Domo Inc Class B Stock

Good day, and welcome to the Progress Software to acquire Domo's AI and Data Platform Business Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. Mike Micciche, Senior Vice President of Investor Relations. Please go ahead.

Okay. Great. Thanks, Sherry. Good afternoon, everybody, and thank you for joining us today. Yogesh Gupta, our CEO; and Anthony Folger, our CFO, are on the call with me today. As you likely saw, Progress just announced our proposed acquisition of Domo's AI and data platform business. You can find the press release on the Investor Relations section of our website at investors.progress.com, along with a supplemental slide deck.

Before we get started, we need to remind you that during this call, we may make forward-looking -- discuss forward-looking items, including our outlook perspective, financial and operating performance, corporate strategies, product plans, cost initiatives and other information that might be considered forward-looking, including the timing and potential results associated with our proposed acquisitions. This forward-looking information represents Progress Software's outlook and the potential impact of Domo's AI and data platform acquisition only as of today, and is subject to risks and uncertainties, and the actual results may differ.

Please review the safe harbor statement regarding this information, which is available in today's release and in the supplemental slide deck. Progress Software assumes no obligation to update forward-looking statements in this call. We also make reference to several non-GAAP measures, including revenue, annual recurring revenue, or ARR, NRR or net retention rate, pro forma net leverage and EBITDA. Please see important information regarding non-GAAP financial information in our public filings for a description of these metrics.

So with that out of the way, Anthony, I'll turn it over to you for more transaction detail.

Great. Thanks, Mike, and good afternoon, everyone. Thank you for joining us today for some exciting news about our latest acquisition as we continue to execute our total growth strategy. Earlier today, we announced that we had entered into an agreement to acquire Domo's AI and data platform business. In this deal, we are acquiring substantially all the assets and assuming only certain liabilities of Domo. And I'm going to take just a few minutes to provide some specifics on the deal before handing it over to Yogesh.

First, the headline purchase price for these assets is $400 million. Beyond the headline price, we've agreed to pay up to $15 million of seller transaction expenses. The purchase price includes a minimum acquired cash balance of $25 million and an estimated $35 million in net present value of tax benefits from the transaction. All of this results in a net purchase price of approximately $355 million. Based on Domo's fiscal 2026 results, this net purchase price represents a revenue multiple of slightly more than 1.

We intend to finance this acquisition using cash on hand and a portion of the current capacity on our revolving credit facility. Due to the strong deal economics, we don't expect our pro forma net leverage ratio to be affected materially and believe it will remain under 3x on a pro forma basis. Like past acquisitions, we intend to delever quickly and aggressively post close.

Subject to regulatory approvals and customary closing conditions, we expect this acquisition to close within our current fiscal year ending November 30, 2026. Lastly, let me conclude by highlighting that in our press release this afternoon, we reiterated our Q3 guidance at or above the high end of the range we provided last quarter.

That's all for me. We'll have a lot more information to share after the deal closes. And so now I will turn things over to Yogesh.

Thank you, Anthony, and hello, everyone. Thank you for joining us on short notice. We are eager to share this exciting news about our latest acquisition. As we have discussed before, enterprises are realizing that context and control are key through AI efficacy, outcomes and value. AI agents are only as effective as the enterprise knowledge that underlies them, the context. Much of that knowledge lives in systems of record and unstructured content such as documents, e-mails, support records and conversations, which are often disconnected from the systems where AI operates.

And structured data itself is fragmented across silos of applications and data stores with different nomenclatures and formats. Ingesting, transforming and aggregating this data is extremely difficult and doing it at scale with security and governance is even harder. This is an area where Domo excels. Domo offers an intuitive, scalable and secure native -- cloud-native AI and data platform that automates the ingestion and transformation of data from a very wide range of sources and allows organizations to store it in either Domo's own cloud platform or in one of their partner cloud data warehouses or CDWs, like Snowflake or Databricks. These critical data readiness capabilities of Domo will strengthen our AI platform -- AI data platform leadership.

Our Progress data platform manages structured and unstructured data and brings semantic analysis capabilities across the entire data ecosystem. When combined with Domo's offerings, it will create the most comprehensive solution for aggregating and making sense of all types of knowledge in an enterprise. Bringing all of the data together in a single data warehouse is critical but not sufficient to address all the challenges related to context and control organizations need to reliably extract value from AI.

Just doing this and then asking AI to work across all of an organization's information would be like collecting all the books and then asking someone to search through every page of every book in an entire library each time they needed to look for some information. Providing an extremely large context, which contains both relevant and irrelevant information makes AI slow and leads to inaccurate outcomes because the large amount of irrelevant information ends up creating hallucinations.

This approach is also extremely expensive and wasteful because it uses an inordinately large number of tokens for each request or action. A much more efficient approach is to use AI to automate the categorization and classification of all the information so that when work is requested, only the relevant subset of information is used to address it. This is what the combination of the agentic RAG capabilities of the Progress data platform and Domo's AI workflow and agentic app capabilities will deliver.

AI agents created by these capabilities leverage just the data necessary to get the job done. The end result is more accurate and more verifiable outcomes at dramatically lower costs. In addition to controlling costs, which is key, organizations need control over data security and governance for their AI initiatives. The capabilities of the offerings of our 2 companies will also deliver the security and governance control that enterprises need at every layer of their AI data architecture from access and integration to use and action.

Organizations are rightly concerned about the risk of their proprietary data being misused by AI. The security capabilities of both Domo and Progress products are designed to address this concern and keep proprietary information under the control of the customer. In a nutshell, the combination of Domo's cloud-native AI and data platform and Progress' own capabilities in structured and unstructured data management, data semantics and agentic RAG will deliver the trusted foundation organizations need to deploy AI, automation and agents at scale.

Domo's successful transformation to an AI platform is evidenced by the fact that now over 85% of Domo ARR is consumption-based. Their 2,400 customers love their product, which has led to strong net retention rates for their consumption-based business. Domo has also embraced a very valuable partner strategy with CDWs. And those early but growing relationships give customers the freedom of choice that they are looking for. This strategy also enables a go-to-market motion that can create meaningful value over time.

In addition to Domo's product capabilities, their team's expertise in cloud data architecture and analytics are highly complementary to our expanding Progress data platform capabilities that significantly improve the security, governance and cost for our customers. We believe that this acquisition will deliver significant benefits to Domo as well as Progress customers.

To summarize, the reasons why we're excited about this acquisition are that it fits squarely in our AI product strategy, their team will extend our team's skills and when combined, we will be able to better serve both our customer bases. And by being able to acquire Domo for a little more than 1x revenue, as Anthony mentioned, makes it financially very attractive, too.

Finally, with respect to capital allocation and our total growth strategy, this transaction demonstrates our ongoing commitment to highly disciplined financial execution, and we are confident this acquisition will create meaningful value for our shareholders. The highly attractive deal economics, combined with our ability to drive strong cash flows through a proven integration process will allow Progress to generate strong returns that we expect will meaningfully exceed our cost of capital.

And as Anthony mentioned, our pro forma net leverage ratio is expected to remain below 3x. I; look forward to welcoming Domo's AI and data platform employees, customers and partners into the Progress family. And I'm incredibly excited about how this combination will extend our leadership in the AI data platform market.

With that, Sherry, let's open the floor for Q&A.

[Operator Instructions] And our first question will come from the line of John DiFucci with Guggenheim Securities.

Can you hear me?

Yes, John.

This is Lawrence Vensko on for John DiFucci. Congrats on the acquisition. So just reading the press release, the acquisition is structured as an asset purchase of substantially all assets and certain liabilities. Are you able to comment on what specifically is being left behind at Domo and what progress isn't taken? I just have a quick follow-up after.

Anthony, do you want to take that?

Sure. I can just -- maybe I'll give a kind of high-level summary on that, Lawrence. What's been left behind are net operating losses that Domo has accumulated. Obviously, their debt is being left behind. And that's really it. Now obviously, the debt is a significant liability, which is why we've said we're acquiring pretty much all the assets of the business and a good portion of their liabilities, excluding the debt.

Got it. Okay. That's helpful. And just as a follow-up. So if I recall correctly, ShareFile added about 86,000 customers, and that was a different customer profile. You talked about Domo adding over 2,400 customers. I guess the question is, what is the net revenue retention and gross retention rate? And how do you think that will compare to Progress over time?

So as I mentioned, Lawrence, the 85% of the ARR of Domo now comes from consumption-based business, right? This is according to their own previously announced results, right? And so -- and the net retention rate and the gross retention rate on those is very, very similar to overall Progress. So we actually feel that those strong net retention rates, those strong gross retention rates, combined with, as you know, with our efforts on an ongoing basis to do more with our customers, do more with the customers of businesses we acquire, I think, enables us to continue to grow and continue to make sure that the net retention rate stays strong.

The fact that they have 2,400 customers is quite interesting as well, right? This is much more of the kind of type of customers we have in our application and data platform business, which has products such as MarkLogic and [ Semaphore ] as part of the Progress data platform. It has things like OpenEdge. And so you're looking at similar type of customers. And you know that data platform businesses are sticky businesses.

And I think it's evidenced by their net retention rates on their consumption business as well. So we're really excited about this. Of course, there's time between now and close. We're eagerly looking forward to getting to that point. And once we are there, we will share more about how we see this evolving going forward.

One moment for our next question. And that will come from the line of Eric Martinuzzi with Lake Street Capital Markets.

Yes. Curious to know the business relationship that the 2 companies had prior to today's news. Was this something where a large portion of the Progress customers were using Domo before or were familiar with it before? Or is this really -- there was not a lot of overlap in the customer base?

There isn't a lot of overlap, Lucky (sic) [ Eric ]. It's a -- the customer base is -- there is some overlap. There's always some overlap among enterprise customers. It's hard to find 2 enterprise software companies that don't have some overlap, but it isn't significant. It isn't something that is -- that I would consider sort of a meaningful thing one way or the other.

Okay. And then just a clarification on the press release from the Domo side. Is it correct that at close, the payout, if I were a Domo shareholder holding until transaction closed that I would receive $4.84 per share in cash.

I am not sure about that because really, that's a question for Domo. We are buying the assets. What Domo does with the cash is up to them. And I'll -- Anthony, if you want, please add more.

No, I was going to say the same thing, Eric. It's -- we're buying, like we said, pretty much all the assets and a portion of the liabilities. And then what's done with the business that remains is really -- it's up to the team that will remain at Domo. And I think it's a question, yes, certainly for them.

One moment for our next question. And that will come from the line of Lucky Schreiner with D.A. Davidson.

It feels like candidly, another unique acquisition. Their latest growth outlook was just flat growth year-over-year and margin profile, obviously, a lot maybe to improve there with roughly barely breakeven free cash flow. So maybe starting with there, like, where do you feel like are some key areas of cost synergies that you guys can take out on the Domo side? What would you highlight upfront?

So Lucky, I think I'd rather wait until the deal closes before we talk about what we might do. But you know we have a track record of acquiring companies that were barely breakeven. We've done this before and bringing the margins over time to our margin, right? And then that has been one of the key strengths of our execution and our ability to make these things work for our shareholders. It is a little premature to start identifying where. But historically, we've done this stuff before.

And yes, you're right. Some of them have had higher margins when they came in, higher in the sense of maybe 10% to 20% margins or around 20% margins, but we have acquired companies that were barely breakeven. So not new to us, Lucky. It takes hard work. You know that in -- within about a year or so, we are able to make it happen. But I'd love to talk more when we get to the close of the deal rather than now.

Yes. That makes sense. Well, maybe last one for me and maybe also a premature question, but 85% of ARR with Domo is on consumption pricing. Do you plan to move the rest of the customer base over to that consumption pricing going forward? And maybe can you give some commentary around some of the customers that are still on that legacy pricing model, some of the legacy credits that I believe they're still running on? Any impact or how you view that moving forward?

So again, I would love to wait until the deal closes to truly answer that question as to what we're going to do there. I just want to share with you what Domo has already been doing, right? So this is something that they've publicly shared in their earnings calls that they have been moving their customers from their seat-based licensing model to their subscription -- to their -- sorry, consumption-based model, right?

And then that is a move they started nearly, I want to say, 2.5 years ago, maybe closer to 3, somewhere in that time frame. And so that is -- they have rapidly been able to take a business that was all seat-based and get 85% of the ARR to be consumption-based with very, very healthy net retention rates. So I think to us, we will talk more when we talk about it once the deal closes. But yes, the consumption-based business is the more exciting one.

Got it. If I could sneak in one more. Honestly, I mean, if we look at the business intelligence peers, growth from those companies hasn't necessarily trended that well recently. What -- I guess like what gives you confidence with this Domo acquisition in terms of your ability to at least drive a little bit of growth moving forward?

I think when we see what is happening with the consumption customer base, Lucky, I think there is an opportunity there. And I also think that we look at the combination of the 2 product sets, and I think we solve a bigger problem. And that sort of goes to your earlier question of how much overlap. Because we have rather limited overlap, I think there are some opportunities to be able to bring about the rest of Progress portfolio into the existing Domo customer base or vice versa.

So I think, again, more to come when we close, but we feel confident that we can get this to our profile of business, right? And we are not a gangbusters growers, right? I mean we've been upfront about the fact that this year, we are expecting round numbers, approximately 2% ARR growth, right? And I think that over time, we will get this there, too.

[Operator Instructions] our next question will come from the line of Nolan Jenevein with Oppenheimer.

I just have a quick sort of dotting i's and crossing t's type of question. Just around the definition of ARR from Domo. Is there anything we should be aware of in terms of how you guys define ARR versus how they might define ARR, sort of the eventual contribution of this on a pro forma basis and just sort of the relative growth profiles of those 2 metrics?

Yes, I can probably just mention Nolan, that I'm not sure if Domo puts out an ARR number specifically. I think they maybe do put out an NRR number. And as Yogesh mentioned a bit earlier, probably until we get to the close, maybe a little bit premature to -- for us to sort of give anything forward-looking, especially with a metric that's not out there already.

But obviously, the consumption-based pricing model is something that I think has a lot of very positive characteristics, at least from our view in terms of retention and opportunities for growth. And so I think that's where a lot of our efforts are focused. But I think we'll probably have more specifics as we get to the closing of the deal and as we get to our Q3 earnings readout, which will be in September.

I'm showing no further questions in the queue at this time. I would now like to turn the call back to Mr. Yogesh Gupta for any closing remarks.

