Welcome to Domo's Fourth Quarter Fiscal Year 2022 and Year End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. And with that, I will hand it over to Peter Lowry, Domo's Vice President of Investor Relations.

Good afternoon and welcome. On the call today, we have John Mellor, our CEO; Bruce Felt, our CFO; and Julie Kehoe, our Chief Communications Officer. Our founder and former CEO, Josh James, will also make some brief prepared remarks. Julie will lead off with our Safe Harbor statement and then onto the call. Julie?

Our press release was issued after the market close and is posted on the Investor Relations section of our website, where this call is also being webcast. Statements made on this call include forward-looking statements related to our business under federal securities laws, including statements about financial projections, the plans and expectations for our go-to-market strategy, our expectations for our sales and new business initiatives, the impact of COVID-19 on our business and our financial condition. These statements are subject to a variety of risks, uncertainties and assumptions. For a discussion of these risks and uncertainties, please refer to the adjustments we filed with the SEC. In particular, today's press release, our most recently filed annual report on Form 10-K and our most recently filed quarterly report on Form 10-Q. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures which we believe are useful as supplemental measures of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results of operations on a non-GAAP basis. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. Please refer to the tables in our earnings press release for a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measure. With that, I'll turn it over to Josh. Josh?

Hi, everyone. By now, I'm sure you've heard the news that I'm stepping down as CEO. I want to say I could not be more proud of the entire Domo team. They turned this business from a vision I founded 11 years ago, to one that was next struggling to emerge and grow. But then finally now, it's become a very successful, sustainable business. As you hear more from the team in a few minutes, we delivered a 30% billings growth this last quarter. It's a cash flow positive business and a recurring revenue business that enjoys 90% retention with sales productivity that has been holding strong and even improving. I couldn't be more excited about the future. As you saw in the press release, John Mellor is taking over as CEO and Catherine Wong is being promoted to COO. I started working with John and relying on his wisdom and advice 20 years ago. I was lucky enough to start working with Catherine even before that. The company is in great hands. It's John's boat to drive now and I'm thrilled to watch him Captain the ship. I obviously have an aligned and substantial interest in Domo doing well and I'll continue to be the biggest curator. And to that end, I'm going to jump off this call now and let the rest of it be about the new management team and the company's performance and the company's future. All right, John. The floor is yours.

Thank you, Josh. Before I talk about our Q4 results and business highlights, I want to take a minute to introduce myself to all of you on the call today. I've met many of you over the years and I'm looking forward to spending more time with you over the coming months and quarters. I've been Domo's Chief Strategy Officer since 2019, driving our corporate strategy, positioning and marketing. I came to Domo after nine years at Adobe, where I was Vice President of Strategy and Business Operations for Adobe's Experience Cloud business unit. While I was there, we grew that business from $300 million to nearly $3 billion in annual revenue, executing on both organic growth as well as acquisitions. I came to Adobe in 2009 through it's acquisition of Omniture. At Omniture, I was Executive Vice President of Strategy and Business Development. And in that role, I focused on advancing the company from it's hyper growth phase to it's IPO and ultimately, through it's sale to Adobe. What initially attracted me to Domo with the strength and differentiation of it's platform, the caliber of it's management team and importantly, the engagement patterns I saw across their customer base. I'm optimistic about our future and ready to lead Domo through this next phase of growth and innovation. Now let's talk about the quarter. I'm very pleased that we closed our fiscal 2022 with such strong results, driven by demand for the Domo platform to power the modern business. We posted 30% billings growth and 23% revenue growth year-on-year. Bruce, of course, will go into more detail but we're continuing to see strength in the underlying metrics that drive future revenue growth. Today, I'll talk about what's driving the current demand. Why we believe we are better positioned than ever…

