Huckleberry.ai, Inc. Q2 FY2023 earnings

Revenue growth at Domo held near 20% in the second quarter of fiscal 2023, though the shape of the quarter showed more strain than the top line alone suggests. Total revenue for the three months ended July 31, 2022 was $75.5 million, up 20.2% from $62.8 million in the prior-year quarter. For the six months ended July 31, 2022, revenue was $150.0 million, up 22.1% from $122.9 million. Billings were $72.3 million, up 21% year over year. Remaining performance obligations stood at $349.1 million as of July 31, 2022, up 22%, and $225.3 million of that amount is expected to be recognized as revenue in the next twelve months, up 23%. Deferred revenue rose 30.1% to $166.0 million.

Profitability moved the wrong way even as gross margin improved. Gross profit was $57.2 million for the quarter, up 23.0%, and gross margin was 75.8%, up from 74.0% a year earlier. Management credited continued optimization of third-party hosting costs. Below the gross line the picture is darker. Operating loss widened to $25.6 million from $18.6 million, and operating margin fell to negative 33.9% from negative 29.6%. Net loss widened to $29.1 million from $22.2 million. Diluted loss per share widened to $0.86 from $0.70. On a non-GAAP basis, the net loss was $8.7 million, or $0.26 per share, and non-GAAP operating margin improved by 3 percentage points year over year. The gap between the two views comes largely from stock-based compensation, which management excludes from its non-GAAP measures.

Cash generation slipped in the quarter. Operating cash flow was negative $2.4 million, a swing from positive $2.2 million in the prior-year quarter. Capital expenditures were $1.5 million, down 9.8% from $1.6 million. Adjusted free cash flow, a non-GAAP measure, was negative $3.8 million. Cash and cash equivalents were $79.9 million as of July 31, 2022. The $100 million credit facility was fully drawn and matures in April 2025.

Guidance points to a slower second half. For the third quarter of fiscal 2023, management guided revenue to a range of $76.0 million to $77.0 million and non-GAAP net loss per share to between $0.23 and $0.27, on 34.4 million weighted-average shares. For the full fiscal year 2023, revenue guidance is a range of $305.0 million to $310.0 million, with non-GAAP net loss per share between $0.88 and $0.96 on 34.1 million weighted-average shares. The company said it expects its revenue growth rate to decline during the second half of fiscal 2023 and likely into the first half of fiscal 2024. It has not reconciled the non-GAAP guidance to the comparable GAAP measures.

Much of the near-term pressure is internal. Higher turnover among sales representatives has cut sales capacity, and newly hired representatives take roughly six to nine months to reach full selling capacity. Domo is realigning its sales force toward the corporate market and running a cost reduction plan across all functions, which it expects to improve margins, sustain positive cash flow and support efficient long-term growth. Sales and marketing expense rose 34% in the quarter and research and development expense rose 31%, both driven largely by employee-related costs, so the cost plan has ground to make up. Enterprise customers accounted for 50% of revenue in the quarter, down from 54% a year earlier. The gross retention rate was 89% for the twelve months ended July 31, 2022, compared with 90% for the twelve months ended July 31, 2021, and the customer count increased 16% to over 2,400.

Macroeconomic conditions add external risk. Management flagged historically elevated inflation and the possibility that customers seek concessions such as lengthened payment terms or reduced contract length. A majority of annual recurring revenue is up for renewal during the fiscal year ending January 31, 2023. The company also carries an accumulated deficit, expects to incur losses for the foreseeable future and may not achieve or sustain profitability.