Thank you, everyone, for joining this call. We truly are excited about Domo's AI and data platform business. And we look forward to speaking with you again when the deal closes to share more. Thank you, and have a good evening.

This concludes today's program. Thank you all for participating. You may now disconnect. Thank you so much.

Greetings, and welcome to the Domo Q1 Fiscal Year 2027 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Cory Edwards, Domo's Vice President of Corporate Communications. Thank you, Cory. You may begin.

Good afternoon. On the call today we are joined by Josh James, our founder and CEO; and Tod Crane, our Chief Financial Officer.

I'll begin with our safe harbor statement. Our press release was issued after the market closed and is available on the investor relations section of our website. Please note that today's call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties, and assumptions, including but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business. For a detailed discussion of these risks and uncertainties, please refer to our public filings including today's press release, our most recent annual report on Form 10-K, and our quarterly report on Form 10-Q, all available on the SEC website. These documents outline important risk factors that may cause actual results to differ materially from our forward-looking statements.

We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Unless otherwise stated, all results discussed today, other than revenue are on a non-GAAP basis. These measure should be viewed as complements to, not substitutes for, our GAAP results. A reconciliation of our non-GAAP results to the most directly comparable GAAP measures can be found in today's earnings release and on our investor relations website at domoinvestors.com.

With that I'll turn it over to Josh. Josh?

Thank you, Cory. Good afternoon, everyone. Thanks for joining us today. Today I want to cover three things. Where we're at in the strategic process, why I believe this platform is more valuable today than ever, and then some customer and ecosystem partner examples that demonstrate that.

So as announced in February, we've been conducting a comprehensive review of strategic alternatives. Throughout that process, one thing has remained clear. We are in the early stages of a major shift in how organizations use data and AI. Businesses are moving beyond experimentation and looking for practical and strategic ways to embed intelligence into the way that work gets done. Domo's combination of data apps and AI agents positions as well to help customers make that transition. The board's responsibility is to evaluate how best to maximize the value of that opportunity to shareholders. We've engaged with multiple partners and considered a range of potential options and outcomes. We brought in outside financial and legal advisors. And following a thorough review of those alternatives, the Board concluded that pursuing a strategic transaction represents the best path forward.

So as a result of that process, we've entered into an advanced negotiation regarding a potential transaction. Our negotiations continue to progress with the goal to announce a final transaction in the near term. Our board's process has been deliberate, thoughtful, and well-informed, and also guided by our outside advisors.

Now onto AI and the traction that we're seeing. So the enterprise AI conversation has shifted meaningfully over the past year. 12 months ago, many organizations were still trying to determine whether AI could create meaningful business value. Today, the conversation is much more practical. Customers are asking how to deploy AI in a reliable, secure, and at scale way across their entire organization. What they're discovering is that AI is only as effective as the data environment beneath it. You can't successfully deploy AI-powered apps, agents, and workflows against fragmented or ungoverned data. The outputs aren't trustworthy, and the results don't hold up in production, not to mention that the economics won't scale.

That reality is making data infrastructure more important, not less. And it's leading organizations to look for a governed foundation that can connect data, activate intelligence through apps and agents, and then distribute those apps and agents into places where work actually happens. We've spent years creating the data architecture that supports this. And now, we're helping businesses move beyond AI pilots. We're helping them operationalize AI, creating new economies of scale, and saving time and money.

The conversations we are having with customers and prospects today reflect that reality. AI is no longer a separate work stream from data. It is the reason data infrastructure matters more urgently than it ever has. And Domo sits exactly at that intersection. Customers understand the architecture they need. The challenge is implementing it reliably. That's why we've expanded our forward deployed engineering team. These engineers work directly alongside customers inside their environments, building applications, agents, and workflows on top of governed data. The goal isn't to deliver a proof of concept, but to help customers move quickly from experimentation to production. Often, these solutions are created and deployed in as little as 24 to 48 hours. The experience with our team drives deep platform adoption and creates the kind of customer outcomes that show up in retention and expansion. Here is what it looks like in practice.

One of the world's largest media and entertainment companies needed to monitor fan experience across live streaming events, broadcast performance, network health, fan support inquiries, and then translate all of it into real-time intelligence for executives and engineers simultaneously. Our forward deployed team went in and built a suite of AI agents on Domo that monitor performance data in 15 minute intervals. Automatically trigger data pipelines on live event schedules, and alert the operations team the moment something needs attention. They're deploying it for one of the largest live sporting events of the year. Their team told us recently, our business continues to grow with Domo and the relationship could not be stronger.

A global commodities trading organization deployed a Domo-powered AI assistant to help traders, treasury teams, and executives quickly analyze complex operational and financial data. Previously, critical information was fragmented across trading systems, treasury platforms, and spreadsheets. Using Domo, the organization built a conversational AI agent that can answer questions about exposures, contracts, shipments, financing, and cash flow using natural language while dynamically analyzing governed business data. Now, live in production, the solution reduces manual analysis and provides faster access to operational insights across the organization.

A leading global sports and media organization deployed a suite of AI-powered applications to help customer support teams monitor and respond to issues during major live events. Using Domo, the organization built specialized AI assistants, trained on Zendesk support data and event-specific ticketing information, allowing teams to investigate fan issues through a conversational interface. The solution also automates real-time monitoring during live broadcasts, dynamically increasing data refresh rates and triggering alerts when support trends exceed predefined thresholds. Now in production, the platform helps event operations identify and resolve fan experience issues faster during some of the organization's highest profile events.

A leading healthcare marketing agency is deploying an AI-powered compliance review assistant to help pharmaceutical marketing teams accelerate the approval of digital and print campaigns. Using Domo, the solution analyzes created assets against regulatory requirements and previously approved materials to identify potential compliance issues before formal review. The application is designed to reduce manual review effort, limit the need for temporary staffing, and shorten approval cycles that can delay campaigns from reaching the market. Once deployed, the agency expects the solution to deliver significant operational efficiencies and reduce overall review costs by approximately 80%.

A leading transportation and logistics company developed an AI-powered terminal operations application to monitor throughput and identify disruptions across its intermodal network. Previously, teams relied on multiple systems and manual investigation to diagnose operational issues often requiring significant time to determine root causes. Using Domo, the organization combined operational data into a unified command center that uses AI to detect anomalies, analyze trends, and surface likely causes of delays. Now, live in production, the solution helps terminal managers move from reactive troubleshooting to proactive operations while reducing investigation times from 30 to 60 minutes to near real time.

The leading regional real estate brokerage deployed a Domo-powered scenario modeling application to evaluate the financial impact of commission plan changes across its agent network. Previously, leadership relied on manual spreadsheet analysis that required significant time and limited the ability to [ impair ] alternatives. Using Domo, executives can model and compare compensation structures in real time while analyzing impacts on agent payouts, revenue, and probability. Now live in production, this AI solution can compress planning cycles from days to minutes and give leadership greater confidence in strategic compensation decisions.

One employee benefits provider challenged Domo to modernize a spreadsheet-based business planning tool that had remained largely unchanged for years. Within days, the team delivered a production-ready AI application that not only replaced the legacy process, but also inspired the customer to accelerate several additional strategic initiatives. In feedback to our team, the customer described the project as the, "Single most impressive experience I've had with a partner." And said it had pulled forward years of planned innovation while fundamentally changing how they view the future potential of their Domo investment.

For us, that's the value of this approach. It helps customers solve meaningful business problems quickly. It drives deep adoption, real outcomes, and creates so many AI opportunities for long-term expansion. Our ecosystem partnership continues to generate strong momentum. Over the past quarter, we spent time with customers and prospects at events, including Google Next and Snowflake Summit, and this week will be at Databricks Data and AI Summit.

Across those conversations, we're seeing a consistent theme. Organizations have invested heavily in modern data platforms and are looking for ways to make those investments more accessible and actionable for the business. Increasingly, those customers are choosing Domo alongside our partners. In many cases, we're not simply winning within an existing partner account, we're winning together. Customers are selecting Domo and partners like Snowflake, Google Cloud, and Databricks as complementary parts of a broader strategy to connect data, operationalize AI, and deliver business value faster. Here are a few examples.

A leading payments provider selected Domo and Snowflake to replace its legacy analytics environment with a modern governed data platform. Through a joint engagement, Snowflake serves the organization's enterprise data foundation, while Domo delivers self-serve analytics, AI-powered insights, and workflow automation for business users. The combined solution enables trusted access to data across the organization, while reducing dependence on spreadsheets and fragmented reporting tools. The deployment demonstrates the growing momentum of Domo and AI partnership in helping modernize customers' data and AI strategies.

A leading nonprofit workforce development organization selected Domo and Snowflake to modernize its enterprise data environment and support its long-term data strategy. Through a coordinated engagement, Domo and Snowflake partnered closely on technical validation, architecture planning, and executive alignment to deliver a unified modern data platform. The combined solution is designed to enable governed access to data, self-service analytics, and a scalable foundation for future AI and automation initiatives. The deployment demonstrates the value of the Domo and Snowflake partnership in helping organizations build modern, enterprise-ready data architectures.

A leading provider of loyalty and engagement solutions selected Domo and Snowflake to replace a legacy analytics environment and support a modern AI driven data strategy. Snowflake serves as the organization's enterprise data foundation, while Domo provides governed analytics, natural language insights, and workflow capabilities for business users. The combined solution delivers a scalable platform for customer intelligence and engagement analytics, while reducing complexity and improving access to trusted data. The deployment highlights the growing momentum of Domo and Snowflake as organizations modernize beyond traditional BI platforms. Our progress is being recognized by customers, by partners, and by media and industry analysts.

This quarter, Nucleus Research named Domo a leader in its 2026 BI Analytics Technology Value Matrix. Dresner Advisory Services recognized Domo as an experienced leader and credibility leader in its flagship BI market study, ranked us the number one self-service BI vendor for the seventh consecutive year, and named Domo the top cloud BI vendor for the 10th consecutive year. As the market begins to shift toward AI-assisted decision-making, Domo was also recognized in Dresner 's inaugural Agentic AI-Assisted Analytics Report and ranked among the leading vendors in its first Semantic Layer and Data Virtualization Study. We believe these recognitions reflect the value that Domo provides and occupies at the intersection of data, analytics, applications, and AI.

And with that, I'll turn it over to our CFO, Tod Crane.

Thanks, Josh. Before I walk through the quarterly results, I want to address our balance sheet and debt situation directly, because I know it is front of mind for investors after our filing today.

As disclosed in our 10-Q filed today, our existing debt facility carries a current classification on our balance sheet as of Q1. This reflects the fact that the minimum ARR covenant under the existing facility was not met for the quarter, which under GAAP requires us to classify the debt as current. In connection with the noncompliance, we have entered into a signed forbearance agreement with our existing lender. Under that agreement, our lender has agreed to forbear from exercising any rights to accelerate repayment or other remedies under the existing facility, and provide us the runway we need while we work toward completion of the strategic transaction Josh described. We are in a cooperative and constructive relationship with our lender and appreciate their partnership through this process.

Now let me turn to our Q1 results. Total revenue was $79.4 million. Subscription revenue was $69.8 million, down 2% year over year, primarily due to variability in overage-related revenue recognition. Professional services revenue was $9.6 million, up from $8.7 million in the prior year, reflecting increased deployment activity and sponsorship revenue associated with our annual user conference. Billings were $60.4 million compared to $63.9 million in Q1 of last year. The year-over-year decrease is primarily a timing dynamic. Q4 FY '26 benefited from a number of renewals that historically have closed in Q1, creating a tough comparison this quarter. We generated a similar amount of new ACV as Q1 last year, and the underlying renewal activity is healthy.

Gross retention came in at 86.7%, up 240 basis points year-over-year, a meaningful improvement reflecting the progress we've made on consumption-based pricing, multi-year contracts, and our forward deployed engineering motion. NRR was 95.5%, up 150 basis points year over year. Our cohort of customers that started on consumption continues to perform well above the overall base, with gross retention coming in at 92% and net retention at 108% for the quarter. As this cohort grows as a percentage of our renewal base, it remains a compounding tailwind to both gross and net retention over time.

Current subscription RPO was $222.2 million and total subscription RPO was $412.9 million. Our RPO base reflects a substantial foundation of committed future revenue, underpinned by the multiyear contracts and consumption agreements that have become the cornerstone of how we go to market. While growth in RPO has been modest the size and duration of that committed base gives us meaningful visibility into future revenue and reflects the long-term strategic relationships we have built with our customers. Adjusted free cash flow for Q1 was close to break-even, and cash flow from operations was a positive $5.2 million. Our cash balance at quarter-end was $39.1 million.

Subscription gross margin was 81.5%, consistent with recent quarters. Total gross margin was 75.3%, reflecting a higher services revenue mix this quarter. Non-GAAP operating income was approximately $4.4 million, representing an operating margin of 5.6%. I'm pleased with this result. Delivering a healthy operating margin in Q1 while also hosting a very successful Domopalooza, our annual user conference, reflects the operating discipline we've built into this business. Non-GAAP net loss per share was $0.02 on approximately 43.4 million weighted average diluted shares.

Given the advanced stage of our strategic discussions as disclosed today, we will not be providing financial guidance on this call. Additional information will be provided to shareholders as the process advances and in accordance with our disclosure obligations. And due to the nature of this strategic process, we will not be holding a question and answer session on today's call. We will provide additional information as the process advances and in accordance with our obligations under applicable securities laws.

I'll now turn the meeting back over to Josh for some closing comments.

In summary, Q1 reflects a business with improving underlying metrics. Gross retention and net retention are up meaningfully year over year. Our operating margin and EPS both showed strong improvement year over year, and our RPO is growing nicely. And before we wrap up, I'd like to leave you with one final thought.

When we founded Domo, our belief was simple. Every business should be able to use data to make better decisions. Over the years, we've watched the idea evolve from dashboards and analytics to applications, automation and now agents with AI. Today, we're entering another major shift. Organizations are looking for ways to embed intelligence directly into the way that work gets done and they need trusted data, governed systems, and practical tools that can deliver real business outcomes. That's exactly the direction that we've been building toward. I'm proud of what our team has created, the customers who have trusted us, and the impact we've had together. I remain convinced that the opportunity in front of Domo is significant and that the work we're doing is transforming businesses.

Thank you so much to our employees, our customers, our partners, and our shareholders for your continued support and we look forward to giving you more information as this next chapter unfolds.

This concludes Domo's Q1 Fiscal Year 2027 Earnings Call. You may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to Domo's Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Cory Edwards, Vice President of Corporate Communications. Thank you. You may begin.