Thank you, John. We finished fiscal 2022 with a strong Q4, closing out with 30% billings growth, the highest growth in the last 14 quarters. Some of the foundational growth drivers we have been investing in contributed to billings in the quarter and these important drivers should also help us achieve our fiscal year 2023 growth objectives. One of the key drivers was sales hiring. We grew our direct sales force by over 25% in fiscal '22. Our sales productivity per ramped rep was over $1 million in first year contract value in FY '22. We're very pleased with this level of production, particularly since it occurred while we accelerated sales hiring. This gives us the confidence to continue hiring reps at a pace at least as high as last year's pace. Other key drivers are improving gross retention, better market positioning and awareness, higher yields on marketing spend and improved partner contribution. We had a year of accelerating new logo growth while continuing to see significant engagement enough selling into our existing customers. The new logo growth is primarily driven from our corporate group which has become a heck of a new business machine. We're finding that the complete platform pitch resonates extremely well with those customers because of the overwhelming amount of functionality and ease of use we bring to the market compared to all of the tool provider competitors. We plan to continue to lean into this category as we believe it can drive sustained, cost-effective high growth. At the same time, we're making very good progress with great enterprise brands which we expect can lead to even higher growth rates as we improve our new logo and upsell objectives with that part of the business. Enterprise deals tend to take longer because of the complexity of…

[Operator Instructions] Your first question comes from the line of Sanjit Singh with Morgan Stanley. Your line is open.

Thank you for taking the questions and congrats on the really strong Q4 and the guidance is fantastic as well. Are you talking to sort of start with the obvious and I don't know who I should direct this to? But one is going to be for John, in terms of how you're thinking about 2022 and beyond. But just in terms of Josh stepping down from the role, start to see him go. I think it is in terms of the handoff of the transition, is there any sort of color you can provide there and that Josh is stepping off the Board as well, so sort of exiting the company? And so just in terms of the timing of the transition, given where the business is today in a really good spot. I think what I'm sort of struggling with is why Josh may not be around to give some jobs and mentorship in his first year as CEO. That's sort of the first question. And then a question for you, John. Congrats on the big promotion. If you think about the strategy of the company in New Year again, you sort of architected that strategy, right? As CEO, what way should we expect Domo to change or not change going into next fiscal year and beyond?

Great, Sanjit and good talking to you. Appreciate the questions. As you saw, Josh has stepped down from the Board, has stepped down as CEO. And it's actually a really exciting time for the business. This is an opportunity to leverage the breadth and the depth of the management team. This team that's here today, the team has delivered these results and we've got a passionate vision about how to continue to execute on those results. And I appreciate the question about my perspective because Domo has such a unique value proposition in this market. And we've got an opportunity. I think my style is really about simplicity and focus on execution, right? Are we going after the right big strategic targets which I think we've proven that we are really making progress there? Are we investing in the right systems to run the business as it scales? We're making decisions now that are need to be on the path of a $1 billion revenue business. And then, of course, a big priority for me is employee experience. As we add more people, particularly due to the sales organization, how do we do that with consistency? How do we do that in a way that maintains culture and inclusivity and just build a high-performance team? So I hope there was kind of a lot there. I hope that answers your question.

No. I appreciate the thoughts. And then may be one for Bruce, just in terms of the quarter and particularly the conversion of the proof of concept and the services contracts into subscription contracts. How much of the trend is that going to be going forward? Is that in terms of large enterprise customers starting with a sizable proof of concept converting to 7-figure or hopefully 6-figure type wins? Is that kind of a new motion that we should expect going forward? Services revenue is essentially going to tell us -- become a leading indicator feature to suite around growth? Or is that kind of more of the spoke to some of the large deals that you guys have been executing over the past year?

