Good morning. Welcome to day three of the Morgan Stanley TMT Conference. It's been a really great, fun conference so far. A lot of interesting conversations. Today we have, you know, a very interesting conversation with Josh James, Founder and returning CEO of Domo. Josh, welcome back to the.
Thank you.
Morgan Stanley TMT Conference.
Appreciate it.
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. Josh, to start off the conversation, it's the obvious one, you know, 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.
Yeah, I mean, it was definitely an interesting break and got to spend some time with some family. I 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-
Mm-hmm
I n an interesting space, doing interesting things, having interesting strategic conversations and, I prefer when they're a little larger versus.
Mm-hmm
You know, the $5 million- $100 million, it's not my favorite zone. It's so hard. Yeah, I just really love doing it, so excited to be back and excited for the prospects and, you know, want to get the growth back. We were at 30% when I left, and we wanna get back there as quickly as we can. Definitely the, you know, the world's changed, so wanna be prudent and make sure that we're cash flow neutral at least.
Mm-hmm
Operating margin neutral, at least. Positive zero.
Mm-hmm.
You know, other than that, can't wait to get back to growth and spend time with customers, and so just really jazzed, really excited.
Yeah, no, 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 a decision process on, you know, this is actually what you wanted to return?
I had to go through a decision process. Obviously, had to have the board agree that it was the right thing. Yeah, excited to, I guess, you know, it's a really interesting space, and we definitely didn't finish accomplishing all the things that we set out to accomplish. Yeah, I just wanna get that growth profile going and, the opportunity to interact with customers is definitely something that I missed.
Mm-hmm
Interacting with some of our great employees, just being able to strategize.
Mm-hmm
Yeah, 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.
Mm-hmm
Gi ven the profile right now.
Yeah.
That leads to potentially some opportunities for partnering as well. It's just an exciting time for us.
Makes total sense. Along with your return, we have some new faces at the company. We have a new Chief Financial Officer in David Jolley. Maybe talk a little bit about David, his background.
Yeah
A nd why he's the right person for the role at this time for Domo.
David Jolley's sitting right here. David can wave for those that don't know him yet. You'll get a chance to get to know David. I guess I could have David do it, but since we're miked, I'll give his background. He was at Ernst & Young, ran the office in Salt Lake City. 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 got to know him in the late nineties, I think, actually.
Mm-hmm.
He went from, after managing that office successfully, being a part of the leadership team, the national leadership team and at Ernst & Young, helped manage the Western Region and then went on to an international role helping with the Entrepreneur of the Year program.
Mm-hmm
A ll the sourcing that they did, that was a hugely successful program for them, and he managed that. That gave him an opportunity for managing a big budget and I think, you know, CEOs and CFOs, like me, he's advised in 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. Even though you're not on mic, David, you wanna say something for a minute?
Yeah, yeah, sure. You know, I've sort of been around that high growth entrepreneurial space my entire career. Like Josh said, advising CEOs and CFOs and companies and, it's not a new space for me.
Mm-hmm.
The opportunity to be part of that, internally, having been exposed to a lot of those great companies and seeing that we have, you know, sort of what I see as a similar opportunity, right in our backyard with Josh and Domo to, some of that. The opportunity arose. I had just retired from Ernst & Young.
Mm-hmm.
I was looking for something to.
Right.
We were commiserating together.
That's right. 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 the things that are going well? What are the challenges that you're looking to address? If you could sort of lay out your priorities for this year, the top three priorities in terms of what you're looking to focus the team on. Just give us that assessment issue.
Last year one of the challenges that we had was retention of our sales team, and I think it was something that we didn't see coming. We ended up churning about 30% of our sales team. You can't churn 30% of your sales team and hit growth numbers. That was a, you know, a huge challenge. They started figuring that out and, you know, I think this year, even though we're modeling that same churn, we didn't really go and change a lot of the metrics. I've never seen anything like that in my career. We're all pretty confident that we're gonna be able to manage that much more effectively. We think there's some that's something if we do correct, there's some upside there.
You know, 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, you know, I don't necessarily think was entirely accurate. Well, actually, I don't think it was accurate. You know, I understand why it was said, given that the enterprise business wasn't forming 'cause a lot of the enterprise reps were leaving.
Mm-hmm.
You know, 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. It is a great business, actually. It's half our business. You know, me being back, and then also Jeff Skousen in the CRO role, this is a guy that's been there 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, did a lot of great things for us. We think it's just, you know, for the next phase, we think it's the right team. The three things I'm interested and excited about, I guess number one, just really getting that sales alignment, the swagger. I think there's a noticeable, palpable change, and I think everyone at the company sees that and feels that goes a long way, actually. You know, I closed or helped close. You look at our top 10 customers, eight of the top 10. Just helping to do some of those big deals and give some of that big deal confidence is definitely gonna 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. You know, 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 another seat. That means they've got to get approval from their managers to be able to purchase another seat. So there's kind of this great conflict with the model that we set up, and, you know, what allows the thing to really, truly be adopted rapidly. So we've been, t's taken us about five years to-
Mm-hmm
Figure this out because it is a complicated platform.