Good afternoon. On the call today, we are joined by Josh James, our Founder and CEO; and Todd Crane, our Chief Financial Officer.

I'll begin with our safe harbor statement. Our press release was issued after the market close and is available on the Investor Relations section of our website. Please note that today's call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business.

For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K and our quarterly report on Form 10-Q all available on the SEC website. These documents outline important risk factors that may cause actual results to differ materially from our forward-looking statements. We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance.

Unless otherwise stated, all results discussed today other than revenue, are on a non-GAAP basis. These measures should be viewed as complements to not substitutes for our GAAP results. A reconciliation of our non-GAAP results to the most directly comparable GAAP measures can be found in today's earnings release, and on our Investor Relations website at domoinvestors.com.

With that, I'll turn it over to Josh. Josh?

Thank you, Cory. Hello, everyone, and thank you for joining us on the call today. As we close out the year, I want to begin by highlighting some important achievements for the fourth quarter. We achieved record quarterly billings, delivered the strongest gross retention in 3 years posted the highest operating margin and best EPS in company history and recorded our best ever full year free cash flow result.

Now let me get into the details behind these accomplishments. We achieved our highest quarterly billings ever, totaling $111.2 million, which represents 8% year-over-year growth, the strongest we've seen in 3 years and also exceeding our billing guidance. for the quarter. This performance was driven by higher retention, accelerating adoption of our consumption model and expanding partner ecosystem activity. Increasingly, customers are using Domo not just for analytics but as the operational layer that powers data products and AI-driven workflows across their organizations, which naturally expands consumption over time. We also achieved our highest gross retention rate in over 3 years, coming in at over 88%, underscoring the durability of our customer relationships, particularly as multiyear consumption contracts continue to deepen.

Net retention also improved by over 4 percentage points year-over-year and is now over 96%, making the sixth straight quarter of sequential improvement in this metric. Notably, the cohort of customers who started on consumption contracts, representing over $24 million in ARR achieved an impressive net revenue retention of 111% in Q4, highlighting the value our customers are getting from our consumption model.

Our operating margin for the quarter was over 10%. And reflecting disciplined execution and efficiency improvements that lay the groundwork for durable profitability. Importantly, this translated into an all-time high for quarterly earnings per share. The heart of Domo's opportunity is an innovative cloud data platform, which is already driving nearly $300 million in recurring revenue. Our platform is well positioned to benefit from the rapid adoption of AI in the market. While though was often die as just a dashboarding and reporting tool to be frank, that is lackable. In reality, Domo's a modern AI-first data platform designed for today's enterprise challenges. Domo's platform was built with AI in mind from day 1, our very first product next 15 years ago, highlighting machine learning and predictive modeling capabilities in AI informed apps, the early predecessors to today's AI.

This long-term vision has guided our architecture and investment decisions, ensuring we're not just reacting to AI trends, but enabling our customers to harness these powerful technologies at scale. The next wave of enterprise AI will be less about models and more about coordinating data decisions and workflows. What makes a lot different is that our platform doesn't stop at insight. It unifies data provides AI-driven intelligence via our AI service layer. And with agent Catalyst enables Agentic workflows in a single system, allowing organizations to move from analysis to automated action without stitching together disconnected tools.

One innovation I'm particularly excited about is that catalyst, our AI-powered app builder that allows customers to quickly create production rate governed applications simply by describing what they need in natural language. Unlike early AI tools focused just on rapid code generation at catalyst provides a secure scalable foundation that connects directly to customers' existing data platforms without duplication. It gives teams true optionality to build, iterate and extend applications for real-world enterprise use and is poised to be a significant driver of increased consumption and deeper adoption.

Put simply, Domo is far more than just a BI tool. It's a strategic data and AI platform built for the demands of modern business. The growing need for AI is clear. The topic is coming up on nearly 70% of our costs with current and prospective customers. As companies across industries, pushed embed AI at the core of their operations, they need a platform that scales is governed and stay secure and can grow as their AI ambitions to.

We believe Domo is the platform that can deliver on these ambitions, turning complex data into clear, actionable intelligence and making it easy for customers to apply AI across immense amounts of data to quickly generate summaries sentiment analysis and many other use cases. That's why we see significant opportunity ahead. And while we firmly believe the market has yet to recognize the full value of our platform and ecosystem are delivering.

Our customers aren't just experimenting with AI, they're driving real large-scale production deployments and the impact is already visible. Here are 15 examples of AI agents that are actively being deployed in Domo's customer base. This is a small sampling. One, a national restaurant brand worked with Domo to deploy an AI-powered vendor onboarding workflow that automatically scans W9 documents extracts key information from unstructured files validates vendor records against internal data and routes approvals via a governed audit trail.

This end-to-end automation replaced a fully manual process drastically reducing administrative hours while enhancing compliance and control. Two, a leading global home improvement retailer is deploying an AI-powered product sign-off workflow to replace a traditionally manual approval process that took weeks or months. Using Domo, an AI agent analyzes product specifications, customer sentiment imagery and testing data to evaluate market readiness. This scalable solution expands product reviews from dozens to thousands annually, accelerating innovation while reducing risks of recalls, rework and legal exposure. It integrates governing data, external sentiment and custom apps with a unified platform to operationalize AI at an enterprise scale; three, a global financial services organization deployed an AI-driven invoice processing workflow to replace a manual e-mail-based system.

Using Domo, coordinated AI agents automatically ingest invoices, determine extraction methods translate [indiscernible] needed and extract key financial data. The system routes information into accounting and management review processes, reducing delays, errors and providing scalable global operational visibility through governed AI orchestration. Four, a global customer experience provider deployed a Domo hosted AI knowledge assistant that gives employees a single interface to answer operational and platform questions without navigating multiple systems or submitting tickets.

The solution searches internal documents and secondary knowledge basis using confidence scoring to ensure accurate responses. By combining document retrieval, text generation and text to SQL within Domo workflows, it delivers faster answers and reduces manual support efforts, continuous feedback logging ensures ongoing improvement at scale. Five, A global private aviation company is developing an AI-powered executive flight deck that provides leadership with real-time visibility into sales, lead generation, operational margins and client experience eliminating the need for analysts to interpret data.

This custom global application combines live KPI dashboards with AI-generated insights to explain trends and context dynamically, helping executives quickly understand performance and make informed decisions. Six, A national compliance technology provider is developing an AI-driven reporting system for state emission inspection program to automate the creation of 17 regulatory appendix reports.

Previously, manually compiled into massive static files, the new Domo-powered Pro code solution uses specialized AI agents to generate interactive report tables in smaller, more easily distributed PDFs. This deployment demonstrates how governed orchestrated AI agents accelerate production-grade application development, while enhancing transparency and efficiency in regulated public sector programs.

Seven, a global pharmaceutical company deployed an AI-powered analytics agent that automatically generates monthly insights across marketing spend, brands and channels. previously relying on manual agency reports, the AI agent scans governed marketing data to identify campaign trends and spend allocation, enabling faster data-driven decisions and reducing costs.

Eight, a large industrial manufacturer deployed a dime-powered operations that automates welding job assignments across its production floor. The system analyzes job requirements, worker certifications and capacity constraints to dynamically scheduled tasks, ensuring qualified welders are matched to the right jobs at the right time. This improves production flow and provides supervisors with real-time visibility into workforce capacity and scheduling.

Nine, a luxury home goods brand deployed an AI-powered returns categorization engine that automatically classifies 100 to 200 daily product returns analyzing unstructured customer feedback and mapping issues like size, quality and comfort into a standardized taxonomy. The AI agent assigns confidence scores and routes uncertain cases for human review, continuously improving accuracy, operating at over 95% voided accuracy, the system delivers scalable insights into product quality and customer sentiment, enabling faster quality alerts and smarter product decisions.

Ten, a K-12 education technology provider is developing an AI-driven reporting engine that enables educators to generate up to 100 professional student reports at once. Previously constrained by manual one of the time downloads with inconsistent formatting -- this Domo powered solution integrates student data from Snowflake and delivers well-formatted consistent reports asynchronously. This scalable workflow improves educator efficiency and strengthens the customers' long-term investment in the platform.

Eleven, a global workforce management platform serving enterprise retailers partnered with Domo to build an automated multi-environment deployment pipeline powered by Domo APIs and Agenic AI. Well, once required multiple engineering sprints was delivered in days through human AI collaboration, enabling automated promotion of code and assets across development, QA and production with built-in version control and [ ROVA ] safeguards. The solution accelerates development cycles and maintains enterprise-grade governance providing a scalable foundation for faster innovation and reduced operational overhead.

Twelve, a national female services operator partner with Domo to replace a manual spreadsheet-based bonus process with a government enterprise application largely built through Agentic AI code generation. This solution provides multilevel approvals, real-time budget controls, payroll exports and immutable audit trails within a single workflow. By leveraging human AI collaboration, development time was reduced by an estimated 60% to 70% resulting in a scalable compliance-ready application that accelerates time to value.

Thirteen, a national behavioral health organization deployed an AI-powered contract intelligence system to replace a manual process for reviewing and tracking hundreds of complex agreements. The AI agent automatically ingests contracts extract key data and monitors critical milestones like renewals and expirations. A conversational interface enables natural language queries providing faster access to important information, reducing administrative burden and enhancing compliance visibility across the organization.

Fourteen, a global accounts receivable firm deployed an AI-powered skip tracing agent to automate the research process that prepares collection agents before contacting debtors. Previously relied on manual searches across business ratings, websites and regulatory filings the AI agent now compiles and structures enrich business intelligence from multiple sources based on company identifiers. This solution dramatically reduces research time per account and improves agent preparedness and call effectiveness, transforming a manual bottleneck into a scalable intelligence-driven workflow.

Fifteen, a national wealth management platform is developing a self-learning AI system to automate user provisioning and eliminate manual onboarding delays. The AI agent analyzes job titles from identified identity management data, classifies users into appropriate access rules with confidence scoring and continuously refine its logic as data evolves. Low confidence cases and sensitive financial access requests are routed through human approval to ensure compliance. This solution aims to reduce manual provisioning by up to 75%, improving operational efficiency and platform adoption across thousands upon thousands of employees.

Clearly, the vision for Domo is coming to fruition, and we're just getting started. Domo's also garnered significant recognition from industry analysts and the media, further validating our leadership position in the data and AI space. Most notably, Domo is recognized by [ Dresner ] Advisory Services as a winner in 6 categories of the 2025 Technology Innovation Awards, including several categories related to AgenticAI. In addition, Domo was recognized as an overall leader in ISG's AI analytics Buyer's Guide 2025 market report. Domo announced that it was ranked as a top vendor in Dresner's Wisdom of the Crowds analytical data report. This recognition reinforces what we consistently hear from customers. The Domo is delivering a modern unified platform that bridges data, analytics, AI and action in a way that drives measurable business impact. Before we move on, I would like to invite all of our customers and strategic partners currently in perspective to join us at the upcoming Domopalooza user conference. He's an excellent chance to connect and explore the latest innovations across the [indiscernible] platform.

Finally, thank you to our employees whose dedication and passion fuel everything we do. I'm proud of what we're achieving together.

And with that, I'll hand the call over to our Chief Financial Officer, Tod Crane.

Thanks, Josh, and thanks, everyone, for joining us today. We delivered strong financial results in Q4, exceeding our billings guidance with our highest ever result of $111.2 million representing year-over-year growth of 8%, the highest we've seen in 3 years.

For the full fiscal year, we achieved billings of $318.7 million, representing a 3% increase over the prior year marking our first full year billings growth since fiscal '23. Our gross retention rate improved to over 88%, marking the highest level in 12 quarters and reflects the strength of our customer relationships as well as the progress we've made on moving to a consumption pricing model, expanding our ecosystem partnerships and landing more multiyear contracts.

ARR net retention was over 96%, up sequentially for the sixth straight quarter and a year-over-year improvement of over 4 percentage points. One of the key factors contributing to this improvement is the retention profile of customers on the consumption model, which continues to be well above that of our seat-based customers. ARR net retention for the customer cohort that began on consumption continues to be well above 100%, coming in at 111% in Q4. One of our most significant achievements in the past few years has been the monumental effort of moving from a traditional seat-based model to a consumption-based model. We ended fiscal '26 with 84% of our annual recurring revenue on consumption pricing, a major accomplishment.

Now that we have the vast majority of our ARR on consumption, we will no longer be providing regular updates on this metric. Our operating margin for the quarter was a record high 10%, which contributed to the highest full year operating margin in company history at over 6%. We also achieved our best ever EPS result, which was the third consecutive quarter of positive EPS and led to our strongest full year EPS to date. Adjusted free cash flow for the full year was near breakeven, an improvement of over $12 million from the prior year, representing our best ever full year cash flow result. These results reinforce our ongoing commitment to operational efficiency.

Turning to our recurring revenue metrics. Current subscription RPO grew 1% year-over-year to $227 million, and our total subscription RPO grew 8% to $437.9 million. This growth underscores the strength of our customer relationships, highlighted by the prevalence of multiyear contracts and the longest average contract duration we've ever seen. Total revenue was above the high end of our guidance range at $79.6 million. Gross margin was 78.2%, an improvement of over 2 percentage points year-over-year. Over the near term, our gross margins may fluctuate from period to period. But as we drive more consumption revenue, we expect gross margin to improve over the long term.

Our non-GAAP net income was $1.2 million and non-GAAP diluted net income per share was $0.03 based on 44.4 million diluted weighted average shares outstanding. We've made great progress on delivering profitable growth and we continue to carefully evaluate opportunities to improve efficiencies within our go-to-market operations. Our goal is to optimize spend thoughtfully while continuing to invest in key growth areas such as AI innovation and ecosystem partnerships.

Internally, AI is playing a significant role in boosting our engineering productivity. During the month of February, nearly 30% of our entire code base was edited using AI and many of our engineers report that they are increasingly interacting with AI-driven interfaces at times going weeks without opening traditional code editing tools. We plan to continue leaning in on internal AI use cases across all areas of the business to optimize productivity. Given the ongoing evaluation of strategic alternatives, we will not be providing specific forward-looking guidance at this time. That said, to provide some high-level color on the upcoming fiscal year, we expect GAAP revenue to remain relatively flat, modest improvement in non-GAAP EPS and positive adjusted free cash flow.

In closing, we finished Q4 with the highest quarterly billings ever, the strongest gross retention in 3 years the highest operating margin and EPS ever and record full year free cash flow. Our focus remains on executing our strategy, supporting our customers and partners and positioning Domo for sustained success.