The trend of having proof-of-concepts convert at a very high rate in the closed deals has been here for quite some time. We have very high close rates. What makes this unique is it was just much larger dollars just because of the size and scale of the customer. And we may see more of those because it's highly comforting to large enterprises to know the product is going to work in the use case they have in mind before they fully commit. So as we -- as our enterprise motion gets higher and more traction, it won't be surprising to see that. I wouldn't necessarily conclude that services is a leading indicator generally. I think proof of concepts are. We really do believe we're in the subscription business. We do everything we can to maximize that. Our services organization is there to ensure a smooth start and successful start. And we know that's critical to having high renewal rates. So it's always going to be a big part of our business. We actually would like to see more and more come from partners. Partner source would be -- is one of our big focused areas. And that large auto manufacturer actually was a partner source deal. So we hope that is a trend that we see more of them in the large enterprises but just continuing to have high success rates with POCs turning into closed business, that's been here for quite some time.

Got you. Thanks.

Your next question comes from the line of Derrick Wood with Cowen. Your line is open.

Great, thanks. And I just want to wish Josh's success in his next chapter. First question, I guess, John, for you. We knew Ian and Wolff were focused on closing out a strong Q4. You guys did a great job. But I think that there's maybe some go-to-market tweaks expected to come with Wolff at the helm and now you. And just curious on a few things. First, it sounds like you want to have a balance of transactional and large deal activity. I think the incremental effort, it sound like, it will be more around how do you drive more large deal conversions. I would love to hear your thoughts there. And then just thoughts about verticalizing the sales force or what kind of new development we could see on the partner side would be helpful.

Sure, great. And thanks, Derrick. Appreciate the question. So yes, the go-to-market engine, I think it's constantly in a state of tweak, certainly. There's some really good traction that the team has seen, as we've seen over the last few quarters. You've got parts of the business as we talk about the corporate business, where that engine is really working. And you hear the excitement from the team and even the excitement from Bruce. That engine is working. And we've got an opportunity to continue to focus on that business while starting to really push some more focus on the enterprise. And that's where it gets exciting. And I know that Wolff and Ian are both very excited about the opportunities there because as you mentioned, verticalizing these solutions helps us align with our strategy of putting data to work for everyone in an organization. And that's slightly different when you're talking about retail or when you're talking about financial services or manufacturing. Being able to crisply talk about the value of Domo in each of those industries is something that we see as an opportunity for incremental improvement with lead generation, deal closure, et cetera. It really helps to speak the language of the customer.

Great. Maybe one for Bruce. Certainly, encouraging to see the strong top line guide and the confidence in revenue growth converging to the ARR growth levels you've been seeing. But I wanted to talk about the bottom line and EPS is expected to be lower in fiscal '23 versus '22. How much of a factor is that coming from maybe a higher PS mix and some pressure on gross margin? And how much is coming just from the OpEx investment, sales hiring and back to work expenses and things like that? And what does that really imply on the op margin side?

Yes. First of all, we got a lot of questions during last year about what is our posture on investing going forward. And our response was, well, we just have to see how this year works closes out. And we were pretty clear that if we really saw the unit economics working and the momentum there, we would -- our strong preference is to take any available extra investment dollars and put them towards growth. And by that, we mean whatever is generally generated in cash flow beyond our breakeven status. And as I sit here right now, I'm just very bullish on the business. I think we have incredible number of initiatives working for us. Underlying the billings growth was even stronger new ACV growth, supporting that was even a stronger recurring ACV growth. And with Wolff in the mix and Ian extremely engaged who built the engine to really make this happen this last year. I mean, the combination of that talent is certainly working together on making sure that we just keep this momentum going. And when we say we want to invest more, it really will be in sales hiring first, the supporting infrastructure to make sure that we can maintain these productivity levels. We'll try to get as much leverage we can out of the other line items to frankly afford more investment in growth. And we're just setting up the infrastructure to have many, many quarters of nice, sustained growth at rates we -- we've always been striving to get. And if we really keep it up, then we can go into even a higher ZIP code of growth. So now this year, we'll have to see how it plays out but I have -- I have a lot more confidence as I sit here at the beginning of this year than at the beginning of last year. I mean the beginning of last year, our guidance was something like 16% growth and now we're well into the 20s. And there's a lot of drivers in play that have yet to be realized. More to come when we get to the user conference coming up, we'll go through those drivers again, just like we did last year. But yes, that's the thinking behind the philosophy of investing and trying to stay cash flow positive while we really take advantage of everything, we see in front of us.

