For investors, this shift alters the sector's fundamental business model. The market is effectively moving from a Maintenance Model to a Consumption Model.In the past, defense spending focused on legacy platforms, such as aircraft carriers and fighter jets designed to last for decades. These programs generate revenue through long-term maintenance contracts. However, modern conflict requires assets that are sophisticated enough to complete a mission but affordable enough to be lost in combat without breaking ...

Financial Data and Key Metrics Changes - In Q3, the company generated positive adjusted free cash flow of $2.1 million, a $15.8 million improvement year-over-year, and is on track to finish the year with positive adjusted free cash flow for the first time ever [4][20] - The operating margin was 6.8%, exceeding guidance and positioning the company for its highest full-year operating margin ever [4][21] - Positive EPS was reported for the second consecutive quarter, marking the second time in company history [4][22] - Total revenue reached $79.4 million, near the high end of guidance, with a gross margin of 75.4%, down 90 basis points year-over-year [25] Business Line Data and Key Metrics Changes - The company has transitioned to a consumption model, with 80% of annual recurring revenue (ARR) now on consumption contracts, a significant increase from single digits two years ago [8][9] - Monthly active users across the customer base increased over 10% year-over-year, reflecting growing momentum in user engagement [10] - Current subscription RPO grew 3% year-over-year to $214.1 million, while total subscription RPO grew 15% to $405.9 million [23] Market Data and Key Metrics Changes - Leads from strategic partners increased over 25% compared to Q2 and more than doubled from Q1, indicating rapid expansion of partner relationships [7] - The company expects billings of $107.5-$109.5 million in Q4, representing 6% year-over-year growth, which would be the highest billings growth in over three years [26] Company Strategy and Development Direction - The company is focused on deepening its partner ecosystem, accelerating consumption, and leveraging AI capabilities [4][10] - A composable approach to selling platform components is being adopted to meet customer needs more effectively [10] - The company is enhancing its AI capabilities, with unique accounts using AI features increasing over 60% year-over-year [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pipeline for Q4, despite longer sales cycles for partner-related deals, emphasizing the strength of relationships built with CIO-level engagement [30][32] - The company anticipates continued improvements in gross retention, projecting it to reach approximately 87% in Q4, with potential to approach 90% in future quarters [24][80] - Management highlighted the importance of governance in AI usage, ensuring customers can leverage AI while maintaining control over their data [57] Other Important Information - The company received strong industry recognition, being named a leader in various categories related to AI and data products [17] - Management is committed to maintaining a balance between growth and profitability, aiming for 10% growth and 10% operating margin by the end of FY27 [27][73] Q&A Session Summary Question: What caused the negative billing surprise in Q3? - Management indicated that the longer sales cycles associated with the ecosystem business contributed to the billing shortfall, but expressed confidence in the pipeline for Q4 [30][32] Question: How are things looking for Q4? - Management reported that Q4 started well, with some deals that had slipped already closing, and emphasized the importance of CIO involvement in the sales process [33][34] Question: Can you elaborate on opportunities with CDWs? - Management noted that partners are considering OEM deals, indicating strong interest in deeper collaborations [36][39] Question: What is the outlook for net revenue retention? - Management expects improvements in net retention as gross retention increases and as the company capitalizes on the consumption model [40][41] Question: How is the conversation around AI evolving? - Management emphasized that AI is a key focus, with ongoing initiatives to enhance the agentic platform and improve customer experiences [53][54] Question: What leverage is being gained from new partners based on learnings from Snowflake? - Management highlighted that the experience gained from the Snowflake partnership is being applied to new partnerships, improving go-to-market strategies [62][64] Question: Was the billing shortfall due to large transactions or multiple mid-sized deals? - Management clarified that the shortfall was due to a combination of medium-sized deals slipping, rather than a few large transactions [68][70] Question: Are there planned areas of investment for FY27? - Management indicated that while there are areas for potential investment, they are also finding efficiencies that will not impact growth [71][72]

