Domo Inc

NASDAQ:DOMO

Earnings Call Analysis

Company Shows Improved Margins and Cash Flow Targets

The company's Q3 results were bolstered by better-than-expected renewal discussions, with record non-GAAP operating margins hitting 6.3%, a 5.4 percentage point increase from the previous year, and a nearly breakeven net loss. Looking ahead, they are striving for positive free cash flow in FY '25 and have already cut headcount-related expenses by 7%, targeting optimized costs. Q4 billing guidance is set at $102 to $103 million, with GAAP revenues expected to be $79 to $80 million. Full-year GAAP revenue is forecasted at approximately 3% growth, equating to $317.8 to $318.8 million.

Company Exceeds Guidance and Hits Record Margins

In a remarkable performance, the company surpassed its own financial expectations across key metrics such as revenue, subscription revenue, and billings. Notably, this quarter saw the highest operating income and margin in the company's history at $5 million and 6% respectively. This success can be attributed to strategic moves made years ago, which are now bearing fruit. For example, customer response to the consumption-based pricing model has been overwhelmingly positive, with over 20% of the Annual Recurring Revenue (ARR) now on this model, and user counts growing at nearly triple the rate of those on seat-based contracts.

Consumption Model Drives Strong Customer Adoption and Revenue Growth

Looking forward, the company anticipates that the majority of its revenue will transition to the consumption model by the end of next year. With over 400 customers representing 15% of the customer base currently on consumption contracts, the company is seeing robust adoption rates, especially for premium features like data science. The company tells a compelling success story of a fast-food chain that grew its ARR from $200,000 to over $550,000 by converting to the consumption model and committing to expand the use of the company's platform.

Freemium Model Unlocks New Potential and Speeds Up Customer Acquisition

The company has initiated a new freemium model, granting risk-free access to its full suite of features with unlimited users, essentially allowing potential customers to realize the value of the platform before making any financial commitments. This model has not only accelerated the sales cycle but also changed the dynamic with partners, enabling them to leverage the company's ecosystem more effectively. A remarkable example of this was a three-day sales cycle that turned into a six-figure contract due to the new freemium offering.

Strong Customer Retention and Positive Feedback on AI Integration

The company has maintained a gross retention above 85%, with net retention around 95%. Renewal discussions with customers have yielded better-than-expected outcomes, with several large accounts retained. On the technology front, the company is making strides in AI, facilitating customer engagement without the need for large upfront investments—this approach is expected to further drive consumption.

Financial Prudence to Support Future Positive Cash Flow and Profitability

The company showcased prudent financial management through a net loss close to breakeven at $24,000, improvement in subscription gross margin to 84.8%, and a non-GAAP operating margin of 6.3%. Headcount reductions and optimization of other expenses were executed to align with future goals of positive operating cash flow in FY '24 and free cash flow in FY '25. The company is guiding Q4 billings to be between $102 million to $103 million with expected GAAP revenue in the range of $79 million to $80 million. For the full fiscal year '24, expected billings are $317.7 million to $318.7 million, equating to a revenue growth of approximately 3% year-over-year.

Strategic Refinancing to Extend Debt Maturity and Support Growth

In a strategic financial move, the company is working with an investment bank to refinance its outstanding debt and has garnered significant interest from potential lenders. This move, along with the positive developments around its pricing models and technology offering, puts the company in a favorable position for long-term profitable growth.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, everyone, and welcome to the Domo Third Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] Today's call is being recorded. I would like to turn the call to Peter Lowry, Vice President, Investor Relations. Please go ahead, sir.

[Peter Lowry, executive]

Good afternoon, and welcome. On the call today, we have Josh James, our Founder and CEO; and David Jolley, our Chief Financial Officer. I'll lead off with our safe harbor statement and then onto the call.

Our press release was issued after the market close and is posted on the Investor Relations section of our website, where this call is also being webcast. Statements made on this call include forward-looking statements related to our business under federal securities laws. These statements are subject to a variety of risks, uncertainties and assumptions. These include, but are not limited to, statements about future and prospects or financial projections and cash position. statements regarding the potential of our consumption-based pricing. Statements about our sales team and technology, our expectations for new business opportunities, transactions and initiatives. Statements regarding our channel communications and upcoming events, statements regarding the potential of artificial intelligence and its impact on our business and statements regarding the impact of macroeconomic and other conditions on our business.

For a discussion of these risks and uncertainties, please refer to documents we file with the SEC. In particular, today's press release, our most recently filed annual report on Form 10-K and our most recently filed quarterly report on Form 10-Q. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements.

