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01/10 22:44
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights a strong Q3 revenue close to guidance, a strategic focus on retention, and optimistic future projections with improved gross retention and net revenue retention. Despite a shortfall in Q3 billings due to longer sales cycles, the company shows confidence in Q4. The focus on AI and strategic partnerships adds a positive outlook. However, slight gross margin decline and lack of detailed future guidance are concerns, balancing the overall sentiment to positive.
Adjusted Free Cash Flow $2.1 million in Q3, representing a $15.8 million improvement year-over-year. This improvement is attributed to operational efficiency and discipline.
Operating Margin 6.8% in Q3, well above guidance, marking the highest full-year operating margin on record. This reflects the company's focus on efficiency and strategic execution.
EPS (Earnings Per Share) Positive for the second consecutive quarter, marking the second time ever. This improvement is due to better operational performance and cost management.
Billings $73.2 million in Q3, below guidance due to longer-than-expected sales cycles for certain partner-related deals. However, these deals are expected to create stronger, more durable customer relationships.
Current Subscription RPO $214.1 million in Q3, a 3% year-over-year growth. This growth is driven by strong customer relationships and multiyear contracts.
Total Subscription RPO $405.9 million in Q3, a 15% year-over-year growth, reflecting the value customers derive from the product and their willingness to commit long-term.
Gross Retention 85% in Q3, with an expected improvement to 87% in Q4. This improvement is due to stronger customer relationships and ecosystem partnerships.
ARR Net Retention 95% in Q3, up sequentially for the fifth straight quarter and a year-over-year improvement of over 4 percentage points. This is driven by the retention profile of customers on the consumption model.
Revenue $79.4 million in Q3, near the high end of the guidance range. This reflects the company's ability to execute its strategy effectively.
Gross Margin 75.4% in Q3, down 90 basis points year-over-year due to ecosystem-focused platform improvements. These improvements are expected to drive more consumption revenue and increase gross margin over the long term.
Cloud Amplifier: Rearchitected platform to integrate seamlessly with cloud data warehouses (CDWs) like Snowflake, Databricks, Big Query, Redshift, Oracle, etc. Over 350 accounts actively using it, with unique users up 450% year-over-year.
AI Features: Number of unique accounts using AI features increased over 60% year-over-year, and unique users more than doubled. Customers are operationalizing AI to transform decision-making.
Partner Ecosystem: Deepened ties with CDW partners, leading to a 25% increase in leads from strategic partners in Q3 compared to Q2, and more than double from Q1. Partners are considering OEMing Domo's analytics or forming strategic relationships.
Consumption Model: Shifted 80% of annual recurring revenue (ARR) to consumption contracts, up from single digits two years ago. Expected to reach over 85% by year-end. This model has driven a 10% year-over-year increase in monthly active users.
Financial Performance: Generated $2.1 million in positive adjusted free cash flow in Q3, a $15.8 million improvement year-over-year. Operating margin reached 6.8%, the highest ever for the company.
Retention Metrics: Gross retention improved to 85% in Q3, with expectations to reach 87% in Q4. ARR net retention improved to 95%, with consumption customers achieving 106% ARR net retention.
Composable Platform: Adopted a composable approach to selling platform components, allowing customers to start with specific needs and expand usage over time.
AI and Data Products: Recognized as a leader in AI and data products by multiple industry analysts, including Dresner Advisory Services and Nucleus Research.
Sales Cycles: Longer-than-expected sales cycles for certain partner-related deals, particularly for customers purchasing a cloud data warehouse (CDW) for the first time, are creating delays in revenue realization.
Partner Ecosystem: While the partner ecosystem focus is producing benefits, it introduces more stakeholders and longer sales cycles, which can delay top-line metrics.
Retention Challenges: Gross retention in Q3 was 85%, which, while improving, indicates room for further enhancement to reduce customer churn.
Revenue Growth: Billings growth has been slower than expected, with Q3 billings below guidance due to delays in partner-related deals.
Gross Margin: Gross margin decreased by 90 basis points year-over-year, driven by ecosystem-focused platform improvements, which may impact profitability in the short term.
Positive Adjusted Free Cash Flow: The company expects to generate positive adjusted free cash flow in Q4 and for the full fiscal year, marking the first time in company history to achieve this milestone.
Operating Margin: The company anticipates achieving a 5% operating margin for the full fiscal year, the highest ever recorded, and expects to exit FY '27 with a 10% operating margin.
Billings Growth: Q4 billings are projected to be $107.5 million to $109.5 million, representing 6% year-over-year growth, the highest in more than three years. Full fiscal year billings are expected to be $315 million to $317 million.
Revenue Guidance: GAAP revenue for Q4 is expected to be $78 million to $79 million, and for the full fiscal year, $317.5 million to $318.5 million.
Retention Metrics: Gross retention is expected to improve to approximately 87% in Q4, the highest in six quarters, with potential to approach 90% in certain quarters next year. ARR net retention for customers on the consumption model is at 106%.
Consumption Model Transition: The company expects over 85% of its annual recurring revenue (ARR) to be on consumption contracts by the end of the year, up from 80% currently.
Long-Term Financial Goals: The company aims to achieve 10% billings growth and 10% operating margin by the end of FY '27.
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The earnings call highlights a strong Q3 revenue close to guidance, a strategic focus on retention, and optimistic future projections with improved gross retention and net revenue retention. Despite a shortfall in Q3 billings due to longer sales cycles, the company shows confidence in Q4. The focus on AI and strategic partnerships adds a positive outlook. However, slight gross margin decline and lack of detailed future guidance are concerns, balancing the overall sentiment to positive.
The earnings call reveals strong financial metrics, such as record operating margin and improved free cash flow, alongside positive developments in partnerships and consumption-based models. While guidance remains cautious, the raised full-year billings guidance and optimistic outlook on partnerships and new customer growth indicate a favorable market sentiment. Despite some management ambiguity, the overall strategic focus and financial health suggest a positive stock reaction.
The earnings call summary indicates positive financial performance, with revenue and retention improvements. The transition to a consumption model and AI integration are promising, though there are risks. The Q&A showed optimism in product adoption and sales productivity, despite some vague responses. Guidance is optimistic with improved retention and operating margins. The lack of a share repurchase program is a minor negative. Overall, the sentiment is positive, with expected stock price movement in the 2% to 8% range.
The earnings call reflects a positive sentiment overall, with strong financial performance, improved customer retention, and significant sales productivity gains. The transition to a consumption model and AI integration are driving growth, and the company is maintaining operational efficiency with a positive operating margin. Despite macroeconomic challenges, the company is building momentum, with optimistic guidance and strategic partnerships enhancing its market position. The Q&A section supports this positive outlook, with management addressing key growth drivers and maintaining confidence in margin expansion.
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