With that, we will open the call for questions. Operator?

[Operator Instructions] Our first question is from Derek Wood with TD Cowen.

This is Cole Erskine on for Derek. Josh, I'll start with you. Can you just talk about what you're seeing out there in the competitive environment and if there's been any changes in win rates versus competitors?

Yes. I think the biggest thing that we're seeing is just how much our customers are talking to us about AI and agentic opportunities. I think it's gone from vibe coatings [indiscernible] to how do we implement actual solutions inside our organization that are governed that have the security that we need and that can be distributed in a responsible manner. And that highlights the platform that we have.

So that's probably the biggest thing that we've seen. In addition to that, definitely, we continue to be embraced by the ecosystem. So I would say all of our ecosystem partners, we have a better relationship, substantially better relationship with them. than we did 6 months ago even. Their field sales are getting to know us. We've got a better brand with those sales organizations, and we're getting more introductions to our customers just recently with a big snowflake customer. They were trying to figure out how to roll out an agent solution, and they were struggling to get it done and the speed that they wanted to, and they came to us -- and actually, Snowflake came to us and we went in jointly and now we're developing a solution for them on the Domo platform in a very rapid pace. So it's just exciting to be embraced by the ecosystem, and we think that we're set up to finally start to see some of these investments that we've made into the ecosystem start to pay off this year.

Super helpful. And then, Todd, just a follow-up. I know you guys aren't guiding for next year, but would love a little bit of color on where gross retention and NRR could go by the end of the year, some solid progress this year, but just wondering how that shapes out next year.

Yes. Thanks for the question, Cole. Yes, as we look ahead, really encouraged by the net retention rate we saw with our consumption customers this quarter. And is that -- we continue to get further and further into that customer base and we have more time for them to be part of our adoption motion and get more technical people in front of them. We expect that, that things are going to gravitate upward towards that level.

So it's that -- it's consumption, it's adoption. It's also, as we go in more hand-in-hand with the CDW partners going in the front door with the CIO and being part of the global data strategy for the company that continues to really help and bolster our efforts with our customers and being -- having much stickier implementations with those customers. And then the multiyear contracts as well, right? We've continued to make a lot of progress there. And as we continue to work on extending those contracts out, that's going to all contribute towards things being up and to the right with retention.

Our next question is from Brett Huff with Stephens.

Congrats on a nice quarter. Two quick questions for me. Josh, you talked a lot about some of the things that differentiate what you all are doing versus competitors. And it sounded like one of those -- a big one was time to value and another big one was your ability maybe leaning on your ETL routes to sort of be already a center data hub, in talking with folks and buyers these days, inability to get the data right in difficulty sort of getting these tools to produce an actual real result has been a big kind of stoppage in AI. Are you seeing and hearing that? Is that why you're winning? What is the dialogue around that?

Yes, that is why we're winning. The fact that it is a platform. People are -- they are vibe-coding or they're coming up with these ideas that they think may be achievable now. But the implementation of those ideas is where the rubber hits the road. And that's where Domo really excels. So whether it's hydrating somebody's cloud data warehouse for our partners or stitching together data that they already have. being able to do that in an environment where they also can pull in any LM model that they want and then having all the workflow capabilities that we had before AI became a thing just having all that functionality in one platform is something that does help us stand apart because the time to value, as you pointed out, is dramatically different than elsewhere.

And so we're seeing that with our CDW partners. Their customers were being brought into those deals and their customers see us as a way to be able to implement and create these agentic solutions that deliver the value that they've always been trying to get out of all the investments they've made into storing their data and organizing their data, putting it in an environment where it can actually be utilized. And this is the win that you get all that work. And we're seeing that with even a top 5 customer of ours for a long time had been resistant to looking at some of our Pro code apps. And literally, over the weekend, 1 of our representatives that was working with them finally convinced them to let him go and create something over the weekend that they we take a look at. And literally, over the weekend, he created something that for several million dollar account for us. They looked at it on Monday. We're so ecstatic about it, that they started rolling out many Pro code apps and agent solutions that have made it all the way up to the CEO in that organization dramatically changing our relationship in a place where we already had a good relationship, but it's just dramatically heightened at this point.

So it's really fun to see the time to value. It's fun to create all these solutions. These solutions, we don't go and charge for the creation of the app. We go and it's a consumption business. So as these customers become familiar with the agentic solutions they can build and that we can build for them and that our partners can build for them and they can build themselves. As they go and make run, they end up making 10, 20 and each 1 of those drives consumption of our products. So we're excited to see the lift that comes over the next 24 months as our customers roll these things out and become more and more familiar with what our platform can do for them.

That's super helpful. And then, Tod, maybe one for you. Last quarter, you mentioned that the sales cycles were getting longer, and I don't think we were surprised by that just given there's more hoops to jump through now that you're talking to more C-suite folks and a much larger sort of use case -- can you talk about that dynamic? Maybe it's still occurring, but are you getting some value maybe quicker as well? Or tell us the pros and cons of the puts and takes on that trend.

Yes. As we discussed last quarter, we had some deals sort of elongate a little bit and had some timing where we fell a little bit short of our billings guidance last quarter, but as we talked about those closed early in this quarter, which gave us a nice leg up, and we were glad to see that momentum continued throughout the quarter and be able to deliver a nice billings beat. But in terms of the overall trend with these partner deals, it's a mix, right? There's some that are taking longer because we're part of that global data conversation, and it's it's a good thing in the end, but there's also deals that are coming through really quickly. And we've got actually got RJ here, our CRO, and he's got some other thoughts that you can add here.

Yes. And we're making good progress on just figuring out these deals with the different ecosystem partners. And early on, we were focused more on new logo deals. They were a lot more willing to bring us into some of the new logo opportunities and we were figuring out our motion there and they still have to buy the warehouse partner and they've got to buy Domo. And so those deals do take a little bit longer. And now we're starting to see more introductions into their current customer base as well, and those deals seem to happen quite a bit faster. So I think we'll see, hopefully, that mix will all come down. And overall, we can really give progress, and we're excited about what we're seeing with different ecosystem partners that we're selling with.

Our next question is from Patrick Walravens with Citizens Bank.

Great. This Kincaid on for Patrick. So it's my understanding that if a customer has committed spend with 1 of your partners, they can spend those credits on Domo through that partner's marketplace. Josh, you mentioned a few customers that you guys won this quarter. I'd love for a little color on if any of those use that sort of mechanism or what you're seeing broadly across your customer wins in relation to that metric?

Yes, I'm going to let RJ take this one.

Yes. So we saw in Q4, probably 1 of our largest quarters of customers using those MCD funds to purchase Domo. And it's a really good spot to be in. We've had customers even in the last couple of months where in talking with them, they're like, "Hey, we may only renew 1 year with you guys. And we get into the discussion further and it's because, "Oh, we're a Google shop or over an Amazon shop or we're a Snowflake shop. And now being able to come to the table with those partnerships. We had 2 in particular that were pretty large opportunities for us. And instead of doing a 1-year renewal and potentially leaving us after a year, it turned into both of them turned into 3-year renewals with upsells and we're now growing those accounts because we're part of the overall data strategy. And it's a budget that's already been spent. These customers will have to go get the new budget. They don't have to go find more funds, they can just paper the Domo contract, we upload into the marketplace, and then we get paid from the vendor. And so it's been an awesome motion for us. And I know there's a lot of in the past that we've lost strictly because they couldn't use those MCD funds to purchase and it was a much easier effort to just use those funds with other vendors. And now we're part of those purchasing decisions.

Our next question is from Lucky Schreiner with D.A. Davidson.

Great. Congrats on the quarter. I wanted to ask on the improvement in consumption customer retention that was quite significant in the quarter. Can you maybe provide a little more detail into what drove that rise in usage? And should we expect this metric to remain pretty volatile moving forward?

Yes. I mean we continue to expand our adoption efforts with these customers. And every quarter that goes by, we get more time under our belt, kind of refining the model and refining the interface that we have with those accounts. So I'd say just generally across the board, we're working to get technical resources in front of these customers, help them solve problems, help them stand up new use cases. We're working on getting more of our Agentic AI capabilities front and center with customers as well and getting some of those stood up. So -- it's really a combination of factors. And then just the ability for customers on the consumption model to be able to go and explore different components of the platform.

They don't have to commit to a big upfront spend to go try some of our premium functionality. They can go and stand up a couple workflows or stand up a couple of AI models and try some of our sentiment analysis, summarization that's really easy for non-technical users to do inside the platform. And if they like it, they can lean in and do even more. So Yes. No, as we continue to expand these motions, we expect that there's upside to those numbers that we've been reporting for that cohort.

Got it. Makes a lot of sense. Last question for me then. It sounds like the business is trending really well. You had strong billings growth and retention is improving, but you still expect GAAP revenue to remain flat. So maybe can you help us understand some of the assumptions going into that outlook for the year?

Yes. The way that our consumption contracts are structured, we still recognize revenue evenly over the contract period. So that makes revenue more of a lagging indicator. So it's kind of it roughly follows the trend in the previous year billings. It just takes a little bit longer for that revenue number to move.

Our next question is from Max Michelis with Lake Street Capital Markets.

Just 1 for me. I want to go back to the consumption model, some of the customers on that. I'm not sure when the renewal cycle for the first customer contract is up. But I was wondering if you could give us an idea of some of the volume that these customers are using and maybe they're increasing their usage with Domo and maybe percentage around customers that have increased the consumption that they began on and now where they're at now, if they've increased that [indiscernible].

Yes. I think the net revenue retention numbers we've reported the last few quarters for that cohort that started on consumption is a really good indication of that level of expansion, right? We were well over 110% this quarter. Yes. So I mean, as we continue to -- again, as we continue to work on our motion there, I think there's upside to that. The other metrics that we talked about last quarter, we gave some usage metrics. We continue to see monthly active users up pretty significantly over the last couple of years. We look at that trend with -- across our data set our ingestion capabilities, our ETL capabilities, our AI capabilities. And across the board, it's up and to the right in terms of the number of users that are using our functionality.

So it's just great to see that our thesis with the consumption model and enabling our customers to more easily go explore the platform is playing out like we expected it to.

With no further questions. We would like to just give a final chance to reprompt which is [Operator Instructions]. We will just pause for a brief moment to see if there's any final questions.

Greetings, and welcome to the Domo Q3 Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cory Edwards, Vice President of Corporate Communications. Thank you, Cory. You may begin.

Good afternoon. On the call today, we are joined by Josh James, our Founder and CEO; and Todd Crane, our Chief Financial Officer. I'll begin with our safe harbor statement. Our press release was issued after the market close and is available on the Investor Relations section of our website.

Please note that today's call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives the potential impact of artificial intelligence and macroeconomic factors on our business.

For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K and our quarterly report on Form 10-Q, all available on the SEC website. These documents outline important risk factors that may cause actual results to differ materially from our forward-looking statements.

We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Unless otherwise stated, all results discussed today other than revenue, are on a non-GAAP basis. These measures should be viewed as complements to not substitutes for our GAAP results.

A reconciliation of our non-GAAP results to the most directly comparable GAAP measures can be found in today's earnings release and on our Investor Relations website at domoinvestors.com. With that, I'll turn it over to Josh. Josh?

Thank you, Corey. Hello, everyone, and thanks for joining us on the call today. It's been an exciting time for us as we continue to execute against our key objectives. In Q3, we generated positive adjusted free cash flow of $2.1 million a $15.8 million improvement over last year.

We're on track to finish the year with positive adjusted free cash flow for the first time ever with every quarter being positive along the way. Our operating margin was 6.8%, well above guidance, putting us on pace for our highest full year operating margin ever. We also posted positive EPS for the second consecutive quarter at second time ever.

We are pleased with the progress in these financial metrics and are continuing to execute a clear and strategic game plan rooted in 3 key objectives: deepening our partner ecosystem, accelerating consumption and pushing the boundaries of what's possible with AI. I'll speak to the importance of and our performance against each of these objectives.

I'll start with deepening partner ties. A foundational component of our ecosystem focus has been rearchitecting our platform so customers can seamlessly integrate Domo with the cloud data warehouses or CDWs they already use. We call this functionality, cloud amplifier because by sitting on top of Snowflake, Databricks, big query, Redshift, Oracle or whichever warehouse they prefer, cloud amplifier magnifies the value of our customers' previous data infrastructure investments.

This approach gives customers flexibility and gives them control, while fully leveraging Domo's powerful platform capabilities. Today, over 350 accounts are actively using cloud amplifier across 9 different cloud data warehouses, a number that has more than doubled year-over-year. Even more striking, the number of unique users on cloud amplifier has soared 450% year-over-year.

This rapid adoption shows that our shift from competing against cloud data warehouses to complementing them is the right move as we are not only enhancing the entire data experience for our joint customers, but also driving meaningful revenue for our partners. In fact, several of these partners are interested in even tighter relationships and considering OEMing our analytics for all of their new customers or considering investments or other strategic relationships.

The power of our products together truly delivers exceptional customer value. Our partnerships with the CDW ecosystem continue to grow stronger and more impactful. In Q3, leads from strategic partners increased over 25% compared to Q2 and more than doubled from what we generated in Q1, showing how quickly these relationships are expanding, while working through partners introduces more stakeholders and may create longer sales cycles than our traditional direct motion, it's actually proving to be a major positive for us.

These deals typically involve CIO level engagement and more strategic conversations across the business, which can lead to stickier relationships, strong retention and broader adoption across the organization. It reinforces the growing value of our ecosystem and the durable growth engine we're building. Next is the tremendous and almost unprecedented speed at which we've transitioned to a consumption model and the corresponding value it is adding to our business.

We see strong evidence of this in our monthly unique user growth and the increasing share of our revenue coming from consumption pricing. Today, 80% of our annual recurring revenue is on consumption contracts, a significant shift that underscores the broad acceptance of this model. A little more than 2 years ago after introducing it, the percentage of our ARR and consumption was in the single digits.

And as we've now said for the last several calls, we expect to be over 85% by the end of the year. The move to a consumption model is not just about pricing. It's about unlocking full platform access and demonstrating value to a wider user base by removing traditional licensing limits and enabling broader access we empower more people across our customers' organizations to engage with data and AI in meaningful ways.

Monthly active users across our entire customer base have increased over 10% year-over-year, reflecting this growing momentum. The result is naturally accelerating adoption and usage creating a positive feedback loop that drives deeper customer success. Over time, this expanding engagement will generate favorable economic benefits for Domo, while delivering greater impact for our customers.