In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results of operations on a non-GAAP basis. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Please refer to the tables in our earnings press release for a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measure, which we have posted in the Investor Relations section of our website at domoinvestors.com. With that, I'll turn it over to Josh. Josh?

[Joshua James, executive]

Thank you, Pete, and thank you, everyone, for joining the call today. In Q3, we were able to exceed guidance for our key top line metrics, including revenue, subscription revenue and billings. A highlight in the quarter is that we had our highest operating income in history of $5 million. and our highest operating margin in history of 6%. Over the past few years and especially the last few quarters, we have been incubating critical pivots that are finally coming together. They are clear and powerful priorities that are removing friction and strengthening our ability to deliver unmatched value to the market.

Specifically, several years ago, we decided to test an idea. What would customers do if they had unlimited access to features for an unlimited number of users and all visualization for free? It was a simple value prop to customers, pay for the value you are realizing. Well, after positive feedback, we decided to run an even broader pilot last year, and the pilot proved to be a smash hit. We now feel like we've reached critical mass with over 20% of our ARR on the consumption model. As we continue to look at the results from this very large sample size, we feel very confident in making the decision and saying we're going all in on consumption.

By the end of next year, we expect to have the vast majority of our revenue on the consumption model. Again, we now have over 400 customers on consumption contracts. representing over 15% of our customer base and over 20% of our ARR. When customers move to consumption, we are seeing user counts growing at almost 3x the speed of seat-based customers. and we are seeing 3x the adoption rate on premium features like data science. We've also rolled out reporting so our customers can see in real time what their consumption patterns are. So far, even with the highest usage our customers are seeing, the feedback has been incredibly positive because customers recognize the value of that usage.

As an example, it took us 8 years at a fast food chain to get an ARR of about $200,000. Now that they've converted to consumption, this company has committed to an ARR of over $550,000 over the next 3 years by expanding the use of Domo across the organization. One fun story to relate that has happened to be on multiple occasions over the last few months is watching how our customers react to the new model. I've seen the epiphanies go off in their eyes as they recognize and then look at people internally in the room and tell them conclusively that because they now have unlimited users, they can start looking at sunsetting all of their other BI technologies and legacy reporting tools and use Domo instead.

Well, I couldn't have said it better myself. In support of our consumption strategy and to pay the completely open path to adoption, we've also launched a new freemium model. Freemium was impossible for a consumption model and gives everyone a risk-free opportunity to get in and try Domo with no obligations and no restrictions. Domo customers have access to all the Domo features with unlimited users, and they can tackle any use case they want. And when they want to go bigger, they can click from within Domo to buy consumption credits and have an unlimited highway to multiply their impact on their business.

This approach seamlessly aligns with our core philosophy of delivering value before requiring payment, reinforcing our commitment to providing accessible and valuable solutions to our users. We've rolled out our free offering last month, and we'll be rapidly iterating on it over the next quarter to focus on user experience and easy onboarding. We think that long term, this alters our ability to attract new customers and give them a friction-free path to move through the pipeline from free to paid usage to sharing with more users to a broad use case adoption.

Of course, this naturally leads to expanding credits and being ready for a long-term relationship with our sales and support organization. This new flow evolves us from having to work with cold leads to being able to talk with happy customers who already see the value of the platform and are ready to lean in more.

To demonstrate the power of having a freemium model, let me share a story from 2 weeks ago. Our sales team had been calling a CTO prospect for over a year with no luck. One of our salespeople called the CTO on a Friday afternoon and left a message about freemium and the free credits it comes with. The CTO proceeded to sign up for a free instance and over the weekend, multiple users connected to disparate data sources and built data flows powering over 40 reports. By Monday, the CTO was in love with the product and signed up for a 3-year deal with a total contract value well into the 6 figures. And that was a 3-day sales cycle.

Our freemium product also completely changes the conversation with potential partners who have wanted to leverage our Domo Everywhere product to deliver data experiences through Domo for their own customers. In the past, if we had a customer with, say, 20,000 external end users, it would have required a major upfront investment, which often led our customers to reduce the use case to maybe just the top 5% of external customers. With freemium, however, we can give all 20,000 of those users a free instance of Domo immediately at no cost. This creates a very meaningful introduction to Domo for those end users with an obvious upgrade experience because they can experience the value and immediately expand and put more of their own data in our platform.

