Ladies and gentlemen, thank you for standing by. And welcome to Domo’s Second Quarter Fiscal 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Peter Lowry, Vice President of Investor Relations, you may begin your conference.

Good afternoon and welcome. On the call today, we have John Mellor, our CEO; Bruce Felt, CFO; and Julie Kehoe, our Chief Communications Officer. Julie will lead off with the safe harbor statement and then onto the call. Julie?

A 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 security 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 documents 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 John. John?

Thank you very much, Julie. And thanks to everyone for joining us on today's call. In Q2, our billings growth was 21%, our total revenue growth was 20% and our subscription revenue growth was 23%. Our key leading indicator metrics such as ARR and CRPO were about 20% growth as well. However, when you parse these results there is a significant divergence between our two major sales groups that I'll highlight. In corporate, we had very good growth. We classify corporate as companies with up to $1 billion in revenue. And to be clear, corporate deals are not small, our average selling price is over $50,000 and deal sizes can range well into the six figures. In corporate we experienced over 25% growth in new ACV, revenue growth of over 30% with this group and our growth with North American corporate customers was even higher. We have an incredibly differentiated offering that provides not only high impact business solutions for corporate businesses, but the power of the platform provides those customers with the technology stack that eliminates the need for large technical staff to support the data infrastructure needs of their businesses. This complete stack makes alternative technologies typically visualization tools pale in comparison to our rich value-added customer proposition and allows us to produce strong sales results. In the enterprise, we experienced revenue growth of only about 10% and ACV growth of 6%, well below our overall target growth rate. The changes we made to our enterprise go to market earlier this year has not produced the results we were looking for. And in fact have led to recent rep turnover. So on the enterprise side we are entering Q3 with less ramped sales capacity than planned. Our value proposition for enterprises is extremely strong. We provide unique and…

Thank you, John. In Q2 we posted 21% billings growth and 23% subscription revenue growth, with a record subscription gross margin. As mentioned, sales to corporate customers remained a bright spot in Q2. Sales to our North American corporate customers, which is the major focal point of our realignment through new ACV more than 25% and sales to our corporate customers was less than $250 million of revenue through new ACV closer to 50%. With that kind of growth and at a much lower customer acquisition costs than for enterprise customers we're confident we have made the right organizational changes to ensure we're taking full advantage of the opportunity, and at the same time had positioned ourselves to lower our company-wide customer acquisition costs. We delivered Q2 billings of $72.3 million, a year-over-year increase of 21%. Gross retention was below 90% due to some one-time factors, such as changes in executive sponsorship and customer insolvency. We don't think Q2 gross retention is reflective of our long-term trend. Net retention on a contracted ARR basis was above 105%, lower than anticipated in part due to our lower gross retention. Our current RPO of $225.3 million grew 23% year-over-year, while our total RPO grew 22% to $349.1 million. On a dollar weighted measure we now have 64% of our customers under multiyear contracts at the end of Q2, up from 60% a year ago. Q2 total revenue was $75.5 million, a year-over-year increase of 20%. Subscription revenue grew 23% year-over-year, representing 89% of total revenue and was slightly down from 24% in Q1. International revenue in the quarter represented 22% of total revenue, up from 21% in Q1. Service revenue was flat year-over-year in Q2, driven mostly by lower average billing rates with several large customers. Our subscription gross margin was a…

[Operator Instructions] Your first question comes from the line of Kamil Mielczarek with William Blair. Your line is open.

Hi, thanks for taking my question. Just want to make sure I understand the drivers of the full-year guidance. To what extent is the lower revenue related to the lower sales headcount versus maybe macro related productivity changes or other factors that are weighing on growth?

Yeah. Hi Kamil. I would say, I mean, it's really driven by rep capacity. We fundamentally did not see an impact from the macro, other than potentially the large deal dynamics at the large enterprise. But more -- I would say, the fundamental driver here is all internal and related to our own ramp sales capacity.

Got it. So I think Bruce mentioned that, quota carrying head count growth was 10% in the quarter. So how should we think about the pace of hiring through the year? Is the goal still to get back to 20% growth? And I realize there is some uncertainty in that few months, but as we expect that to further reaccelerate or into kind of hard to tell right now when that will happen?

