on Q4 and the outlook, but get your questions ready for Josh and we'll get your questions in. On Q4 and the outlook. So billings went negative in Q4. You're guiding Q1, I think it's sort of at the midpoint, around negative 5%. For the full year, we're at, I think, mid-single digits in terms of billings growth. Can you -- what was sort of the -- between the mix between macro and, let's say, execution, what were the issues in Q4 that caused billings to grow -- go negative? And then what's the assumptions that underpin the outlook for next year?

Yes. Great. Of course, there's macro component. I would say macros maybe half, maybe 10%. But a lot of it's just the way that -- I mean if you lose 30% of your sales organization -- it's just -- it's really difficult to make that up. And you've got to go and replace the hires. You've got to get those hires trained up and it takes salespeople 9 to 12 months to get ramped. So that's -- we've done that. I think we've fixed the retention problem. But again, we haven't seen it yet in the numbers, so we just modeled it the same way that it was and we think there's some upside there. And then the thing that we're going to see is because of the way that ramping nature of reps, we're going to see some good acceleration in Q3 and Q4 because that's when all of the reps that we've already hired, that's when they're all hitting and there's great indications so far from the sales organization. Again, Jeff, being responsible, I think, will -- being completely responsive to that, I think will help. And a lot of his managers are now the managers for the enterprise business. So I think we're going to be in lockstep. I think there's some upside to that. But yes, a lot of acceleration in Q3 and Q4. So get on the bus now. It's going to be a good ride.

Awesome. Any questions for Josh in the audience?

Just one general question sort of now that you're back in sort of the health growth in the pipeline, will you have time and in the weeks and months ahead to go see existing clients or future clients, like how much time do you think you'll put into doing what you're really good at previously, getting clients and getting in to start and then add, but do you have that as part of your calendar over the next weeks and months to go out and hit the road and win business back?

Yes, absolutely. Great question. A, it's one of the things that I love doing. I don't necessarily go out and do it because I'm proud to hit a number. I really truly love doing it. It's really fun to see what our big customers are trying to accomplish. And when you sit there, if you're at Nike and you watch their eyes light up for something that you're delivering or you're sitting there and they say, "Gosh, you know if I had this it really makes things a little bit better." And then the fact that I can call it there and say, Darren, what can we do about this? And you can make that commitment to the customer when they're looking at you as the founder and CEO, they're like, okay, yes, I'll make a bet on you. That's just a fun experience. So yes, I'm -- right when I got announced, I got a bunch of hits from a bunch of reps saying, "We need to go visit this customer together because they feel like that's an opportunity to upsize the relationship." So we're going to be doing a lot of that. I'm going to see a lot of customers next week have that on my calendar already. So the good news is, I've done this before, everybody that's in place are people that I've worked with before, say, except a few. So we don't -- we already speak the same language without having to sit down and spend a lot of base time together. So I can go focus on strategic opportunities internally and then strategic customers externally.

Great. Any other questions for Josh?

All right. I wanted to ask about the change in the pricing model that you talked about at the beginning from C2 consumption. We're hearing a lot of companies doing that change, especially in your space, I would want to share how do you see that unlock value? And also what kind of other features you see that can leverage to compute.

Yes. Thank you. Really, it is -- if you're sitting back and thinking about your customer relationships and you're trying to make them sticky and you're trying to have an ability to, A, retain; B, grow those accounts and then you're thinking a little longer term and you're thinking, how are we going to be able to cross-sell other features and functionality that we already have into those accounts. How are you going to be able to cross-sell, upsell potential acquisitions down the road, not that we're looking at them immediately, but just down the road, how are you able to look at cross-sell and upsell. And if that account has -- maybe they're paying you the same amount with 200 users or they're paying you the same amount with 1,000 users. It is just a dramatically different relationship. So that is really the main thrust behind it. It just makes it so much stickier. And then as those people have good experiences, there's not a barrier to them having that first good experience that then may get them to lean in. And then when they have to justify the budget, they already have the benefit. So it is a dramatically improved experience. I'll never forget some of you might remember Jay Heglar back in the day, one thing that he discovered, he came in my office one time, he's like, "Josh, you're not going to believe the difference in retention when we have 25 users, 50 users and 200 users." And it literally was like going from 75% retention to 97% retention. And it's like everything that we have to do to get more users, we've got to focus on. So that's what drives this.

And with that, we're out of time. Thank you, Josh, for giving us the update on Domo. Welcome back. Appreciate it.

Thanks, everybody.