Domo(US:DOMO)2019-09-12 00:39PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Domo's unaudited financial statements for Q2 FY2020 show decreased assets, a shift to stockholders' deficit, increased revenue, and reduced net loss compared to prior periods Condensed Consolidated Balance Sheets Domo's balance sheet as of July 31, 2019, reflects a decrease in total assets to $234.5 million and a shift from stockholders' equity to a $4.9 million deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | As of Jan 31, 2019 | As of July 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $176,973 | $97,939 | | Total current assets | $246,754 | $189,968 | | Total assets | $292,632 | $234,529 | | Liabilities & Stockholders' Equity (Deficit) | | | | Deferred revenue (current) | $88,959 | $87,616 | | Long-term debt | $97,245 | $99,113 | | Total liabilities | $248,105 | $239,435 | | Total stockholders' equity (deficit) | $44,527 | $(4,906) | Condensed Consolidated Statements of Operations For Q2 FY2020, total revenue increased 21.6% to $41.7 million, with net loss improving to $31.2 million, reflecting higher gross profit and reduced operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended July 31, 2018 | Three Months Ended July 31, 2019 | Six Months Ended July 31, 2018 | Six Months Ended July 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $34,267 | $41,660 | $66,212 | $82,458 | | Gross profit | $21,749 | $27,449 | $42,128 | $55,443 | | Loss from operations | $(43,379) | $(28,373) | $(86,364) | $(61,444) | | Net loss | $(46,384) | $(31,160) | $(91,891) | $(66,696) | | Net loss per share | $(4.41) | $(1.14) | $(14.94) | $(2.45) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss for the three and six months ended July 31, 2019, was $31.2 million and $66.8 million, respectively, slightly exceeding net loss due to currency adjustments Comprehensive Loss (in thousands) | Period | Net Loss | Comprehensive Loss | | :--- | :--- | :--- | | Three Months Ended July 31, 2019 | $(31,160) | $(31,170) | | Six Months Ended July 31, 2019 | $(66,696) | $(66,762) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Stockholders' equity shifted from $44.5 million to a $4.9 million deficit for the six months ended July 31, 2019, primarily due to a $66.7 million net loss - The company's total stockholders' equity shifted from a positive $44.5 million at the beginning of the period to a deficit of $4.9 million as of July 31, 201930 - Key activities impacting equity during the six months ended July 31, 2019, included the net loss of $66.7 million, stock-based compensation expense of $12.3 million, and $4.5 million in proceeds from the employee stock purchase plan3035 Condensed Consolidated Statements of Cash Flows For the six months ended July 31, 2019, operating cash burn improved to $45.4 million, while investing cash use increased to $38.6 million, and financing cash significantly decreased due to prior-year IPO proceeds Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended July 31, 2018 | Six Months Ended July 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(72,983) | $(45,422) | | Net cash used in investing activities | $(3,205) | $(38,621) | | Net cash provided by financing activities | $253,006 | $4,937 | | Net increase (decrease) in cash | $176,830 | $(79,034) | | Cash and cash equivalents at end of period | $238,802 | $97,939 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including revenue recognition, software development costs, the $100 million credit facility, and equity incentive plans, with the company operating as a single U.S.-centric segment - The company derives revenue primarily from subscriptions to its cloud-based platform and professional services, recognizing subscription revenue ratably over the contract term6669 - As of July 31, 2019, the company had $187.3 million in remaining performance obligations for subscription contracts, with $69.0 million expected to be recognized in the remainder of fiscal year 2020128 - The company has a $100 million credit facility, fully drawn as of July 31, 2019, with a maturity date of October 1, 2022, carrying a floating interest rate component (approximately 7.9% at period end) and a fixed 2.5% PIK component132134135 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 22% revenue increase for Q2 FY2020, driven by enterprise customers, alongside reduced operating expenses and improved billings, with sufficient liquidity for the next 12 months - Total revenue for the three months ended July 31, 2019, was $41.7 million, a 22% increase year-over-year, with revenue