Let me clarify and just make sure you understand our terminology. When we speak about like firepower, we generally speak in terms of ramps, we call it rep sales capacity, like when we hire a rep they have -- they don't contribute anything. So they are considered just a fraction of our [indiscernible] and after about nine months to a year there are full rep. So from a ramped capacity, which is the real production capability of the sales force, we were up 10%. The point what I'd like to add to that, which I mentioned in my script, but let me just be clear. We have a very good percentage higher than that number in actual sales head count. And what we need to do is, let them -- manage them effectively so they stay with us, so we avoid the turnover and allow them to ramp. And that will automatically build capacity and we believe build growth. So as we sit here right now we have a record number of sales head count [Technical Difficulty] and very successful at doing that, and actually we continue to hire sales head count. And all that we need to do is continue to allow their progress in developing our as sales reps, let that continue to nurture it and we will have more capacity. We will actually have significantly more capacity, I would say, without hiring any reps, but we do plan to continue to hire reps.

Okay. That's really helpful. Thank you for the color.

You’re welcome.

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

Hey guys. Thanks for taking my questions. I missed the beginning of the call. So maybe just taking a step back. Could we just go through -- I mean, 18 plus months ago you guys had been building a lot of momentum in the enterprise. Obviously, more recently we've seen that slowdown and you're trying to make some tweaks to the kind of revive that motion. What do you think what went wrong? And again I did miss it, what is the new strategy for the enterprise part of the business as you look going forward?

Yeah. Derrick, this is John. Thanks for the question. So I think when we look at the go-to-market channels and we see corporate and enterprise, the characteristics of the buying process are pretty different. And in corporate, we've got a value proposition that just matches in a pretty fulsome way with those customers need. We've got marketing motions that generate leads for those and sales enablement and sellers that can execute on that. I think in the enterprise, we've just -- we struggled with predictability and it really doesn't have anything to do with the value we deliver to these enterprise customer, because we have fantastic customers that are getting incredible value out of the Domo products. It's just the cost and the time to sell to those, given the stage of Domo most current growth we believe that investment is better aligned towards the corporate customers where we've got a more efficient model to generate new logos and new ACV. So does that make sense?

Yeah. That makes sense. And then just on the second part, just like what -- so what is the new stay of play for the enterprise strategy?

Got it, got it. So we continue to have a pretty significant enterprise go to market, because we do believe that there is a real opportunity for growth there. Just from a priority standpoint, we have shifted significant headcount to the corporate selling motion. So enterprise still alive and well, we believe that’s a significant growth driver for us in the future. We are going to disproportionately put new logos selling capacity into the corporate engine.

Got it. Yeah. And Bruce, I mean, obviously, productive sales capacity is the big part of the equation of growth. Just remind us the lot of these newer reps that have joined, what's the average time to ramp to productivity? And then are there other levers you can help with distribution leverage in terms of marketing, lead-gen, partners, things that could help you get even more growth leverage on the corporate side?

Yeah. I mean, I'll start with the second part first. All the levers are there. Yield out of the marketing spend improved dramatically. There is still room to grow. Partner contribution is still okay with lots of opportunity to grow. On building sales capacity on the gross hiring front, we're doing very well, so that will be a key driver, that's still intact. Our renewal rates are still in the 90% neighborhood, that's intact. The fact that our platform is so unique, particularly at the corporate level -- it's unique for both for groups. But it's such a rich set of technologies that we find our corporate customers leverage significantly and it reduces the IT requirement on their side, because it's such a complete platform that's still in play. And then all the brand awareness and positionings absolutely improved and I think will continue to improve. On the ramping, the corporate reps ramp in three to six months. In the enterprise, when you really look at the data, our model has it nine months to a year, but often it's longer than that. So the one thing that we're really doing here and that's extremely helpful to predictability and efficient growth is just putting even more resources than we did last quarter in favor of the corporate business, because when you have a business that’s growing 30% and then the segment of that business that's growing 50% and you can hire reps, because in many ways we home grown these reps, you can hire them much more easily and train them and then they can produce so much quicker and ramp quicker and generate business quicker. I think that is just what we ought to be doing today. And in this macro environment and just based upon just our ability to execute so well in this space. So that's where we're placing our focus and we think we're setting ourselves up for -- we'll work through this in Q3, we'll probably have a better Q4 and I think that really sets us up going into next year really, really well.

And to be clear the, the churn that happened was more on the enterprise side, not the corporate?

Yeah, the real -- the churn that really matter to us was on the enterprise side. They had -- they were the most, I would say, impacted by the organization changes. The ask of them was significant, they really did cause a spike in turnover. And what we're fundamentally doing is, just replacing the capacity that was there in placing it in the corporate side and we think that's just a really good bet.

Understood. Thank you.

You're welcome.

Thanks, Derrick.

