Domo(US:DOMO)2025-12-04 23:02Financial 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]