This usage-driven momentum gives us growing confidence in the durability of our long-term model. Complementing the move to consumption, we are also leaning into a more composable approach to how we sell the components of our platform. More composable platform allows us to meet customers, where they are and accelerate how quickly that they can get value from Domo.

While we can power the full end-to-end data and AI stack. Some customers don't always need the whole thing on day 1. Sometimes they're looking for a better integration layer or a workflow engine or a place to operationalize AI embracing composability this way means that we insert value immediately where they need us.

That flexibility has been a big advantage as modern data architectures become more modular. Operationally, that means our go-to-market motions now include more of a focus on helping customers start with a piece of Domo that most meets their needs and then growing naturally into more components of the platform over time.

Finally, innovation with AI continues to accelerate. At a time when industry studies have shown that high levels of generative AI projects failed to reach production, highlighting how hard it is to get value, real value from AI Domo's customers are proving what's possible with the right foundation. The number of unique accounts using our AI features increased over 60% year-over-year, while the number of unique users more than doubled. We view this as evidence that our integrated platform, combining connectors, ETL, workflows, governance and visualization is enabling real AI use cases that deliver ROI at scale.

Our customers are moving from experimentation to operationalizing AI to transform decision-making. While some of these benefits are still unfolding, we view these strong adoption and usage trends as powerful leading indicators. They validate our strategy and give us confidence that as we continue executing with this pace and focus, favorable financial performance may naturally follow.

I'm incredibly proud of the progress we've made over a relatively short period of time. The trajectory is clear. building broad platform engagement today sets the foundation for sustainable profitable growth tomorrow. Now let me share a few customer wins in the quarter that highlight progress against our key objectives. And our partner ecosystem, we closed new logo deals with a large credit union and a fast-growing logistics provider, who each selected Domo and Snowflake together after seeing how our joint solution simplifies their data environment accelerates reporting and provides a strong foundation for their long-term AI strategy.

A multibillion-dollar global food and beverage nutrition company is modernizing its approach to marketing intelligence and signed with Domo to optimize its use of data bricks after their previous vendor and SI spent more than a year attempting to deliver results with limited success.

In contrast, Domo and its SI partners deliver a compelling proof of concept in just a few weeks. Our ability to blend Databricks data with Domo's AI workflows and app capabilities showed the customer a clear path to standardization and faster insights. This deployment is already sparking interest in expanding Domo across the business.

One of the largest insurance companies in the U.S. extended its partnership with Domo, evidence of the strength of Domo's offering for large enterprises and an example of our multiyear contract growth. This insurer expanded to a 4-year 7-figure TCV agreement after a collaborative solution sprint showed how our AI workflows and app development capabilities could streamline their complex RFP process because they were already on consumption, they could leverage the full breadth of the platform without licensing barriers, allowing this solution to be scoped for long-term impact rather than limited access.

We also expanded to a 7-figure TCV contract with a large global nonprofit that provides care to nearly 3 million patients. They relied on Domo for years, but recently turned to us to help them build predictive models to better understand and reduce patient churn. Moving to consumption has allowed them to broaden user access, deepen analytic exploration and accelerate their work with AI and application development.

They are also a large snowflake customer. And so together, we're partnering to help this customer unlock even more value from their snowflake data using Domo. Given the scale of their operations, we see meaningful room for continued growth.

And finally, a fast-growing retail technology company expanded its use of Domo as part of a broader effort to simplify its data architecture and scale efficiently. Moving to consumption removed past licensing constraints, and enabled enterprise-wide access positioning Domo as their long-term platform through 2029 by connecting directly to Databricks using cloud amplifier, they now have a streamlined path for real-time insights across the business.

Through a strong C-level relationship, their projected growth and increasing focus on AI-driven workflows and natural language experiences, we see significant future expansion potential. Over the past few months, we've also received strong industry recognition for media and industry analysts for our leadership in AI and data products.

Domo was named the leader in Agentic AI by both Transnet Advisory Services and KM World with [ resin ] ranking us as #1 in its 2025 Agentic AI report. Nucleus Research named Domo leader in its embedded analytics Technology Value Matrix 2025. CRN selected Domo as its 2025 Product of the Year Award for Best Business Intelligence and data analytics technology. ISG named Domo, an overall leader in its data products buyer's guide and [ Dresser ] also recognized Domo's broader platform strength, ranking us #2 in its analytical data products report.

These recognitions reflect what we're hearing from customers every day that Domo was helping them turn data into actionable insights, modernize workflows and get real value out of their data and AI investments. I'm encouraged by the progress we're making and the momentum we're building with this next quarter expected to be the fastest billings growth we've seen in more than 3 years, while generating positive free cash flow every quarter this year.

It's clear that the work of the past few years is paying off, and we're now in a stronger position than ever to drive meaningful, profitable growth in the quarters and years ahead. Finally, I want to thank our employees. It's been a long row to hoe, but the work they've done to strengthen our ecosystem partnerships move a significant majority of our base to consumption pricing and build innovative new AI capabilities has been extraordinary.

Their passion and persistence are driving this next chapter for Domo and I'm incredibly proud of what we're achieving together. So speaking of Rose to hoe, I know a man who has hold miles and miles of sugar beets in Southern Idaho. So we should turn it over to our one and only Chief Financial Officer, Tod Crane.

Thanks, Josh, and thanks to everyone for joining us today. In Q3, we generated positive adjusted free cash flow of $2.1 million representing a year-over-year improvement of $15.8 million. Importantly, we expect to generate positive adjusted free cash flow in Q4 and are therefore on track to be positive for the full year for the first time in company history.

This also means that we expect to generate positive adjusted free cash flow for each quarter this fiscal year, another first. Our operating margin in Q3 was 6.8% well ahead of our guidance and putting us on track to deliver our highest full year operating margin on record. We also generated positive EPS for the second quarter in a row and the second time ever.

These results reflect our ongoing commitment to control the things we can control and operate the company with efficiency and discipline. Billings for Q3 were $73.2 million, below our guidance, primarily due to longer-than-expected sales cycles for certain partner-related deals. We've learned that the sales cycles for customers, who are purchasing a CDW for the first time can be long and complex.

However, these deals create stronger, more durable customer relationships, often with CIO level support for Domo being part of their company's global data strategy, making the weight worthwhile. While some partner-sourced opportunities are taking longer than expected to show up in our top line metrics, our ecosystem focus is producing measurable benefits elsewhere in the business as the customer examples we discussed earlier demonstrate.

We remain confident this strategy will continue to unlock many opportunities for us that would not have been possible otherwise. Turning to our recurring revenue metrics. Current subscription RPO grew 3% year-over-year to $214.1 million, and our total subscription RPO grew 15% to $405.9 million. This growth underscores the strength of our customer relationships, highlighted by the prevalence of multiyear contracts and the longest average contract duration we've ever seen.

Looking ahead, a substantial portion of Q4 billings will come from existing multiyear agreements, providing increased visibility and reducing risk in our financial outlook. Our gross retention in Q3 was 85%. Several years ago, retention was having a negative impact on our business, and we identified it as a major area of focus. Since then, we have made a concerted effort to improve retention primarily through 2 initiatives: first, shoring up our customer relationships, by going into deals jointly with our ecosystem partners and thereby up-leveling our status with CIOs.

And second, generating meaningful growth in RPO, which is a reflection of the value our customers are getting from our product resulting in strong relationships and a willingness to make long-term commitments to us. The progress we've made in these areas is finally having a material impact, and we expect gross retention to improve to approximately 87% in Q4 the highest gross retention rate in 6 quarters. This is just the beginning, and we could see ourselves approaching 90% in certain quarters next year.

ARR net retention was 95%, up sequentially for the fifth straight quarter and a year-over-year improvement of over 4 percentage points. Another factor contributing to the improvement in our retention metrics is the retention profile of customers on the consumption model, which continues to be well above that of our seat-based customers. ARR net retention for the customer cohort that began on consumption continues to be above 100% and coming in at 106% in Q3.

We currently have 80% of our ARR on consumption contracts. We feel confident we will end the year above 85% and and as our consumption customers represent a higher and higher percentage of our renewal base, we believe both gross and net retention will continue to improve.

Total revenue was near the high end of our guidance range at $79.4 million. Gross margin was 75.4%, down 90 basis points year-over-year, primarily driven by ecosystem-focused improvements to our platform. We expect these improvements to not only enhance our ability to continue executing on our partner strategy, but also drive more consumption revenue, which we expect will increase gross margin over the long term.

Our non-GAAP net income was $0.3 million. Non-GAAP diluted net income per share was $0.01 based on 44.8 million diluted weighted average shares outstanding. Looking ahead to Q4, we expect billings of $107.5 million to $109.5 million. The midpoint of this range represents 6% year-over-year growth, which would be our highest billings growth in more than 3 years.

We expect GAAP revenue of $78 million to $79 million and non-GAAP net loss per share of $0.01 to $0.05, assuming 42.1 million weighted average shares outstanding, basic and diluted. For full fiscal year guidance, we expect billings of $315 million to $317 million, GAAP revenue of $317.5 million to $318.5 million and non-GAAP net loss per share of $0.07 to $0.11, assuming 41 million weighted average shares outstanding, basic and diluted.

In regard to adjusted free cash flow, we expect to be positive in Q4 and to generate approximately $6 million for the year. I would like to highlight that our guidance reflects our expectation that our operating margin will be 5% for the full fiscal year, our highest ever. Earlier in the year, we only expected to exit the year at 5%, but we now expect to achieve that level of profitability for the entirety of the year.

We continue to expect that we will exit FY '27 with 10% billings growth and 10% operating margin. With that, we will open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Derrick Wood with TD Cowen.

Great. Josh, could you just double-click on the assessment of kind of where the negative billing surprise came from? And what you're doing to address it to get back on track? And maybe give us a little bit more additional color on how we should all be getting comfort on hitting those kind of nice growth rebound targets for Q4 in terms of billings?

Yes. Thanks, Derrick. The -- as this ecosystem business has gotten larger and larger for us, we're starting to realize that because it's having a bigger impact, we're starting to realize that it takes a little bit longer for us to close those deals because they're more involved. They have higher close rates, and they're much stickier when we get them. Because we're now in there with the CIO, but involving the CIO and having multiple vendors and from what we've heard from other people, other vendors in the same ecosystem that we're selling into, it looks like the sales cycle is going to be a little bit longer.

So we kind of had a onetime shift, if you will. And the pipe in terms of Q4, we feel very confident in -- and we also feel -- we're very excited about finally getting to the billings growth, and that comes from 2 things. We're finally from a retention standpoint, we're finally seeing the improvements of the ecosystem investments that we've made there as we go to many of our customers and get a chance to talk to them and introduce them to DataBricks or Snowflake or Google or Oracle or whoever and the fact that we're in there jointly has really helped us from a retention standpoint, and it's really helping us from a new deal standpoint, just the new deals are taking a little bit longer than we originally realized.

And so that's that shift there. But it doesn't change anything about the premise. It's still very positive. We just had that had that shift in billings.

Anything -- so it sounds like some deal slippage. I mean anything to share in terms of have things closed and in Q4? How is the quarter off now that you've had a month into it?

Yes. It started off well. Some deals that slipped already closed -- in Japan, we had deals that closed at the beginning that had slipped also with partners. So it was just -- unfortunately, we didn't lose any of the deals, but it also wasn't "Oh, a couple of deals slipped. We'll get them and then get all at Q4." We're kind of like, okay, we probably should be a little conservative on this and the way we interpret this because, again, we didn't lose the deals.

It's just elongated because of getting CIOs in the room, getting multiple vendors in the room. And so as we looked at our pipeline, again, feel really good about it. But in terms of timing for some of those ecosystem deals, we'd probably better be conservative on that.

Okay. And just the -- your comment on opportunities with some of the CDWs around OEM and other types of investments. Could you give us a little more sense as to what kind of things may be in the hopper?

Yes. We've got these partners. And as we work with them and we share 100 customers or 300 customers, they start looking at -- we're starting to realize what we're doing for them. And we're making their customers happy and in most cases, happier than they have been with alternative solutions. And as the partners are looking at that, they're approaching us and saying, hey, maybe we shouldn't be pushing some of these other things and maybe we shouldn't be pushing our own stuff.

Are you guys interested in an OEM deal and going to market together, which, to be honest with you, we're kind of surprised about in some cases because a lot of times, you don't see these OEMs pick just one, but that's what's being floated. And they're very meaningful deals that would have a really big impact. The 1 nice thing about being as independent as we are, it hasn't always been benefit, but the nice thing is that we're pretty neutral when it comes to the big players out there. And so we're a safe place for them to help keep their data in their platform.

You think about all these different clouds that are out there and all these different clouds that have applications and that have other data flowing through. And the last thing they want to have is that data flowing somewhere else. And so when you look at the other companies that can facilitate data integration, ETL and facilitate that data going from 1 cloud to another, all of a sudden, these big cloud vendors are like, "I don't know, if we really want that happening." We would prefer that it stays here. So maybe we should upgrade our own services, make sure that we have best of breed and really put forth the company that can help us keep our data in our cloud.

And that's just presenting a handful of different opportunities that are looking very interesting. So I mean I'm sure this year, we'll have -- in the next 12 months, we'll have a handful of relationships that just continue to improve. I'll add 1 more thing. I don't -- there's not 1 cloud vendor that we're working with, where things look anything but rosy, optimistic exciting on every single 1 of them, things the future looks brighter.

And so it is -- we are in a really good position. We needed to represent in our numbers. And we are very excited about the billings growth in Q4. We're very excited about the fact that we've got a $23 million improvement for cash flow this year. So we know we can operate at cash flow positive and profitably. And finally, these investments that we've been making are starting to pay off. We're seeing it in the gross retention. And now we're starting to see it in pipeline and billings growth and I think there's the potential big deals out there that could happen in the next quarter or 2.

Great. If I could squeeze 1 more in for Tod, just on the -- great to hear the gross retention potential for 90% next year. Any commentary on where kind of the net revenue retention may may potentially go to?

Yes. I think there's 2 factors that are going to play into improvement in net retention. 1, as that gross retention number goes up, there's going to be a corresponding improvement in net -- and the other side that I'd point to is as we get better and better at realizing the upside from the consumption model, working more closely with our customers and helping them get into a contract that makes sense based on their usage. We shared several uses metrics during the call.