Your next question comes from the line of Pat Walravens with JMP Securities. Your line is open.

Oh great. Thanks. So Bruce, I'm just sort of eyeballing this in the model, but I mean, Q3 billings growth is 3%, right?

That's right.

Yeah. Okay. And then Q4, this is the part I'm eyeballing, looks like it's something like 9% or 10%, is that right?

That's right.

Okay. So what -- I mean, John, it sounds like you were surprised by the turnover in the reps, what happened?

Yes. So -- and thanks for the question, Pat. So I think if you kind of zoom out and look at some of the changes that were made at the beginning of the year. Domo made a pretty big investment in the enterprise go to market. We brought in some sales leadership, made pretty significant investments in that enterprise go to market. And I think we went through the first couple of quarters and the data looked reasonable. And then we made a change in the senior leadership on the sales side where we really got back to the rigor and the hygiene that I'm most comfortable with in how to run pipeline and sales organizations. And we started to see that hygiene expos some of the pipeline issues in late Q2. And then we saw some of the reps turnover in late Q2 and that's when we said we've really got to look at some changes here. So that's kind of the process we went through. And we think that the enterprise business is still a really strong opportunity for us. So if we look at where we are in our growth stage and the need to be efficient in how we grow and predictable in how we grow, we feel like the corporate business, that corporate go to market is a better place for investment right now.

Okay, got it. I mean if you had $300 million in cash instead of $80 million, would you be making a different decision?

Perhaps. I mean, I think what we're looking for is how to get predictable growth into the business. Enterprises is fantastic and we've got -- it's roughly half of our ARR. So these customers that we're highly invested in their success. I'm just looking for where do we get the predictable consistent growth that we can bank on that gives us gives us potentially that $300 million to be able to invest in other growth vectors.

But I would add, like [Multiple Speakers] I was just going to add that, with our desire to be cash flow positive, now I'll even add to the equation margin expansion in this environment and given what we just saw [indiscernible] just such a clean kill for us and we're still going to get enterprise, we're still going enterprise growth, because the platform really works. Just what we ran into was trying to go big on it and making a big bet, just given the state of just where we are as a business. Just in this environment, in particular, I was just going to pig off. And so we're playing it safe and playing it efficiently. And that's kind of the mode we're in right now. And by the way, it also should preserve cash as well. So I mean, it's just overall when you look at the whole calculus of just this decision, it just lines up pretty well with our strengths and not would be really helpful to us getting accelerated growth from this point on.

Okay and then just in the spirit of getting bad news out -- well, let's just get it over it. So the enterprise customers that we lost, are they sort of the lighthouse customers that we’re familiar with [Multiple Speakers] Target or Nike or something like that. No, okay.

No, we didn't -- I mean, we didn't have really anything. I mean basically the renewal rates are really in the same zip code they have been. We had some just very particular loss situation to me to go point or so lower that's extremely identifiable and does have to do anything to do with competitive environment or the power of the platform or their reliance on it, and it's not a -- no big customer.

Okay. Thank you.

Thanks, Pat.

Your next question comes from the line of Sanjit Singh with Morgan Stanley. Your line is open.

Thanks for taking the question. Bruce, if we look at the full year revenue guide, that’s coming down by roughly $10 million. Any sense of how much it's coming from subscription versus services?

In services we are basically running out the model, Q3 a little bit better than Q2, Q4 a little bit better than Q3 and the rest is subscription to give you the order of magnitude.

Yeah. So that’s roughly flattish on services, a little bit of growth, but the balance coming from -- that's really helpful. And then going back to the sales capacity question. We got that a couple of different times. I think what we're on the sync is, why did we see the turnover now, typically we see that the start of the fiscal year. It's obviously been a really competitive environment for sales talent. It should have been -- I would have expected it actually to get a little bit easier, at least on the hiring front. So typically when sales people leave is because they don't see a path to the meeting quota or the quotas are too high. So is that what's going on where you are having some ramped reps sort of -- I can't make my number this year. Is that what drove the Q2 or is there something more organizational going on following some of the recent leadership exit.

Yes. Sanjay, this is John. Thanks for the question. I think we put in some pretty significant changes at the beginning of the year for quotas and territory assignments, et cetera, in the enterprise that as those -- that reactions and changes based on that don't happen immediately. I think what we saw is, I think, late in Q2 is where we really saw the impact of that. And these are things that we think are imminently in our control and we fix. So to your question is, yes. And we've fixed it.

Understood. Great. Okay. I just wanted to get some more clarity on that. Thank you for taking the question. [Ends Abruptly]