Domo(DOMO) - 2022 Q4 - Annual Report

PART I Business Domo, Inc. offers a cloud-based business intelligence platform, the Domo Business Cloud, connecting organizations for data-driven decisions Revenue and Net Loss Overview (in millions) | Fiscal Year Ended January 31, | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Total Revenue (in millions) | $173.4 | $210.2 | $258.0 | | Year-over-Year Growth | - | 21% | 23% | | Net Loss (in millions) | $125.7 | $84.6 | $102.1 | - As of January 31, 2022, Domo had more than 2,300 organizations as customers[30] - The company's subscription net revenue retention rate has averaged over 105% for the fiscal years 2020, 2021, and 2022[30] Overview Domo's Business Cloud is a modern BI platform integrating data processes, designed for scalability and rapid data analysis with a 'land, expand, and retain' model - Domo's Business Cloud is a modern BI platform that integrates data connection, storage, preparation, analysis, visualization, and sharing[20][21] - The platform is built to handle massive data volumes, with customers querying several hundred trillion rows from uncached queries on a typical day, while maintaining a subsecond average query response time[21] The Domo Solution The Domo solution empowers data leverage across the organization through mobile access, real-time connectors, AI-driven insights, and an app ecosystem - Enables all employees to connect to, analyze, and leverage data from their smartphones, increasing data value across the organization[33] - Provides real-time data access through over 1,000 first-class connectors and flexible universal connectors[34] - Leverages AI and machine learning (Mr Roboto) to provide proactive alerts and recommended actions[28][35] - Features the Domo Appstore, an ecosystem for partners and users to build and share intelligent applications, driving platform adoption and network effects[37] Growth Strategies Domo's growth strategy focuses on expanding its customer base, accelerating existing customer adoption, enhancing platform functionality, growing its partner ecosystem, and leveraging aggregated data - Increase the overall customer base, with a focus on international markets like Japan, Asia Pacific, and EMEA[63] - Accelerate expansion within existing customers using a 'land, expand, and retain' model[64] - Continue to invest in enhancing platform functionality, including ease of use, scalability, security, IoT, and AI capabilities[65] - Expand the ecosystem of customer influencers, strategic partners, and third-party developers[66] - Leverage aggregated data to create performance benchmarks and indices to attract and retain customers[67] Our Technology Domo's technology integrates connectors, a fast data warehouse, ETL tools, analysis, collaboration, AI, and an app platform with mobile-first design and enterprise security - The platform features over 1,000 first-class connectors and a Connector Dev Studio for users to build their own[72] - The Adrenaline data warehouse and fast query engine enable subsecond average query response times on massive datasets[74][76] - Fusion, the self-service ETL toolset, allows users of all skill levels to clean, combine, and transform data with a drag-and-drop interface or SQL-based dataflows[79][80] - Mr Roboto leverages AI and machine learning for alerts, anomaly detection, and predictive analytics[93] - The technology is designed with mobile-first functionality, ensuring content created once is immediately available on all devices[99][100] - Enterprise-grade security features include customer-controlled encryption key management (BYOK), access controls, and compliance with standards like SOC 1, SOC 2 + HITRUST, and HIPAA[49][105][111] Customers As of January 31, 2022, Domo served over 2,300 diverse customers, with 77% of FY2022 revenue from the United States - As of January 31, 2022, Domo had over 2,300 customers[113] - For the fiscal year ended January 31, 2022, 77% of revenue came from customers in the United States[113] - No single customer represented more than 10% of revenue in fiscal years 2020, 2021, or 2022[113] Sales and Marketing Domo sells its subscription-based platform via direct sales and free trials, with 62% of customers on multi-year contracts as of January 2022 - Sales are generated primarily through a direct sales team, supplemented by free trials available on the company's website[117] - As of January 31, 2022, 62% of customers were under multi-year contracts, up from 60% in 2021 and 56% in 2020, enhancing subscription revenue predictability[115] - A majority of annual recurring revenue is up for renewal in the fiscal year ending January 31, 2023[115] - The COVID-19 pandemic has shifted a large portion of sales and professional services activities to a remote model, with uncertain negative impacts on customer acquisition and retention[120] Competition Domo faces intense competition from large software vendors and specialized analytics firms, with key factors including user experience, performance, and security - Competitors include large software companies (Microsoft, Oracle, SAP, Salesforce), business analytics firms (Qlik, MicroStrategy, Sisense), and other SaaS providers[121] - Recent industry consolidation includes Salesforce's acquisition of Tableau and Alphabet's (Google) acquisition of Looker, increasing competitive pressure[220] - Principal competitive factors include user-centric design, ease of adoption, rapid time to value, performance, security, mobile accessibility, and pricing[122][124] Research and