Mm-hmm.
It's hard to say there's one compute charge. We had to kind of normalize all of the different things that we do down to a compute charge. We went Right before I left, I got everyone to commit that we're gonna do at least 50 deals with this compute charge, and we did over 100. It's approaching 10% of our ARR that are now in this compute model. 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.
Mm-hmm
Y ou wake up on the first of the year, you're like, "Oh, we got 20% growth built in," you know? That doesn't happen when you got per seat.
Mm-hmm.
You got to go fight for every one of those seats. We're excited about that opportunity. I think those are probably the two big things that we're focused on. 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. That compute model helps with that.
Mm-hmm.
We have a bunch of data science functionality and products inside our product, and the take rate on those in the compute model is much, much higher than it was on a per seat model. Cause per seat, again, you had to call us, you had to convince your boss, you had to. Whereas on compute, it's like, oh, it's right there. Click. Let's try this thing out.
Mm-hmm.
We're pretty excited about that.
Makes total sense. You mentioned Jeff taking on the 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, you know, either improve sales productivity or is it just simply, "Hey, let's get, you know, we've fixed our sales capacity issues. Let's just get them ramped." We're gonna understand like how much of a evolution versus a revolution sales is gonna undergo this year.
I think it's not a lot of changes. Again, he was managing, you know, half the group. I think this allows him to have a little bit more alignment. You know, he is in the U.S., that creates a little bit more alignment as well.
Mm-hmm
W ith the team that's there. You know, just again, if you look at the history of the portions of our business, his portion is the one that consistently hits the number. 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.
Mm-hmm.
You know, That doesn't prevent him from getting where he needs to go. The other great thing is that Jeff's been there for a while. He has a great relationship with Daren Thayne, who's in charge of product. He's got a great relationship with Mark Maughan. Mark Maughan's also another promotion that I've been wanting to do for a while.
Mm-hmm.
We were having conversations about it right before I was leaving. Now he's responsible for all of client services and all the renewal business. That's where all the big upsells come from. Having him there, with a great relationship with Jeff, I think will help us. Then our CMO, Wendy, has been absolutely fantastic. She was hired while I was gone, but I've had, you know, probably 12 people on the management team reach out to me proactively to tell me how great she is. We're really excited about her and her performance. You can look in the metrics and see that, I mean, her cost per sales, you know, sales accepted leads been coming down. Yeah, 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.
Yeah, finding the right marketing leader for at Domo has been like kind of a journey.
Yeah. A journey.
F or a while.
That's a good way to state it.
For a while.
It's been a journey.
I've, you know, I worked on your IPO. I've been covering the company every single quarter, since you've been public. You know, one of the themes I've seen across the years is sort of toggling, and you sort of alluded to it, between enterprise and commercial. In some years, some quarters, like commercial's doing really well, let's invest in that. We have a, t hen on the other hand, there's a lot of great blue chip companies that we serve, we can go get with our platform. So this sort of back and forth between enterprise and commercial, it's felt volatile, I guess would probably be the word. What's the right balance in terms of investing in like both opportunities?
'Cause I think under the prior regime, you know, there's really an emphasis on commercial 'cause that was the higher velocity sales motion, that was driving the transactional business. Enterprise seemed to be, you know, deals seemed to be harder to come by. Going forward, when we think about investments being commercial and enterprise, how does that shake out over time?
Yeah. I, you know, 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-
Mm.
As it's been perceived to be. It's just enterprise and corporate.
Mm.
Enterprise and commercial. The differences that everyone looks at 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? Yeah. Sometimes there's lumpiness. Have we overhired in one sometimes and overhired in the other sometimes? Yeah, we have. Not a, you know, not as an indictment on either.
Mm.
it just might be, you know, maybe we haven't done a great job on the narrative in terms of-
Mm
Yeah, we overhired a little bit in corporate. Corporate's a great business, but we overhired a little bit.
Mm.
Maybe we overhired a little bit on enterprise, or we didn't have the right-
Mm
L eader in one of the teams, and they didn't hit their number, and so we didn't hit our number. That's not an indictment on enterprise. It's just, you know, it's. We might have over indexed on something with a few heads.
Mm.