Overall, across the whole platform, unique users up 10% year-over-year. There's a lot of opportunity for us to take advantage of that consumption model and improve our upsell motion. So the combination of improving gross retention, improving upsell, we see plenty of upside on the net retention side as well.

Our next question comes from the line of Brett Huff with Stephens.

Josh and Tod, congrats on making progress on this. I've got 2 questions on kind of a balance. 1 is can you talk a little bit about time to value? I know that's been one of the things that you guys have brought to the table for your partners. But you also mentioned that you're going towards a little bit more composability, which may mean some smaller maybe smaller deals, but maybe even faster time to value. So can you talk about that balance?

And maybe the other balance is you're really improving profitability and free cash flow, which is great. But are you finding that you're running up against things where you wish you had a little more freedom to spend in order to drive better growth? Or have you reached that sort of phase yet in wanting a little bit more freedom on Capital?

Yes. On the composability, it's -- we do have a full stack. We have a lot of different entry points into relationships. And that's -- it's -- when you're pitching a loan to a new logo, you kind of start with the whole package, and it's 1 of the things that's very appealing. When you're in there with a partner, they've already solved some of their tech set.

They have a strategy. They have an architecture. So going there together with the partner and understanding the gaps that they have and being able to easily fill those gaps is a really simple way to improve the partners business, improve the partners installation that they're doing. And it actually hasn't had much of an impact on -- I don't think it's had any impact on our average deal size because this product is so broad and so deep that even when we're selling a composable piece, it's still something that we can charge $50,000 or $200,000 or $0.5 million for just for integration and connecting our connection framework.

So we're actually able to still get great contracts. It just is really simplified because we're in there just talk about 1 thing and 1 thing only. And we're making that partner look good because it's so fast. I talked about a couple of examples in the prepared remarks. where we go into deals, it happens all the time. And they've been trying for months or years to make something work.

We come in with a partner and 2 weeks later, it's up and running. So just the partner framework really enables us to sell just components of our stack versus having to sell the whole stack. And it's actually a real joy and a really great entry point.

As far as the numbers, I'll let Tod speak to it mostly, I will say that, yes, there's definitely we trimmed the fat. We got things down very efficient. We're constantly -- it's been really fun internally, constantly analyzing everything that we do and what's the efficiency of it and what's the alternative to it and are the alternatives more efficient. It's just really fun to fine-tune all those pieces.

And as we've done it, finally, we're starting to see some initiatives that are getting good returns and paying off. As we see those returns, for sure, we're running up to things we were like, [ Gangetic ] we had an extra $5 million because we could grow faster which we had an extra $10 million over here, we could definitely grow faster. So we're starting to see those things. And as those opportunities become very, very finite in terms of understanding exactly what kind of return we can get off of the dollar that we're making into different investments.

As we understand that more and more and get more confidence and do test runs, then it will give us either more common just as we grow to spend those dollars and continue to invest or give us more confidence to say, you know what, here's something that looks really good. Let's go find something that's not as efficient and swap that out. So we're not to a point where we need to change our stance on our financial architecture that we've put forth.

But it is fun to see, gosh, there's some opportunities right there because sometimes, when you run these companies, you don't even see those opportunities, just like, "Oh, can't find the right thing to do right now. We've got to find something that's working, and we're shifting more towards those a lot of things that are working. It would be great if we could do more, but we have these constraints, and we're committed to these numbers. Tod, do you want to add more color?

Yes. Thanks, Josh. If you think about the Rule of 40 framework growth versus profitability, obviously, very, very pleased with the progress we've made over the last 12, 18, 24 months on the profitability side of things. But at the end of the day, the growth is really the price, and that's what we're focused on, and we want to get that growth reaccelerated.

The things that we've done so far have not put at risk our ability to grow the business we've been able to find other areas to save money and trim costs that aren't going to impact that ability to grow. But as we've discussed, there are a lot of exciting opportunities right now. The ecosystem play that we've been working on for over 2 years now and the improvements we made to the product, the people that we've got in place, the teams that we've got in place is just opening up a lot of really exciting opportunities, and we'll definitely be doing everything we can to capitalize on those.

Great. I'll do -- if I could do 1 more. Can you talk a little bit -- remind us about how the conversation on AI is going. As you guys know, there's been a big conversation on AI eating SaaS. You guys kind of are more I think, have good defenses against those. But can you just sort of go through how those conversations are going and how offense you're playing offense around AI?

Yes. We're definitely playing offense. It's as it evolves is something we pay a lot of attention to. It's 1 of the 3 big initiatives that we focus on day in and day out at our company. Everyone in the company knows that it's a focus.

And there's a couple of components to it. #1, it improves our ability to deliver for our customers pretty dramatically because it simplifies a lot of the things that customers do with the stack that we have. So just going through our entire stack and using AI to make it more efficient, faster, has been a huge benefit to our customers.

And #2, then what kind of agents can we build for our customers and can our customers build on our platform. And we've got the recognition. We've been cited as the best agent platform -- Agentic platform out there. We have -- we heard about dozens and dozens of new examples every single month, and we need to get that to hundreds and thousands that are happening every month because it's something that customers can do on their own.

We have a very big initiative. It's the biggest initiative that we have ongoing right now from an R&D standpoint, developing this next version of next generation of our genetic platform and that will be available here in Q1. But Daren, why don't you take a few minutes, Daren Thayne, our CTO, is also on the call. But Dan, why don't you take a few minutes and share some of your thoughts about our Agentic platform.

Yes. Thanks, Josh. One of the key things that we see from customers that are leading into AI is definitely they are rightfully concerned about the ability to have the right kind of governance on their data, and they're not willing to just turn over without that governance ability to their company data. And so we've leaned in, in a big way in allowing them to have full governance of their data and unleash their users' ability to leverage AI with the comfort that they still have a fully governed access to that data.

Our next question comes from the line of Patrick Walravens with Citizens.

Great. I was just curious, how much leverage are you guys getting with your new partners based on your learnings from the [ Stellate ] partnership?

How much leverage are we getting from what, Patrick?

With your new partners -- sorry, this is [indiscernible] on for Patrick. I don't want to take a...

How much are we getting from our new leverage are we getting with our new partners from what we've learned with Snowflake? Is that the question?

That's the question.

Yes. Great question. It is a great question because that's definitely how we've been building out all of these partners and we talked a lot about cloud amplifier today. But yes, you have to do it once and the first lift is 10x harder than the second. You still have to go through the entire process.

And there's no shortcuts for certain components of it because everybody's got their own unique properties to their stack. So there's big benefits because we learn how to do it from our side and then it's just maybe changing the way we plug into others. That said, there's a lot more than just the technology stack, right? There's the -- how do we go to market? How do we educate their sales executives? What's the play that works? Is it getting with the field? Is it getting with the sales managers? Is it going top down? Is it going bottoms up?

What kind of white papers are needed, what kind of marketing materials needed, what kind of spend should we be doing to generate leads, what kind of webinars should be doing. So the whole go-to-market motion is probably more complex because the technology problem is a problem just needs to be solved, and we've got a great team that figures out to solve it.

So the go-to-market part is more complex, but that's also something with huge benefit out of working with 1 or 2 or 3 really well and then all of the learnings benefit everyone else and benefit us. So it's been -- there's definitely been some economies of scale that benefit that we've been getting there.

Thank you. Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets.

The billings shortfall for Q3, was this just 2 or 3 large transactions. I understand the explanation that you've got more players involved and you're dealing at the CIO level. But this 2 or 3 sort of whale-size deals? Or was this 6 to 10 midsized deals?

Yes. So it was a combination of I don't think there's any 1 or 2 big deals that constituted that. I think it was a number of kind of, let's say, medium-sized deals that slipped. And as we mentioned earlier, a lot of that is stemming from the fact that these partnered sales cycles are a little more involved and take a little bit longer than we originally expected, but we ultimately come out on the other side a lot stronger because we are -- there's a lot of stakeholders involved.

There's a lot of people that get eyes on our product and want to understand how we're going to perform on top of the cloud data warehouse that they're evaluating and when we come out the other side, we've got the full blessing of the CIO. We've got backing from the IT department. We've got people from all over the company that understand that Domo is going to be deployed with that cloud warehouse.

So if you think about it from a modeling perspective, Yes, some $2 million to $3 million of deals that slipped into Q4, but as we updated our model and said, okay, we've got a longer sales cycle here that we're dealing with. There's also some billings that we originally had in Q4 that pushed out in the future period. So kind of net-net, no net impact to Q4. But we feel really confident in the number that we guided to there.

One thing we talked about on the call was because of all the work we did on multiyear deals 1.5 years ago, starting 1.5 years ago, we've got more of our -- a higher percentage of our Q4 billings coming from existing multiyear contracts than we've ever had before. So that gives us a lot of comfort and a lot of visibility into that Q4 billings number. And we're -- as we said on the call, really starting to recognize a lot of benefit from the work we've put in on getting longer-term deals, growing RPO and going into deals jointly with our partners to build stronger customer relationships.

Okay. And then you guys did a terrific job here in FY '26, keeping a tight lid on the expenses, and we've obviously seen that in the free cash flow -- just curious, I'm not looking for a 2027 OpEx guide, but just curious to know if FY '27, are you -- are there planned areas of investment that would be at a run rate higher than we were in FY '26, either on the R&D or on the sales?

There very well could be, but I think we're -- as we go along, we're finding areas of the business where we're able to get more efficiency than we've ever had before as well. I mean we're obviously like most companies out there were looking for ways to deploy AI effectively within our company and how do we get more leverage out of our existing resources by empowering them with technology, empowering them with we use our own product internally a ton. We use it every single day.

All everybody in the companies is in the product and utilizing the power of agentic-AI in a secure government environment and finding ways to automate and be more efficient. So while there will be areas, where we want to invest, there are going to be areas where we're going to be able to be more efficient as well.

And I think the guidepost there that we said we were going to -- we were committed to 5% and 5% exiting this year, 5% and 5%. And and we're still planning on doing that. And exiting next year with 10% growth and 10% margin. And that's the guidepost. And within those constraints, if we're getting more growth, and that gives us opportunity to invest more than we will. But we've set those guideposts out there for a purpose so that every investor can get great comfort with how we're going to grow this business.

Our next question comes from the line of Lucky Schreiner with D.A. Davidson.

Great. It was nice to see that ARR net retention for the customers who began on consumption. That remains strong, but it did tick down a bit -- and I was just wondering what was the main driver behind that in light of the usage momentum and user growth you had referenced in your prepared remarks.

Yes, there's going to be a little bit of movement in that cohort in the near term. It's a meaningful sample size. It's a meaningful dollar amount, but it's not -- if you think about it, with that NRR metric being a trailing 12-month metric, it's really reflective of where we were a year ago on our journey of converting customers to consumption.

So a year ago, we were probably in the 50% to 60% range, somewhere in there. So -- it is a -- like I said, it's a meaningful dollar amount, but it's also -- it's not the entire customer base. So there's going to be a little bit of choppiness there, as we continue to get to a point where it is very, very close to 90-plus percent of that denominator.

Got you. That's helpful. And then the gross retention improvement to 90% potentially next year was great to hear. -- is the uncertainty of timing there, though, primarily a function of the longer sales cycles with CDW and when those start to benefit the renewal process? Or is that around like cohorts were coming up with the longer contracts to renew.

Yes. It's a combination of a couple of things. So certainly, the progress we made with getting a higher and higher percentage of our customer base under multiyear contracts is going to drive a lot of that improvement in gross retention. It's also -- there's a number of other initiatives we've got in place. We're working on our onboarding. We're working on a number of things, getting more and more technical resources into the company that can interface with our customers on a regular basis and really drive that deep adoption in their organizations and make sure they're getting a lot of value out of our product.

There's, again, a number of factors that are all playing into that, but those are all reasons why we feel confident that this step-up from -- we've been at 85% for the last 5 or 6 quarters, stepping up to 87% in Q4, and we see kind of that step-up continuing and progressing as we go forward into next year. Those are all the things we're seeing that give us -- give us confidence in that.

[Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to Josh James for closing remarks.

Thank you. I'm thrilled that we are expecting the best billings growth in over 3 years and expecting to be adjusted cash flow positive every quarter this year. And now that we've completed the earnings call, I will take a moment to share a personal message.

Over the past several months, I've taken a hard and honest look at my relationship with alcohol. I periodically used it as a crutch during moments of stress and once I started drinking, I sometimes struggle to know when to stop. This pattern doesn't align with the person I want to be for myself and my family and my faith of the people I lead. So a few weeks ago, I check myself into a residential substance abuse treatment center for alcohol.

I have another 2 weeks to go of residential treatment and then we'll spend several weeks of continued daily treatment, followed by a year of weeklong -- of weekly counseling. I am making this public because I believe transparent accountability is an important step for my recovery. I never thought it could be on my bingo card that I might become a well-known, very flawed Morman or a member of the Church of Jesus Christ latter decants. I always wanted to be a great example of Christ of my church of my wife, my children, my parents, friends and coworkers. But I failed in many regards on that front, and I'm committed to getting help.

I've decided to take some medical time to really focus on recovery. I know that I will recover and improve myself. And going forward, I only hope I can live the rest of my life more humbly, more purely and hope to become a story of redemption of getting back up after falling down and of living a life with character of which I can be proud.

I want to express my deepest gratitude to my wife and my family, who've been pillars of strength throughout this journey. Their love patients and unwavering support have grounded me through some of my hardest moments, and I'm profoundly grateful. While I'm focusing on myself, I will still be able to perform my duties as CEO at Domo. And as always, continue to take them very seriously.

However, for a temporary period, I'll be spending a majority of my time prioritizing my health. I look forward to keeping the Domo train on the rails and executing at the highest levels. As I also temporarily rely on my team more than ever. I will continue driving the strategic conversations and relationships and we'll also have weekly daily stints with my team as needed.

I appreciate your listening and pray for your understanding and support. I will try to make myself as available as I can for any follow-up questions at another time. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Domo Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Peter Lowry, Vice President and Investor Relations. Please go ahead

Good afternoon. On the call today, we're joined by Josh James, our Founder and CEO; and Tod Crane, our Chief Financial Officer.

I'll start out with our safe harbor statement and then onto the call. Our press release was issued after the market close and is available on the Investor Relations section of our website. Please note, this call contains forward-looking statements about our business as defined under federal securities laws. These statements involve risks, uncertainties and assumptions, including, but not limited to, statements and projections about our future financial performance, growth prospects, cash position, sales efforts, technology developments, new business opportunities, transactions and initiatives, the potential impact of artificial intelligence and macroeconomic factors on our business. For a detailed discussion of these risks and uncertainties, please refer to our public filings, including today's press release, our most recent annual report on Form 10-K and quarterly report on Form 10-Q, all available on the SEC website. These documents list important risk factors that could cause our actual results to differ materially from our forward-looking statements.