Development Domo heavily invests in R&D to enhance its platform's functionality, reliability, and performance, reflecting a commitment to continuous innovation Research and Development Expense (in millions) | Fiscal Year Ended January 31, | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | R&D Expense (in millions) | $69.2 | $66.5 | $81.0 | - From its inception through January 31, 2022, Domo has invested a total of $628.7 million in research and development[59] Intellectual Property Domo protects its intellectual property through patents, trademarks, copyrights, and trade secrets, holding 119 issued U.S. patents as of January 2022 - As of January 31, 2022, Domo owned 119 issued U.S. patents and five pending U.S. patent applications[133] - The company also held patents in the European Union (10), China (5), Australia (1), Canada (1), and Japan (1)[133] - Domo relies on a mix of trade secret, copyright, trademark, and patent laws, alongside contractual arrangements like confidentiality and non-disclosure agreements, to protect its IP[131] Risk Factors Domo faces risks from economic downturns, persistent net losses, intense competition, data privacy regulations, and intellectual property challenges Risks Related to Our Financial Position and Capital Needs Domo faces financial risks including persistent net losses, an accumulated deficit of $1.22 billion, and challenges in raising future capital - The company has a history of losses, with net losses of $125.7 million, $84.6 million, and $102.1 million in fiscal 2020, 2021, and 2022, respectively, and an accumulated deficit of $1.22 billion[160] - The ongoing COVID-19 pandemic and general economic uncertainties could adversely affect customer spending, lengthen sales cycles, and negatively impact operating results[150][154] - The company may need to raise additional capital, which may not be available on favorable terms, if at all As of Jan 31, 2022, cash and cash equivalents were $83.6 million with no amounts available under the credit facility[171][172] - The company's ability to use its significant net operating loss (NOL) carryforwards ($1.18 billion federal, $1.33 billion state) to offset future taxable income may be limited by Section 382 ownership change rules or lack of future profitability[191] Risks Related to Our Relationships with Customers and Third Parties Risks include challenges in customer acquisition and retention, reliance on existing customer expansion, and dependency on third-party data centers and networks - Failure to attract new customers cost-effectively or retain existing ones could harm revenue growth A majority of annual recurring revenue is up for renewal in fiscal 2023[192][196] - Growth prospects depend on persuading customers to expand their use of the platform to additional groups, departments, and use cases[199][200] - The business relies on third-party data centers (like AWS) and networks; any outages, interruptions, or performance problems with these providers could adversely affect service delivery and operating results[207][208] - Failure to develop and maintain successful relationships with channel partners, who have historically generated limited revenue, could adversely affect business growth[204][205] Risks Related to Our Products and Solutions Product risks include intense competition, rapid technological change, potential service level failures, and challenges from open-source software usage - The market is intensely competitive, with rivals including large software companies like Microsoft and Salesforce, and specialized analytics firms like Qlik and Sisense[217][219] - Failure to adapt to changing technology, evolving standards, and customer needs could render the platform less competitive[229] - The use of open-source software could negatively affect the ability to offer the platform and may subject the company to litigation or require making proprietary code public[252] - If the platform fails to meet service level commitments, the company could be obligated to provide service credits or face subscription terminations, impacting revenue and reputation[241][242] Risks Related to Privacy and Cybersecurity Significant risks arise from complex data privacy regulations like GDPR and CCPA, potential security breaches, and the invalidation of the EU-U.S Privacy Shield - The company is subject to numerous data privacy laws like GDPR and CCPA, with non-compliance potentially leading to significant fines (e.g., up to 4% of global annual revenues under GDPR)[287][292] - The invalidation of the EU-U.S Privacy Shield framework by the European Court of Justice creates legal challenges and uncertainty for transferring personal data from the EU to the U.S[293] - A network or computer system breach could lead to unauthorized access to customer data, damaging the company's reputation, causing customer loss, and incurring significant liabilities[301] - As a business associate under HIPAA, the company is subject to strict data protection requirements for health information, and non-compliance can lead to significant penalties[298] Risks Related to Our Intellectual Property IP risks include brand reputation, third-party infringement claims, challenges in protecting proprietary technology, and indemnity liabilities in contracts - Third-party claims of IP infringement could subject the company to costly litigation, require obtaining expensive licenses, or force a redesign of the platform[324][325] - The company's success depends on its ability to protect its proprietary technology, but its