from enterprise customers growing 29% to $19.8 million199 - The company incurred a net loss of $31.2 million for the quarter, an improvement from $46.4 million in the prior-year period, and had an accumulated deficit of $978.8 million as of July 31, 2019200 - A key business metric, billings, increased to $38.8 million for the three months ended July 31, 2019, up from $35.7 million in the same period of 2018207212 Results of Operations Q2 FY2020 revenue grew 22% to $41.7 million, driven by subscription growth, with gross margin improving to 66% and operating expenses decreasing 14%, resulting in a reduced operating loss Revenue by Type - Q2 FY2020 vs Q2 FY2019 (in thousands) | Revenue Type | Q2 2018 | Q2 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription | $28,166 | $34,873 | $6,707 | 24% | | Professional services & other | $6,101 | $6,787 | $686 | 11% | | Total revenue | $34,267 | $41,660 | $7,393 | 22% | Operating Expenses - Q2 FY2020 vs Q2 FY2019 (in thousands) | Expense Category | Q2 2018 | Q2 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $34,002 | $29,501 | $(4,501) | (13)% | | Research and development | $20,919 | $17,046 | $(3,873) | (19)% | | General and administrative | $10,207 | $9,275 | $(932) | (9)% | | Total operating expenses | $65,128 | $55,822 | $(9,306) | (14)% | - Sales and marketing expense as a percentage of total revenue decreased significantly from 99% in Q2 2018 to 71% in Q2 2019238 Liquidity and Capital Resources As of July 31, 2019, Domo held $133.8 million in liquid assets and a fully drawn $100 million credit facility, with management confident in sufficient liquidity for the next 12 months - The company held $97.9 million in cash and cash equivalents and $35.9 million in short-term investments as of July 31, 2019262 - The company has a $100 million credit facility which was fully drawn as of July 31, 2019, with an amended maturity date of October 1, 2022262267 Historical Cash Flow (in thousands) | Cash Flow Activity | Six Months Ended July 31, 2018 | Six Months Ended July 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(72,983) | $(45,422) | | Net cash used in investing activities | $(3,205) | $(38,621) | | Net cash provided by financing activities | $253,006 | $4,937 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk from its variable-rate debt and foreign currency risk from international operations, primarily in JPY, GBP, and AUD, without using hedging instruments - The company's $100 million credit facility has a floating interest rate component tied to LIBOR, exposing it to interest rate fluctuations, with the rate approximately 7.9% as of July 31, 2019290 - International operations expose the company to foreign currency risks, primarily from the Japanese Yen, British Pound Sterling, and Australian Dollar, though a 10% change in the U.S. dollar's value is not expected to have a material effect on operating results292 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2019, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report295 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting296 PART II. OTHER INFORMATION Item 1. Legal Proceedings As of the filing date, Domo, Inc. is not a party to any material legal proceedings, though routine claims may arise - The company is not currently a party to any material legal proceedings300 Item 1A. Risk Factors Key risks include a history of net losses, intense competition, dependence on customer acquisition and retention, data security and privacy regulations, system failures, and concentrated voting control due to a dual-class stock structure - The company has a history of significant net losses ($31.2 million for the quarter) and an accumulated deficit of $978.8 million, with no guarantee of achieving profitability in the future302303 - Competition is intense from large software companies like Microsoft and Oracle, as well as specialized analytics firms such as Tableau and Qlik, which could lead to price pressure and market share loss317319 - The dual-class stock structure concentrates approximately 84% of voting power with the founder and CEO, Joshua G. James, limiting other shareholders' influence on corporate matters478479 - The business is subject to complex data privacy laws like GDPR and the upcoming CCPA, and any failure to comply could result in significant fines, litigation, and reputational damage352354355 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications by the CEO and CFO, and XBRL data files - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and interactive data files (XBRL)517518519