We will also discuss non-GAAP financial measures during the call, which we use as supplemental indicators of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results on a non-GAAP basis. These measures should be viewed as complements to, not substitute for, our GAAP results. Please see the reconciliation of our non-GAAP results to their most directly comparable GAAP measure on our Investor Relations website at domoinvestors.com.

With that, I'll turn it over to Josh. Josh?

Thank you, Pete. Hello, everyone, and thanks for joining us on the call today. I'm thrilled by what we've accomplished this quarter. In Q2, we beat our guidance on billings, revenue and delivered our first-ever positive non-GAAP EPS, all while generating positive free cash flow.

I was especially excited to see that the NRR for customers who first purchased Domo on a consumption contract was 108%, which we believe is a strong indicator of where the consumption model is headed. These results are a testament to our transformation and momentum. Reflecting on the past few years, our focus has been singular, drive sustainable profitable growth. We've overhauled our approach, doubling down on our ecosystem, embracing a partner-centric go-to-market strategy and moving decisively to a consumption-based model.

Let me review some of the progress we've made. Two years ago, we had zero cloud data warehouse partners or CDW partners. Today, we have 5 of the largest and most important CDWs. Back then, consumption customers were just a few percentage points of our ARR. And now over 75% of our ARR is on consumption, what an incredible transformation in just 2 years, where sales productivity and new ACV once lagged, now they're performing as strong as ever. The new business engine is firing on all cylinders.

Our turnaround is visible in multiple areas over the past year. New ACV growth has accelerated every quarter. After a double-digit decline in Q3 fiscal year '25, we have accelerated to growth approaching 20%, the highest we've seen in 3.5 years. Our year-over-year sales force productivity growth has accelerated from 19% in Q3 FY '25 to a stunning 67% in Q2 FY '26.

Subscription RPO growth has accelerated from 3% in Q3 FY '25 to 19% in Q2 FY '26. I'm incredibly excited that with the same starting pipeline we had at the beginning of Q1, we closed nearly 50% more new ACV in Q2. Picture our business as a store. The foot traffic stayed the same, yet almost 50% more people stopped at the cash register on the way out.

You could also think of this massive improvement in conversion rates like adding lanes to our highway, allowing more new business to flow through. On top of that, our focus on stronger partnerships means we have a new freeway coming into [indiscernible], and we're building multiple on-ramps to direct that traffic on to our newly expanded highway. The best part, the impact is just beginning, and we expect it to accelerate from here.

So if the best is yet to come and partner source new ACV, what has been powering our growth engine? First, the surge in demand for advanced AI solutions. Businesses want more than dashboards. They want end-to-end modern platforms that unlock the potential of LLM and AI. To truly deliver business value, you need much more than a UI. You need seamless data access, robust ETL, a semantic layer, workflow automation, security and governance and flexible delivery, either autonomous or human in the loop. With Domo and our CDW partners, that's exactly what we offer.

BI as a simple dashboard concept is dead, but the spending environment for infrastructure and services to capitalize on the promise of AI is very healthy. And we, along with our CDW partners, are very much benefiting from this trend. We have said that we were built for this moment, and that is because unlike our traditional dashboard competitors, we built a complete integrated modern AI and analytics stack from day 1. Our platform is designed for where business intelligence is headed, not where it's been.

We've also streamlined our go-to-market and R&D focus, cutting distractions by concentrating on strategic priorities, especially AI solutions and ecosystem partnerships. We are increasingly engaging with our customers using a strategic, consultative approach, and this is resulting in longer-term contracts and fueling our RPO growth.

There have been some early tailwinds from consumption with escalators built into many of our multiyear consumption contracts, and we are starting to get benefit from some of those increases. The trends from consumption renewals are encouraging with both gross and net retention being well above the seat-based cohort. As more of our renewals come from consumption, we expect to see more uplift.

Our partner-friendly approach has brought us into many more conversations and has definitely helped us in the market. I'd like to highlight a real-world example, the kind of partner-driven outcome that's becoming our new normal. One of our larger customers was up for renewal, and we were preparing for what looked like a challenging conversation. Our customer was carefully scrutinizing technology spend across the board, so we knew we had to be strategic.

We knew that they were also a customer of one of our CDW partners, so we begin joint planning sessions, bringing our teams together to find a creative way forward. Through this collaboration, we constructed a solution that was truly a win-win. We help the customer transition from a traditional seat-based licensing model to consumption, which also opened the door for an upsell and a 3-year contract.

Importantly, they were able to leverage their existing spend commitment with our CDW partner by purchasing our product through their marketplace, allowing our customer to increase their usage of our platform without needing any approvals for extra budget. This would not have been possible without our partnership with the CDW, the availability of our platform on their marketplace and the flexibility built into our consumption model.

Building on this success, we're now actively co-selling into additional business units within the customer's organization with streamlined procurement processes, direct access to lines of business, and a strong endorsement from our CDW partner with the IT department. This is a perfect example of how our ecosystem approach is benefiting us in ways that extend beyond partner-sourced new business.

Lastly, the improvements in our results have been driven by a team that is committed and motivated. It has been a lot of work over the past few years to get us to where we are now, and no one is taking our future success with the ecosystem and with AI for granted.

Now digging deeper into Q2. International momentum was especially strong. Japan set new records. New ACV there doubled -- near doubled year-over-year. TCV hit all-time highs and the deals up for renewal in the quarter saw an NRR of close to 130%. Japan is a huge focus for me, and I plan on continuing to spend time there even more over the next year.

We strengthened our ecosystem with deeper integrations into Snowflake and 3 other CDW partners: Databricks, Oracle and Google. In fact, this week, we announced the details on our enhanced integrations and capabilities with Snowflake and BigQuery. And our presence at flagship industry events like the Snowflake and Databricks conferences was nothing short of electric, with customers eager to discuss transformative AI use cases, leveraging our joint solutions.

We generated thousands of leads and held -- and since then have held dozens of meetings with sales reps and managers across the CDWs. This resulted in us identifying many joint selling opportunities that we would not have been -- that would have not been possible when we were flying solo, including several Palantir takeouts. Building on this momentum, we announced an expanded collaboration with Snowflake for a fully managed AI-powered analytics solution in their marketplace with similar collaborations with other CDW partners on the way.

Let me share some highlights from a few of our Q2 customer wins. First, a home improvement company referred by a CDW partner chose Domo in a 3-year deal to replace Power BI and consolidate their tech stack with a joint offering of Domo and our CDW partner. The customer valued our consumption-based pricing, which removes user limits and enables broad access for sales and customer service teams. They're eager to expand usage of our platform's workflows and AI capabilities to enhance reporting and operational insights.

Next, we secured a significant upsell with a fast-growing technology customer. They expanded Domo usage to reduce IT head count and avoid disruption during a critical data warehouse migration. Our cloud-agnostic approach, CDW integrations and platform features like self-serve, workflows and Domo Everywhere, which is our embed product, were key to the win. Partner collaboration with their IT team ensured a smooth transition to our consumption model with increased capacity, again, purchased via the CDW marketplace.

We also closed a major new logo with a global retail company after an 8-month evaluation of multiple solutions, including [indiscernible], Power BI, Tableau and custom-built options. They, of course, selected Domo for its ease of use, data integration, data aggregation, I should say, and AI-driven insights with our proof-of-concept delivering results in days compared to months for the others.

The consumption model also was critical, providing access to premium features that were essential to their needs. Finally, a private equity firm fully embraced our consumption model with a multiple 7-figure deal to unlock greater value, features and cost savings as they scale Domo across their portfolio companies. Focused on AI agents, workflows and sandbox, they plan to develop multiple AI use cases to drive broader adoption. This alignment with their long-term vision led to a 5-year consumption contract, increasing ACV by 3.5x over that 5-year time period and expanding Domo from 3 companies to every single business in their portfolio.

Each of these illustrates the clear market demand for AI-driven business value, the accelerating impact of our partner ecosystem. the value of our consumption model and a shift to long-term strategic Domo relationships. Building on this strong momentum, Domo earned top honors across several leading industry reports and awards in Q2. Domo was named a leader in the 2025 Nucleus Research BI and Analytics Technology Value Matrix. We were also recognized as a leader in Dresner Advisory Services' 2025 Wisdom of Crowds BI Market Study, in which Domo received its ninth consecutive perfect recommendation score.

Domo's ongoing commitment to attract and advancing top talent was highlighted and being named to the Women Tech Council Shatter List for the eighth consecutive year as well as being named to the 2025 ParityLIST, Parity.Org's program, recognizing the best companies for equal advancement opportunity.

Looking forward, our game plan is simple, keep innovating with AI, keep deepening partner ties, keep fueling consumption and keep building new lanes to help more customers accelerate with Domo. I'm tremendously proud of the accomplishments we've made over the past few years. I've seen evidence that we are not only turning the corner, we're picking up speed and are well positioned to accelerate our growth profitably over the coming quarters and years to come.

And with that, I'll hand it over to our Chief Financial Officer, Tod, with [ 1D Crane ].

Thanks, Josh. We exceeded our Q2 guidance for billings, revenue and non-GAAP EPS and were adjusted free cash flow positive. Total revenue was $79.7 million, and billings were $70.3 million. I'm very pleased with the underlying performance of the business in Q2. Our highly productive sales force drove our strongest new ACV growth in several years and productivity is now near record highs and at a level that supports sustainable, efficient growth.

As CFO, my focus has been on disciplined financial execution in tandem with our return to sustainable growth. We've aligned investments with our strategic priorities, deepening our commitment on AI innovation, partner enablement and the consumption model while maintaining rigorous cost management to improve profitability. This balance has been critical to achieving our first positive non-GAAP EPS and maintaining a positive free cash flow, milestones that demonstrate the strength and momentum of our business.

Moving forward, I'm committed to scaling efficiencies and driving consistent profitable growth. This disciplined approach to growth and profitability is reflected in our continued emphasis on longer-term, more strategic contracts, which contributed to another strong RPO quarter. Current subscription RPO grew 4% year-over-year to $220.2 million, and our total subscription RPO grew 19% to $409.8 million, the highest ever.

Our gross retention in Q2 was 85%. We have been around this level for the past 5 quarters and improving retention remains a key area of focus for us. We expect gross retention to remain at a similar level in Q3 and to increase meaningfully in Q4. Our renewed focus on RPO growth and multiyear deals began about a year ago with Q4 being the first quarter where we saw significant traction. We expect this to provide a tailwind for gross retention in Q4 this year.

Over time, we expect retention to improve as we see the benefit from longer-term consumption contracts. We now have over 75% of our ARR under consumption with -- and with 2 quarters left in the year, we feel confident we will end the year north of 85%, reaching the goal that we set over a year ago of approaching 90%.

ARR net retention was over 94%, up sequentially for the fourth straight quarter. Subscription gross margin rose to 81.9%, marking the second consecutive quarter of sequential improvement. We expect this to remain stable over the near term and expand over the longer term. Operating margin in the quarter was 7.7%, the highest in company history. Our results benefited from expense management and better-than-expected revenue performance.

Looking ahead to Q3, our partners have requested that we participate in some meaningful events, so we will be making investments to support and strengthen these growing partnerships. This may temporarily affect our margin and is factored into our guidance. In addition to record operating margin, we had positive free cash flow in the quarter and are on track to meet our goal of positive adjusted free cash flow for fiscal year '26. Our adjusted free cash flow in Q2 was $1.4 million, an improvement of $7 million year-over-year, and our cash balance remained steady at $47 million.

Looking forward, we expect our adjusted free cash flow to be slightly positive for Q3 and Q4. Our non-GAAP net income was $0.9 million. Non-GAAP diluted earnings per share was $0.02 based on 43.6 million diluted weighted average shares outstanding. As for Q3 guidance, we expect billings of $75.5 million to $76.5 million, GAAP revenue of $78.5 million to $79.5 million and non-GAAP net loss per share of $0.03 to $0.07, assuming 41.5 million basic weighted average shares outstanding.

For the full year, we are raising our guidance for billings, revenue and non-GAAP net loss per share. We expect billings of $317 million to $321 million, GAAP revenue of $316 million to $320 million and non-GAAP net loss per share of $0.11 to $0.19, assuming 41 million basic weighted average shares outstanding. Last quarter, we provided specific guidance around expected progress on Rule of 40 to demonstrate confidence in our turnaround and show that we are molding the business into something that we can be very proud of. We stated that we expect to exit fiscal year '26 with billings growth and non-GAAP operating margin of 5%, and we are very pleased to now raise that guidance to 6% for both metrics.

We continue to believe we are on track to exit fiscal year '27 with those metrics at 10%, with potential to raise in the future.

With that, we will open the call for questions. Operator?

[Operator Instructions] Our first question is from Derrick Wood with TD Cowen.

Great. Congrats on the great traction with the new strategic initiatives. Josh, you guys had quite the presence at the Snowflake conference this year. Can you talk about how that event along with your broader Snowflake go-to-market efforts have materialized and include Q2 closed deals versus forward pipeline build and how you're thinking about the opportunity to convert on these pipelines as you progress through the second half of the year?

Yes, absolutely. And if you ever want to issue a report right before earnings, any other time, that would be great. Thanks for the coverage, Derrick. We appreciate the insight. And love to note, if it was right on actually. We -- it was -- the Snowflake event was, I mentioned electric. It really was. I mean, we had -- our goal was that everybody at Snowflake that was a potential customer of ours would know our name by the time they got done with the conference. And we had an awesome booth presence and some ways to get people's attention with [indiscernible] bingo, and it worked exceptionally well.

We got thousands of leads. We did the same thing in the next week at Databricks. We're actually being requested by our partners to come and run the same events in other locations. So it just really what brought a lot of energy. And in terms of how it affected the quarter, we talked about it a little bit. We actually seen tremendous growth in our new ACV. And part of that shows up in billings. But our new ACV, our sales, which is what we pay our reps for, it's been growing meaningfully. And so we're excited about that.

But like I talked about for this quarter, deals from CDWs just started affecting that number this quarter, but not in any kind of material way. This quarter though, however, in Q3, it will start having an impact on our numbers. And we have -- we've gone from a bunch of leads to much of Stage 2 and now a bunch of Stage 3 deals in the pipeline.