patents may be challenged or invalidated, and protection may be unavailable in some countries[328][331] - Failure to maintain and enhance the Domo brand and reputation, which is critical for attracting and retaining customers, could harm operating results[319][320] - Indemnity provisions in customer agreements expose the company to substantial liability for intellectual property infringement and other losses[326] Properties Domo's headquarters in American Fork, Utah, comprises 122,000 sq ft of leased space, with an additional 152,000 sq ft under construction - The company's headquarters is in American Fork, Utah, with approximately 122,000 square feet of leased space[370] - An additional 152,000 square feet is under construction and part of a new lease agreement that began on May 1, 2021[370] Legal Proceedings Domo is involved in a securities class-action lawsuit related to its 2018 IPO and a shareholder derivative lawsuit concerning executive equity awards - A securities class action lawsuit related to the June 2018 IPO was dismissed by the court in April 2021, but the plaintiff filed an appeal which was fully briefed as of January 2022[372] - A shareholder derivative lawsuit was filed in August 2021 against the former CEO and certain directors, alleging breaches of fiduciary duty over excessive equity awards A motion to dismiss was fully briefed as of February 2022[374][375] - The company is unable to estimate a range of loss for these cases but notes that an unfavorable outcome could be material[373] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Domo's Class B common stock trades on Nasdaq under 'DOMO', with no cash dividends paid or intended, and a recent cashless warrant exercise - Class B common stock trades on the Nasdaq Global Market under the symbol "DOMO" since June 29, 2018[380] - The company has not paid and does not intend to pay cash dividends in the foreseeable future[382] - On May 25, 2021, 100,000 shares of Class B common stock were issued pursuant to a cashless exercise of warrants[388] Management's Discussion and Analysis of Financial Condition and Results of Operations Domo's FY2022 revenue grew 23% to $258.0 million, with a net loss of $102.1 million, driven by customer acquisition and retention efforts Overview Domo's subscription-based BI platform saw RPO grow 20% to $339.0 million, but incurred a $102.1 million net loss in FY2022 - As of January 31, 2022, 62% of customers were under multi-year contracts, up from 60% in the prior year[398] - Total Remaining Performance Obligations (RPO) as of January 31, 2022, was $339.0 million, a 20% year-over-year increase RPO expected to be recognized in the next twelve months was $221.7 million, a 24% increase[399] - The company has invested $628.7 million in R&D from inception through January 31, 2022[402] - For fiscal 2022, the company incurred a net loss of $102.1 million and had an accumulated deficit of $1.22 billion[407] Factors Affecting Performance Performance is driven by customer acquisition and expansion, with a 90% gross retention rate and 110% ARR net retention in Q4 2022 - The company's gross retention rate improved to 90% for the 12 months ended January 31, 2022, up from 88% in the prior year[418] Annual Recurring Revenue Net Retention Rate | Quarter | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | | :--- | :--- | :--- | :--- | :--- | | ARR Net Retention Rate | 109% | 109% | 108% | 110% | - Sales and marketing expense was 56% of total revenue for fiscal 2022, flat from fiscal 2021, but down from 74% in fiscal 2020[426] - Research and development expense was 31% of revenue for fiscal 2022, down from 32% in fiscal 2021 and 40% in fiscal 2020[428] Results of Operations In FY2022, total revenue grew 23% to $257.96 million, but operating expenses also rose 23%, leading to a net loss of $102.1 million Consolidated Results of Operations (in thousands) | (in thousands) | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $257,961 | $210,180 | 23% | | Gross Profit | $190,815 | $153,432 | 24% | | Loss from Operations | $(88,470) | $(73,085) | 21% | | Net Loss | $(102,111) | $(84,634) | 21% | - The increase in subscription revenue was primarily due to a $25.9 million increase from new customers and a $13.5 million net increase from existing customers[447] - The increase in sales and marketing expenses was primarily due to a $20.0 million increase in employee-related costs, of which $10.3 million was from stock-based compensation[453] - The increase in R&D expenses was primarily due to a $13.5 million increase in employee-related costs, of which $7.4 million was from stock-based compensation[456] Liquidity and Capital Resources As of January 2022, Domo had $83.6 million in cash, with net cash from operations at $0.4 million, and a fully drawn $100 million credit facility - As of January 31, 2022, the company had $83.6 million in cash and cash equivalents[461] Consolidated Cash Flow Summary (in thousands) | (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $379 | $(15,872) | $(80,219) | | Net cash from investing activities | $(6,517) | $12,240 | $(23,815) | | Net cash from financing activities | $(561) | $13,095 | $7,984 | - The company has a $100 million credit facility that was fully drawn as of January 31, 2022 The loan matures on April 1, 2025, and requires compliance with financial covenants, including a maximum debt-to-annualized recurring revenue ratio[461][467][468] Critical Accounting Policies and Estimates Critical accounting policies include Revenue Recognition, Contract