The reality is they're both great business. I mean, commercial's been I was standing behind commercial for a long time, and stand behind Jeff Skousen for a long time. There were At some points in time early on, people didn't like the commercial business. I knew Jeff, but I knew he was hitting his number, and I knew the customers. Our commercial business looks like enterprise. You know, 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 gonna see us continue to do.
Mm
Invest in both those businesses. Again, I brought that point up at the beginning. The reason I brought it up is because I know there's this narrative out there. You can't have this narrative out there and have 30% increase in million-dollar deals, 30% increase in $500,000 to million-dollar deals. We have 500 enterprise customers. You look at the enterprise customers, you'd recognize every single brand.
Mm.
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.
Mm-hmm.
They're paying us $3 million a year.
Mm-hmm.
You look at the other 500 accounts, you're like, every single one of those customers should be paying us $3 million a year.
Mm
A t least.
Mm.
There's a huge opportunity just within our enterprise customer base that, you know, yes, I want new logos, but we could grow that business for a long time at the rates that we wanna grow our entire business.
In the past, you know, I think there's been attempts at something like a product-led growth, high velocity sales model.
Sure.
I think that was like challenging at the time for where the product was at the time.
Yeah.
It was several years ago now.
Yep, it was.
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.
Yeah.
Does that align with a more PLG motion? What is it gonna take to build that muscle to maybe so your cost of sale in your corporate commercial business could start to come down?
Yeah, I'm really glad you asked that question because, of course, we wanted to have PLG.
Yeah.
It was just, at the beginning, you're like, "I don't even know where to start.
Right.
We just kept chipping away and chipping away and chipping away at that. You know, you can go to the website and you can sign up, and you can get a free trial.
Mm-hmm
G et going with the product. Now that we've got compute that we can bring in there as well, you're gonna see us do that this year.
Mm.
Where there's a compute associated pricing model associated with, you know, free trial. You know, it'll be up to this amount of compute so that we can get some of those lower cost leads. Because we've seen our customers. You know, we have a lot of customers paying us millions of dollars, $2 million, $3 million, $5 million, $6 million, $7 million bucks a year.
Mm.
Each one of those customers, almost all of them started out at between $25,000 and $200,000.
Mm.
This thing is viral. It does spread. 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? That's where we keep coming back to every time we sit and you sit around a whiteboard, if you were 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 know, you look at our retention, and if you look at 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 25-50. Dramatically different. Yet we charge you every time you wanna add a user. It's just counterintuitive, but it was the only way we could price this thing initially. Now that we have this ability to have.
Mm
Y ou know, and increase those number of users without the friction, we think that'll help us quite a bit.
I mean, wasn't part of it, that's also the way customers were used to buying, right? Like.
Broadly the BI category per seat.
Per seat.
Oh, yeah.
Yeah, yeah. Right?
For sure.
I mean, convincing customers to consume it every way might have been more of a challenge in 2019.
It was. now today.
now it's like, it's.
It's the opposite.
Right.
I mean, there's definitely a bunch of customers that were going to either churn or were going to stay flat. We give them compute.
Mm-hmm
They get excited. They're like, "Oh, this will be a lot easier to sell internally." You're like, "What? You're still, y ou're paying us more.
Mm-hmm.
Oh, yeah, no, this is tons easier.
Mm-hmm.
I mean, it doesn't make sense sometimes, but the customers, they love it.
Yeah. Makes total sense. Let's talk a little bit about, the market, the category, and how it's evolving, whether we wanna call it modern BI. Essentially we've had this wave of large language models where people are getting answers to questions in a very natural way.
Yeah
St ructured form. What does that sort of imply for or the implications for this category with guys like yourself and the Looker and the ThoughtSpot of the world who've been in sort of, you know, more in that, next sort of wave two of BI. How are you guys gonna have to evolve, and what is? You know, is there any sort of risk associated with, you know, large language models and things like OpenAI and ChatGPT?
Yeah. 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?
Mm-hmm.
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. 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 audit and have all the metadata around the data. It's not just some big, you know, 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. Finding correlations and interesting combinations in 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 talk a little about Domo Everywhere. As you were, you know, at the end of your last year, there was really a theme around not just dashboards, but let's build applications.
Mm-hmm
T o improve decision-making for a marketing person, an operations person, in sort of that embedded analytics opportunity. How is Domo Anywhere, or is it Domo Everywhere?
Everywhere, yeah.
Domo Everywhere. How does that play?
Anywhere, everywhere.
How has that motion played out in your view? What, if anything, needs to be enhanced on that front?
Yeah, 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 well, what happens is our customers are looking at the data and they're like, "Oh, if we could just get this out to our customers, you know, it would be very helpful to our customers, it'd be very helpful to our partners." In many cases they're like, "We could probably charge for this data.
Mm-hmm.
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. If you look at companies like Nike who have.