Financial Data and Key Metrics Changes - In Q3, the company generated positive adjusted free cash flow of $2.1 million, a $15.8 million improvement year-over-year, and is on track to achieve positive adjusted free cash flow for the full year for the first time in company history [4][20] - The operating margin for Q3 was 6.8%, exceeding guidance and positioning the company for its highest full-year operating margin ever [4][21] - Positive EPS was reported for the second consecutive quarter, marking only the second time in company history [4][22] - Total revenue reached $79.4 million, near the high end of guidance, with a gross margin of 75.4%, down 90 basis points year-over-year [25] Business Line Data and Key Metrics Changes - The company has transitioned to a consumption model, with 80% of annual recurring revenue (ARR) now on consumption contracts, a significant increase from single digits two years ago [8][9] - Monthly active users across the customer base increased over 10% year-over-year, reflecting growing momentum in user engagement [9][10] - Current subscription RPO grew 3% year-over-year to $214.1 million, while total subscription RPO grew 15% to $405.9 million, indicating strong customer relationships [23] Market Data and Key Metrics Changes - Leads from strategic partners increased over 25% compared to Q2 and more than doubled from Q1, demonstrating rapid expansion of partner relationships [7] - The company expects billings for Q4 to be between $107.5 million and $109.5 million, representing a 6% year-over-year growth, which would be the highest billings growth in over three years [26] Company Strategy and Development Direction - The company is focused on deepening its partner ecosystem, accelerating consumption, and leveraging AI capabilities [4][18] - A composable approach to selling platform components is being embraced, allowing customers to engage with the platform in a modular fashion [10] - The company is seeing strong adoption of AI features, with unique accounts using AI increasing over 60% year-over-year [11][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pipeline for Q4, despite longer sales cycles for partner-related deals, emphasizing the strength of relationships built with CIO-level engagement [32][70] - The company anticipates continued improvement in gross retention rates, projecting an increase to approximately 87% in Q4, with potential to approach 90% in future quarters [24][80] - Management highlighted the importance of governance in AI usage, ensuring customers can leverage AI while maintaining control over their data [57] Other Important Information - The company received multiple industry recognitions for its leadership in AI and data products, including being named a leader in agentic AI and receiving awards for best business intelligence technology [17] - The CEO publicly addressed personal challenges related to alcohol use and emphasized a commitment to recovery while maintaining responsibilities as CEO [84][85] Q&A Session Summary Question: What caused the negative billing surprise in Q3? - Management indicated that the longer sales cycles associated with the ecosystem business contributed to the billing shortfall, but expressed confidence in the pipeline for Q4 [30][32] Question: How are things looking for Q4? - Management reported that Q4 started well, with some deals that had slipped already closing, and expressed optimism about the pipeline [33][34] Question: Can you elaborate on opportunities with CDWs? - Management noted that partners are considering OEM deals, indicating strong interest in deeper collaborations [36][39] Question: What is the outlook for net revenue retention? - Management expects improvements in net revenue retention as gross retention increases and as the company capitalizes on the consumption model [40][41] Question: How is the conversation around AI evolving? - Management emphasized a proactive approach to AI, focusing on improving customer delivery and developing an agentic platform [53][54]

Financial Data and Key Metrics Changes - In Q3, the company generated positive adjusted free cash flow of $2.1 million, a $15.8 million improvement year-over-year, and is on track to finish the year with positive adjusted free cash flow for the first time ever [4][19] - The operating margin was 6.8%, exceeding guidance and positioning the company for its highest full-year operating margin ever [4][20] - Positive EPS was reported for the second consecutive quarter, marking the second time in company history [4][20] - Total revenue reached $79.4 million, near the high end of guidance, with a gross margin of 75.4%, down 90 basis points year-over-year [23] Business Line Data and Key Metrics Changes - The company has transitioned to a consumption model, with 80% of annual recurring revenue (ARR) now on consumption contracts, a significant increase from single digits two years ago [8][9] - Monthly active users across the customer base increased over 10% year-over-year, reflecting growing engagement and adoption [9][10] - Current subscription RPO grew 3% year-over-year to $214.1 million, while total subscription RPO grew 15% to $405.9 million [21] Market Data and Key Metrics Changes - Leads from strategic partners increased over 25% compared to Q2 and more than doubled from Q1, indicating rapid expansion of partner relationships [7] - The company expects billings of $107.5-$109.5 million in Q4, representing 6% year-over-year growth, which would be the highest billings growth in over three years [24] Company Strategy and Development Direction - The company is focused on deepening its partner ecosystem, accelerating consumption, and leveraging AI capabilities [4][12] - A composable approach to selling platform components is being embraced, allowing customers to engage with Domo in a way that meets their immediate needs [10] - The company is seeing strong adoption of AI features, with unique accounts using