Acquisition Costs, Capitalized Internal-Use Software Costs, and Stock-Based Compensation - Revenue Recognition: Revenue is recognized when control of services is transferred For contracts with multiple performance obligations (e.g., subscription and professional services), the transaction price is allocated based on relative standalone selling prices[487][494] - Contract Acquisition Costs: Incremental costs, primarily sales commissions, are deferred Costs for initial contracts are amortized over a benefit period of approximately four years[495] - Capitalized Internal-Use Software Costs: Certain development costs for the platform are capitalized during the application development stage and amortized over an estimated useful life, generally three years[496][497] - Stock-Based Compensation: Expense is recorded based on the grant-date fair value of awards, estimated using the Black-Scholes model for stock options, and recognized over the requisite service period[502] Quantitative and Qualitative Disclosures about Market Risk Domo faces market risks primarily from interest rates on its $100 million credit facility and foreign currency exchange rates from international operations - The company has interest rate risk associated with its $100 million credit facility, which has a floating interest rate component As of Jan 31, 2022, the rate was approximately 7%[511] - Foreign currency risk exists due to international operations, with revenue and expenses denominated in currencies such as the Japanese Yen, British Pound, and Australian Dollar[513] - The company does not currently engage in hedging foreign currency transactions but is considering it for the future[514] Financial Statements and Supplementary Data This section presents Domo's consolidated financial statements for FY2022 and Ernst & Young LLP's unqualified audit opinions Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued unqualified opinions on Domo's FY2022 financial statements and internal controls, identifying revenue recognition as a critical audit matter - Ernst & Young LLP provided an unqualified opinion on the consolidated financial statements[521] - The firm also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of January 31, 2022[534] - Revenue recognition was identified as a Critical Audit Matter, due to the challenging and subjective judgments involved in determining distinct performance obligations and estimating standalone selling prices[526][527] Consolidated Financial Statements Domo's FY2022 consolidated financials show $244.6 million in assets, a $126.0 million stockholders' deficit, and a $102.1 million net loss Consolidated Balance Sheet (in thousands) | (in thousands) | As of Jan 31, 2022 | As of Jan 31, 2021 | | :--- | :--- | :--- | | Total Assets | $244,589 | $216,438 | | Total Liabilities | $370,567 | $299,897 | | Total Stockholders' Deficit | $(125,978) | $(83,459) | Consolidated Statements of Operations (in thousands, except per share data) | (in thousands, except per share data) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $257,961 | $210,180 | $173,395 | | Net Loss | $(102,111) | $(84,634) | $(125,656) | | Net Loss Per Share | $(3.19) | $(2.89) | $(4.57) | Notes to Consolidated Financial Statements Notes detail accounting policies, including revenue recognition, contract acquisition costs, internal-use software, and the $100 million credit facility - The company has a $100 million credit facility, fully drawn as of Jan 31, 2022, which matures on April 1, 2025 It carries a floating interest rate (approx 7%) plus a fixed 2.5% PIK interest[655][657] - As of Jan 31, 2022, there was $208.5 million of unrecognized stock-based compensation expense related to outstanding RSUs, expected to be recognized over a weighted-average period of 3.1 years[694] - The company has significant federal ($1.18 billion) and state ($1.33 billion) Net Operating Loss (NOL) carryforwards, but a full valuation allowance has been recorded against domestic deferred tax assets due to uncertainty of realization[709][710] - Subsequent to year-end, on March 1, 2022, founder Joshua G James stepped down as chairman and CEO[722] Controls and Procedures Management and Ernst & Young LLP concluded that Domo's disclosure controls and internal control over financial reporting were effective as of January 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of January 31, 2022[726] - Management concluded that the company's internal control over financial reporting was effective as of January 31, 2022, a conclusion supported by an audit from Ernst & Young LLP[727][728] - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, these controls[729] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement, to be filed within 120 days of the fiscal year-end[735] - The company has adopted a Code of Business Conduct and Ethics, available on its website[736] Executive Compensation Executive compensation information is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[737] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[738] Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[739] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[740] PART IV Exhibits, Financial Statement Schedules Financial statements are in Item 8, with schedules omitted, and a list of exhibits provided in the Exhibit Index - The financial statements required by this item are located in Item 8 of the report[743] - All financial statement schedules have been omitted because the required information is not present or is included elsewhere[743]