Yes, that's really great to hear. Just to clarify you are expecting positive operating cash flow for the year?

Yes.

That's great. Thanks for taking the questions.

You're welcome.

Your next question comes from the line of Kamil Mielczarek with William Blair. Your line is open.

Thanks for taking my question. And John, congratulations on the promotion. I'd like to hear your thoughts on the product roadmap longer term. How are you thinking about the evolution of the Domo platform over the next few years? And what are some of the holes in the product portfolio today? And how do you think about prioritizing R&D investments? Any color you can provide there would be great.

Yes, sure. So we've got a lot queued up for our annual customer event coming up here in just a few weeks at Domopalooza. So I won't steal too much of the team's thunder from that. But I will say that as we've talked about in a few earnings calls, one of the real interesting area that we're seeing is this concept of apps that are driven by data focused on taking action, right? So this is -- it really kind of breaks the mold of traditional BI and allows data to be combined with workflow, wrapped in an experience and put right in the hands, meaning right on the phone, on the tablet, the device of people making decisions which it breaks out a traditional BI because instead of low digit percent adoption of BI in an organization, you move to the whole company having an opportunity to use data to really drive their business and truly take action. So that's a really big push. And one of the exciting situations that Domo's end, given it's success with customers and especially big customers is those folks tend to be the best drivers of road map. They're making your customers happy tends to really make your product better and it makes your product more approachable and better for other customers. And I think if you've heard Catherine Wong, our EVP of Product and now Chief Operating Officer talk about the big customer. She has embraced the customers that scare you because that's the -- those are the customers that give you real road map acceleration.

That's helpful. And maybe one for Bruce. It's been great to hear about the productivity improvements. And despite that you continue to step up quota-carrying headcount throughout the year. Thinking out longer term, how are you thinking about the pace of margin expansion relative to investments back in the business? If we see more of the same in productivity, do you plan to continue to accelerate quota-carrying headcount growth? Or is there a point where maybe you let some of the strong sales flow through the model and expand free cash flow margin?

The basic more or less philosophy on time frame was as soon as productivity hit a level that we were -- we thought was quite respectable. Let's definitely lean into that -- well, in the first year which was last year and see how that goes. And certainly, another full year of that which is the year we're in, as just supplying good baseline foundational growth for the business. That gives us the time to keep developing the other drivers which are more yield out of marketing, certainly the partner area. We still think we have a lot of upside in what we get out of the large enterprise business, just landing fast -- landing more and expanding faster, better positioning in the market. We're still the one platform-agnostic software company in the space. We're going to accrue benefits for being that and keep building out the platform with very interesting apps, keep expanding the use of Domo everywhere. And that might take pressure off -- that should take pressure ultimately off needing to scale with just sales hiring. So our hope is, yes, we get these other drivers working and we start getting leverage out of it. So that gives us more room to allow some of it to flow through on the margin line. But let me point out, we're now getting to a point where this year, we'll charge through $300 million of ARR. I don't have to tell you how profitable that is in the SaaS business. It's highly profitable. We could allow as much as we want to flow through. We just happen to be in this very unique time where we've had challenged growth in the past. We finally see the economics working in our favor. We think we're extremely well positioned. We have an extremely energized management team as I sit here right now, leaving we should turn that lots of growth points. And it will cost us a little bit of money. But in the long run, with the recurring revenue model, you know it puts us in a position to allow that to become profit at any point in time; so that's the basic philosophy as we sit here right now.

That's great color, Bruce. Thanks. And congrats, again, on the strong results and the strong year.

Thank you.

And there are no further questions at this time. This does conclude today's conference call. Thank you for joining. You may now disconnect.