AI increasing over 60% year-over-year [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term model's durability, citing strong adoption trends as leading indicators of future financial performance [12] - The company anticipates that the work done over the past few years is paying off, positioning it for meaningful, profitable growth in the future [18] - Management acknowledged the challenges of longer sales cycles due to the complexity of partner-related deals but emphasized the strength of relationships built through CIO-level engagement [20][27] Other Important Information - The company received strong industry recognition, being named a leader in various categories related to AI and data products [17] - Management highlighted the importance of governance in AI usage, ensuring customers can leverage AI while maintaining control over their data [47] Q&A Session Summary Question: What caused the negative billing surprise in Q3? - Management noted that the ecosystem business has grown larger, leading to longer sales cycles for complex deals involving multiple stakeholders, particularly CIOs [27][30] Question: How is the company addressing the longer sales cycles? - Management indicated that while the sales cycles are longer, they result in stronger, more durable customer relationships, which ultimately benefits the company [20][27] Question: What is the outlook for net revenue retention? - Management expects improvements in net revenue retention as gross retention increases and as the company better realizes the potential of the consumption model [35][56] Question: How is the company leveraging learnings from the Snowflake partnership? - The company is applying insights gained from the Snowflake partnership to build stronger relationships with new partners, enhancing both technology integration and go-to-market strategies [48] Question: What are the expectations for future investments? - Management indicated that while there are areas for potential investment, they are also focused on maintaining efficiency and leveraging AI to enhance operations [54][55]

Financial Data and Key Metrics Changes - The company exceeded Q2 guidance for billings, revenue, and non-GAAP EPS, achieving total revenue of $79.7 million and billings of $70.3 million [23][24] - Non-GAAP net income was $0.9 million, with non-GAAP diluted earnings per share at $0.02 based on 43.6 million diluted weighted average shares outstanding [28] - Subscription gross margin rose to 81.9%, marking the second consecutive quarter of sequential improvement, while operating margin reached 7.7%, the highest in company history [27][28] - Adjusted free cash flow in Q2 was $1.4 million, an improvement of $7 million year over year, with a steady cash balance of $47 million [28] Business Line Data and Key Metrics Changes - New ACV growth accelerated to nearly 20%, the highest in 3.5 years, with sales force productivity growth increasing from 19% to 67% year over year [7][24] - Subscription RPO growth accelerated from 3% to 19% year over year, with current subscription RPO growing 4% to $220.2 million and total subscription RPO growing 19% to $409.8 million, the highest ever [25][26] Market Data and Key Metrics Changes - International momentum was strong, particularly in Japan, where new ACV nearly doubled year over year, and TCV hit all-time highs with an NRR of close to 130% [16][60] - The company has strengthened its ecosystem with deeper integrations into major cloud data warehouse partners, including Snowflake, Databricks, Oracle, and Google [17][18] Company Strategy and Development Direction - The company is focused on sustainable profitable growth, emphasizing a partner-centric go-to-market strategy and a shift to a consumption-based model [5][24] - The strategy includes deepening partnerships, innovating with AI, and building new lanes to help customers accelerate with the company's platform [22] - The company aims to exit fiscal year 2026 with billings growth and non-GAAP operating margin of 6% [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation and momentum, highlighting the strong demand for advanced AI solutions and the benefits of the consumption model [9][10] - The management anticipates that improvements in retention rates and new ACV growth will continue to drive future performance [40][85] Other Important Information - The company was recognized as a leader in several industry reports and awards, reflecting its commitment to innovation and talent advancement [21][22] - The company has over 75% of its ARR under consumption, with expectations to reach over 85% by the end of the year [26] Q&A Session Summary Question: Insights on Snowflake Conference and Pipeline - The Snowflake event generated thousands of leads, with a significant impact expected in Q3 as deals from CDWs begin to materialize [31][35] Question: Understanding NRR and Consumption Model - The reported 108% NRR is for customers who originally purchased on a consumption basis, with expectations for improved retention rates as more customers transition to this model [40][41] Question: International Market Success - Japan has shown outsized success, with strong retention and a diverse range of industries performing well, including industrials, oil and gas, and retail [60][62] Question: Differences in Customer Buying Behavior - Larger enterprise customers are increasingly seeking partnerships and long-term solutions, which enhances the company's ability to close deals [89][91]