Mm-hmm
T housands 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. They click on that, and it shows, oh, man, the neighboring Nike store is selling a lot more purple Nikes. For whatever reason, that's the number one seller. Ours are in the back, or ours are on the side shelf. Let's move those to the end cap. You know, it has a material impact on the business.
It's because they don't think they're doing data analytics, right? It's exactly what they need. 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 kind of apps is something that's really unique. That's very exciting, and Domo Everywhere continues to be one of the fastest growing part of our businesses, 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...?
You know, it's the, it's definitely the tip of the spear.
Mm-hmm.
You know, it's the tail that wags the dog. It's what makes the rest of the platform.
Okay
That we have, the platform relationship that we have with them, it's not possible without that entire platform. It's also the fruit at the end-
Mm-hmm
Y ou know, of that entire experience. If you look at the retention that we have with customers who have built these custom apps.
Mm-hmm
It 's through the roof. They don't go anywhere, because they've built something that's very specific to their company.
Yep.
We will absolutely continue to do that and do more of that because it really plays to our strengths as well.
Great. I do wanna go out to the audience, see if they have any questions. I wanna touch on Q4 and the outlook, but get your questions ready for Josh James and we'll get your questions in. On Q4 and the outlook. Billings went negative in Q4. You're guiding Q1, I think it's sort of at the midpoint, around -5%. For the full year, we're at, I think, mid-single digits in terms of billings growth. What was sort of the mix between macro and let's say execution, what were the issues in Q4 that caused billings to go negative, and then what's the assumptions that underpin the outlook for next year?
Yeah, great. There's, of course, a macro component. You know, I would say macro's maybe half, maybe 10%. I mean, you lose 30% of your sales organization, it's really difficult to make that up. You know, you've got to go and replace the hires. You've got to get those hires trained up, and it takes salespeople, you know, 9 to 12 months to get ramped. That's. We've done that. I think we've fixed the retention problem. Again, we haven't seen it yet in the numbers, so we just modeled it the same way that it was. We think there's some upside there.
The thing that we're gonna see is, because of the way that ramp nature of reps, we're gonna 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 indication so far from the sales organization. Again, Jeff, you know, being responsible, Being completely responsible for that I think will help. A lot of his managers are now the managers for the enterprise business. I think we're gonna be in lockstep. I think there's some upside to that. Yeah, the, you know, a lot of acceleration in Q3 and Q4. Get on the bus now 'cause it's gonna be a good ride.
Awesome. Any questions for Josh from the audience?
I just one like general question. Sorta now that you're back and sorta to help build growth in the pipeline, will you have time 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 them to start and then add? 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. You know, I don't necessarily go out and do it because I'm trying to hit a number. I really truly love doing it. It's really fun to see what our big customers are trying to accomplish. When you sit there, you know, if you're at Nike and you watch their eyes light up for something that you're delivering or, you know, you're sitting there and they say, "Gosh, you know, if I had this, it'd really make things a little bit better." Then the fact that I can call Darren and say, "Hey, Darren, what can we do about this?" You can make that commitment to the customer when they're looking at you as the founder and CEO. They're like, "Okay. Yeah.
I'll make a bet on you." That's just a fun experience. Yeah, Right when it got announced, I got a, 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. Gonna be doing a lot of that. Gonna see a lot of customers next week. Have that on my calendar already. The good news is I've done this before. Everybody that's in place, are people that I've worked with before, save except a few. You know, we already speak the same language without having to sit down and spend lots of face time together. I can go focus on, you know, strategic opportunities, internally, and then strategic customers externally.
Great. Any other questions for Josh?
I want to ask about the change in the pricing model that you talked about at the beginning from seat to consumption. We're hearing a lot of companies doing that change, especially in your space. Would want to hear how do you see that unlock value and also, what kind of other features you see that can leverage the compute. Thanks.
Yeah. 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 gonna be able to cross-sell, other features and functionality that we already have into those accounts?" How are you gonna be able to cross-sell, up-sell, potential acquisitions down the road? Not that we're looking at them, you know, immediately, but just, you know, down the road, how are you able to look at cross-sell and up-sell?
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. That is really the main thrust behind it. It just makes it so much stickier. 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. It is a dramatically improved experience. I'll never forget, some of you might remember Jay Heglar back in the day. One thing.
Mm-hmm
That he discovered, he came to my office one time, he's like, "Josh, you're not gonna believe the difference in retention when we have 25 users, 50 users, and 200 users." It literally was like going from 75% retention to 97% retention.
Mm-hmm.
It's like everything that we have to do to get more users, we've got to focus on. That's what drives this.
With that, we're out of time. Thank you, Josh, for giving us the update on Domo. Welcome back.
Appreciate it. Thanks, everybody.