The interesting thing about these leads is they close at a much higher rate. We've got intel from other partners in the ecosystem that their leads from CDWs close at 5, 6, 7x the rate that needs they generate on their own. We've become very good at generating leads on our own. And now that we're having dozens and dozens per quarter of leads from these CDWs that are going to turn into deals, if they have anything higher than what our current close rates are with our source deals from our own network, then we can see that start to have some meaningful upside to the numbers that we put out there for this year and next year.

So we're very excited about how that's coming to play. I'll share a little bit more color as well. We go into these -- we go into sales meetings with these CDW partners, and we meet with their -- when they have QRs, we meet with their sales managers and CXOs and sales engineers and we do it with a lot of CDWs. And we're literally demoing to these teams and in some cases, getting broad rounds of applause because of how excited the sales managers and sales engineers are.

We've had sales executives go up to CXOs of these companies saying the only reason they made their numbers because of their relationship with us. So we're starting to see it have a real impact and get broad recognition inside the CDWs that we can have an impact. So that's the first thing, get the brand recognition, get the awareness, get people to trust us so they start bringing us into those deals.

They're bringing us into deals. We have a lot in our pipeline. As we get more visibility into what those close rates look like, it will start to affect our guidance, I'm sure. But right now, we're just really excited about the potential that's there in the pipeline, and we'll start to see that affect things this quarter.

Great to hear. And as a follow-up, either for Josh or Tod, I mean, now that you've got 75% of ARR on consumption, just can we walk through how to think about how the improving growth mechanics fold into the model? I believe when you migrate customers over, you usually don't see much of an immediate uplift. But as they start to dial up usage, then you start to see that and stronger expansion motions. So can you just give us a sense as to how quickly customers come back and start buying consumption credits after initial migration? And the 108% NRR that you reported, is that for just net new customers? Or is that for customers that both new and existing that have shifted over to the consumption model?

Thanks for the question, Derrick. The 108% is for customers that originally purchased Domo on consumption. So that would be net new customers. And as we think about how this is going to play out in the model, one thing we mentioned on the call, with gross retention, we see that meaningfully improving from its current levels. Obviously, the goal is to get to 90 plus, and these consumption contracts are -- have been and will continue to, we believe, retain at a much better rate, both from a gross and net retention perspective. So I would expect, again, to see that meaningful improvement begin in Q4. And then from there, that improvement will continue as we go forward. But yes, I mean, just the ability for these customers to be able to expand to other users and their company more easily to not have to go through procurement, and we mentioned as well the ability to buy our product on this marketplace of our CDW partners, all these things are contributing to us being able to more easily retain and expand our existing customers.

And then even the customers that are not new logo customers, the ones that do transition over, that group as well has a higher NRR than our seat-based customers. So overall, the whole thing is better is just really interesting to highlight, the ones that come in with no expectations with no experience with seat-based and then when we transition them, we sometimes have to give caps and have to get through one more version of the contract before we start seeing all the upside. But we just think that, that new logo cohort, it's actually a decent-sized cohort, so we think it's pretty reflective of how things are going to look over time.

Our next question is from Brett Huff with Stephens.

Josh, Tod, congrats on another nice set of proof points reflecting the inflection point. So congrats on the results.

Thank you.

Following up a little bit on the prior question, digging in a little bit on that NRR, can you talk a little bit about the use cases or kind of the tenor of the use cases that you're seeing on the new and existing? Is it -- is your sense that somebody is going after one big use case in dialing up that particular use case? Or is it a little bit more broad? Or do we have insight into that yet in terms of usage? And the question really goes to the wall-to-wall opportunity that you guys have talked about?

Yes. Those wall-to-wall use cases are -- I mean examples are made up of multiple use cases. And 1 of the things that we believe that lends to more upside in the NRR is we really just started building our business around trying to help customers adopt the product more and help our customers find additional use cases. The seat model is very different in how you approach the customers. So we're excited about that because it allows us to really get in there and we've been transitioning a lot of our people to more technical people.

And you see that same kind of experience with Snowflake people and Databricks people, they're usually much more technical. So we're getting a lot more technical people to interact with our customers, and that's been very beneficial so far with a few dozen folks that we've hired already. We're seeing an improvement, and we're seeing increased NRR when they engage with our team.

And then the other big component is historically, we've gone to our customers, and we've usually been just 1 case -- use case. And we haven't had IT as a partner. But going in with the CDWs, I think the majority of the work actually so far because leads are still in the pipeline and building, the majority of benefit we've gotten from the CDWs thus far is strengthening current relationships that we have because every single 1 of our reps is now finding out which CDW is in the accounts that we're in, we're calling those reps and then we're going on site and visiting jointly.

And now we're blessed for additional use cases inside those organizations. So we're seeing just a tremendous amount of effort there, but a tremendous amount of results when we go in and we go into arm-in-arm with our CDW partners.

That's super helpful. And then, Tod, 1 for you. Just give any more commentary around the guidance. First of all, thanks for the additional clarity on the 6%. That sounds awesome. As you guys think about this year and into next year, what's built into that assumption-wise? Is it very visible stuff? Is it a little bit of things that we're anticipating kind of give us a sense of where your assumption levels are there.

Yes. We continue to find leverage in the model. As we get more and more focused on our strategic initiatives, that allows us to also be more focused with how we allocate our resources internally. So we're constantly looking at where we get into best ROI, how can we shift resources there, scaling up and down in different areas of the company as we need to, to make sure that we're progressing towards our goals. So yes, it's really just that. It's just -- there's leverage in the model, and we're continuing to align that with the goals that we have.

Our next question is from Patrick Walravens with Citizens Bank.

Congratulations on the quarter. This is [ Kincaid ] on for Pat. Just wanted to be about International Market Day. You called out Japan. I was curious if there's any other regions that you're seeing a lot of success in? And then what verticals are doing well, in particular internationally?

Yes. I mean we have success in pockets in Asia Pac and then pretty broadly in EMEA. Japan is just outsized relative to software companies our size, it's double, triple what you would usually expect. And we have a lot of great logos over there, a lot of good relationships, extremely high retention, a great team, great management. It just continues to perform really well for us, and it's a lot of fun.

I think in terms of which industries, I don't think it's any different than what we see across the U.S. as well. It's pretty broad. And in Japan, there's obviously a lot of industrials. There's oil and gas, there's a lot of tech. There's a lot of retail. Yes, it's just across the board. And it's just -- every market is a little bit different in Japan, requires a lot of services on the front end and a lot of services to make sure that they have great implementations. So some of our best implementations are over there as well. And Japan takes a little bit longer for them to make decisions. But once they do, then as long as you take care of them, they usually stick with you. So it has been a really good market for us. And our name is a Japanese name, so it's appropriate, I guess, that we do well over there, but it's been a lot of fun to see the success.

That is very true. And then just as you're at this inflection point, I'm curious if there's verticals or customers that you're starting to win as you move to this consumption model that you weren't really getting that much traction with, with the seat-based model or anything you're seeing in that sense.

I'm going to ask RJ, our CRO, to answer that question and talk about some of the places where we've been successful with the consumption model as it allows people to bring a lot more users in and then experiment with different use cases, whereas the old seat model, the budgeting process kind of as almost the revenue prevention department in some ways. But RJ, will you give us some additional insight?

Yes. So we have a ton of different companies that have had a hard time scaling as mentioned. And so as we're going into these accounts, there's a few areas that this has had a big impact on. And 1 is just, as it was mentioned earlier, going wall-to-wall in these accounts. And the consumption model has enabled us to grow uninhibited. So oftentimes, we'd have accounts where they're trying to make a financial decision. They've got free licenses of Power BI or another visual layer. And in a lot of cases, we were going up against those vendors and they considered them to be free.

And now we've taken that off the table. So it's just allowed us to scale. As far as a lot of the use cases, I would say, we weren't part of the IT conversations. So we're winning a lot of deals now, and we're seeing a lot of opportunity with buyers that we weren't winning before with use cases that we weren't part of before, including integration, ETL use cases, a lot of companies were coming to us originally for just visuals, not even knowing that under the covers, we had a very strong integration layer, very strong ETL layer.

And now a lot of the deals we're seeing are starting off with that integration. And then they're saying, "Oh, wait, but you guys do AI too?" And we're like, yes, we do AI. And then you guys can build agent solutions? And yes, we can build agentic solutions, and it's opening up the door and consumption enables that because now all that technology is exposed. And before it wasn't exposed unless you paid for it, and now it's exposed, and we're seeing a lot greater adoption across the entire platform.

Our next question is from [indiscernible] with Cantor Fitzgerald.

Indeed, a very productive quarter and making notable progress across CDW and hyperscaler partnerships ecosystem. So Josh, my question revolves mainly around the new products or, as you said, highways you added during the quarter and this month. So obviously, feel free RJ if you have any comments on the pipeline as well. Josh, I want to start with the AWS strategic collaboration with Domo as well as Google BigQuery enhanced data integration.

Can you give us a little more color? I understand that AWS opportunity is more of Agent Catalyst that we launched on Domopalooza. How big of an opportunity is that? And what are you seeing in the pipeline between these 2 hyperscalers?

Great. Yes. Thanks for that question. RJ has been responsible with the relationship. So I'm actually going to have him share some color on that. I'll just say that it's been a pretty big unlock. There -- these relationships with Google, with Snowflake. Google is actually kind of a little sneaky surprise. We didn't know it was going to go as well as it's going, but just unlocking that and making sure that we're in the marketplace and that their reps get paid for bringing us into deals because we go and drive consumption.

A lot of these big CDWs and cloud vendors, Oracle included, what they care about is where the data is sitting. And is that going to continue to drive their cloud. And really, any vendor, even if it competes with other applications that they have, they don't really care as long as it's driving cloud consumption. So that alignment has been a decent unlock, and we think there's a ton of potential there because it's getting to unlock and then getting the brand awareness internally with all of those people and those individuals that are referring their customers historically to vendors that were not us. And now we're in the mix there. So we're excited about that potential because we've done step 1, and that was the unlock.

Now step 2 is just the recognition, the awareness and getting the customer use cases, but we're rapidly getting those. So now it's just helping that information expand and increasing that awareness. RJ, do you want to give us some additional insights?

Yes. And I'll echo some of that. The thing that's interesting about AWS and Google is really, we can partner with them in several different fronts. So we can actually go into a deal with a different CDW partner, but the workload is living on GCP or the workload is living on AWS. And now all of a sudden, we're working with AWS and a CDW partner, and we can retire spend on either 1 of those vendors' marketplaces. And so it's -- I think the opportunity is huge. And their AWS and Google are great partners. They know how to partner really well and it opens up the door for us to take a customer first approach. And in a lot of these accounts, we might be bringing together a BigQuery and a Snowflake and different departments have procured the software or the back end that best suit their use cases and needs. And Domo can wrap around both of those and provide a unified experience to the end user. So we think the opportunity is massive with all of these players.

I know it's too early to say, RJ and Josh, like would you say -- I know it's obviously Snowflake, you guys made great headway with the [indiscernible] solution. It's great to see the mature like buy-in this relationship. I was wondering if you could comment like -- I know you got a Databricks, right? And I know you heard great feedback, you guys are diamond sponsors and you already said in the call, right? Would you say these hyperscaler relationships will perhaps later eclipse some of these CDWs? How do you think of that dynamic, I guess?

I mean we're going to continue to lean in where the partners lean in. And we have had a couple of partners that have taken off faster, but part of that is because our integrations got done first. But we're building teams around all of the different hyperscalers and CDW and we're going to continue to lean in and will lean in hard on the partners that lean back and we don't know if that means quite yet, but...

Yes, I think a big part of it is also who's selling solutions. And the solutions are what really drive the consumption and the solutions would take advantage of all the agentic solutions that we -- that we offer, all the AI that we offer, the governance and the security. And so to the extent that that the CDWs are out there selling solutions and want solutions to be sold to their customers, that's where we play exceptionally well. And the hyperscalers historically, they've been more focused on helping you scale. The CDWs have been trying to shift more towards really selling solutions. So we work well in both areas. I think the CDWs are growing a little bit more quickly right now with us.

Got it. Thanks, Josh and RJ for that. Let me wrap this with Tod on the financial side. Tod, thanks for the update on the 6%, 6% operating margin as well on growth to exit this year and NRR, net retention rate at 108%. I was wondering if you could give us some comments, obviously, it sounds like the new consumption cohort is reaccelerate, reigniting growth. How would we think about the model going forward, meaning like when do we see like higher growth rates in terms of top line going forward? I understand you mentioned being on a profitable growth path going forward. But could you give us a little bit more color on that? .

Yes, absolutely. It's going to be a combination of improving our gross retention rate and then also continuing to grow our new ACV. So on the retention front, we're going to, specifically in Q4 and then beyond, see a lot of benefit from this push to get more multiyear deal grower RPO. In conjunction with that, consumption partner being able -- our customers being able to buy our products to their marketplaces. These are all going to help our retention rate going forward, which is going to be a tailwind for growth.

And looking at the new business side, similarly, right, we're going to have tailwinds from consumption, we're going to have tailwinds from partner and being able to go out and win together with our CDW and hyperscaler partners. We're also seeing a lot of tailwind from AI and the advanced features of our platform. If you look at infrastructure spend, the budgets for that are growing much faster than other areas of IT budgets, and we provide that infrastructure, that critical infrastructure for people to deploy and create AI use cases and agents. So we're seeing a tailwind from that, and we expect that to continue.

Our next question is from Max Michaelis with Lake Street Capital Markets.

Most of them have already been answered, but I guess just 1 from me. I guess when we look at your total customer base, I mean, are you seeing any sort of differences in customer buying behavior maybe from your larger enterprise customers maybe versus your smaller customer cohorts, SMBs?

I mean I think the biggest difference is they want partners. The enterprises, they're -- they have long-term solutions and strategies. They've got data strategies and you've got to make sure that you're in alignment with that strategy from IT, the best strategy, the blessed vendors. Once you get that part right, then you leave those vendors that we're in there with they're now looking for the businesses, the business users to come in and say, here's a solution that we need now. And is there a solution on top of this approved stack that we can use to drive our business forward? And we've done really well on that part historically. We just haven't been blessed. So now being in there with CDW partners and hyperscalers that are blessed being able to tuck our spend into those marketplaces is something that's improving our ability to -- from a speed perspective to close deals.

Thank you. This concludes our question-and-answer session and today's conference call. You may disconnect your lines at this time. We thank you for your participation.