In the consumption world, focusing on adoption through product-led growth and support programs is the critical path to success for both customers and for Domo. Increased adoption leads to happier and more successful customers, and the corollary is, of course, increased revenue. As we roll out features and training that support adoption, we have seen our customers rapidly expand their usage of our platform compared to when they were under seat-based pricing.

For example, One of our largest customers had been a customer for 6 years. In those first 6 years, they had grown to 3,500 active users and 17 departments. Then they converted to our consumption model. The growth was rapid. In just 1 additional year, they added 2,300 more active users and more than doubled the number of departments and use cases. This has dramatically increased the return for the customer and, of course, has strengthened our relationship in the account.

In support of our shift to the consumption model, focusing on our customer's adoption of our platform brings complete alignment between us and our customers around multiplying value. It's all about opening up unlimited use cases to address a completely expanding list of customer needs and it helps us learn more about what drives customer success. For example, which product features and functionality in our products really drive expanded usage. One of our support behaviors drive additional adoption of our products. It shifts the dynamic from trying to sell the customer more products to helping them find more ways to receive value. Now the progress we've made with our consumption model and with our launch of freemium has dramatically altered our ability to be successful within the ecosystem and our partners. Only recently, we've changed our architecture to allow Domo to drive consumption for partners like Snowflake, AWS and Microsoft. Before now, we've had conflict in the channel where we sometimes drove consumption or compute away from our vendors.

With the architectural changes, we now allow customers to choose to keep the data and the associated clearing and processing of data with our partners. It was a substantial investment on our part, but we are very excited that this has all been reconciled. Because of these changes, we'll be making some announcements soon describing partnerships where customers are able to retire spend by purchasing Domo through various app stores and marketplaces from major tech players.

As it relates to AI, this is another area where consumption allows our customers to get in and start seeing the value of AI in their business without an upfront commitment or investment. As mentioned earlier, we've seen dramatically higher uptake in our data science offerings among our consumption customers compared to our seat-based customers, and we expect to see similar levels of adoption as we continue to expand our AI service layer and other AI offerings.

The consumption model will expose many more customers to AI because they don't have to sign a contract before they start using it. This, in turn, of course, drives consumption. We have several AI-related product launches lined up for the coming months that will help our customers build reports and interact with their data in a ChatGPT like fashion.

Now to illustrate the impact of this new model that has already penetrated over 20% of our ARR, please let me share some real-life examples from some of our customers. So first, a significant new logo win with a Canadian retailer that was using competing BI solutions was having issues with siloed data and with connecting to data in disparate systems. The company chose Domo for our consumption model, which may be easy for them to sunset legacy seat-based tools where they weren't sure they were getting the value that they needed.

We are starting to see more and more of these cases and it's certainly good to be the consolidator. A health care software company was using our Domo Everywhere solution to provide data to their medical customers. The company was adding new Domo Everywhere customers at a faster rate than expected, and it was challenging under a seat-based model where they had to commit to their investment before receiving the value. Since transferring over to consumption now, our customer has tripled their contract size with us. And yes, that math works.

An educational software company was debating which vendor to use for their ETO needs. They entered into an upsell contract Domo, not only because of our ETO features, but because our consumption contract structure allowed them to predict their cost with a high level of confidence. Additionally, the company had been considering using Domo Everywhere to provide embedded analytics to thousands of their end users.

Moving to a consumption model, opened the door for them to test out our Domo Everywhere experience in a very cost-effective manner. And then because of the value they're seeing in the Domo platform, this customer has committed to dramatically alter the scale of their investment and agreed to a 2-year 6-figure ARR contract in Q3 with a significant upsell built into the second year.

Is consumption driving adoption? It certainly looks like it.

Another example is a financial services company that purchased Domo to consolidate data from multiple loan origination systems. The consumption model was key to their decision to go with Domo because it unlocked our data science and sandbox features, which were critical to their use case and would have been outside their budget under our seat-based model. Does access to all of Domo help customers unlock the value of the entire platform and become more committed to the entirety of our platform? I think so.

A digital customer engagement platform company has been a Domo customer for a decade. The initial use case was for sales and marketing analytics. However, about a year ago, the company was considering a cancellation because they felt like they were paying too much per seat for about 350 users. What saved the account was a move to consumption with unlimited users. Using our product, they created an app and because they have unlimited users, they were able to deploy the app company-wide and now have over 1,000 users on Domo's platform. Not only did we save an account that was going to cancel several months after they can -- several months after they converted to consumption, they actually committed to an increased level of consumption and upped their spend with us. Now would we have been able to save this customer without consumption? No. And now we have an upsell.

Looking outside of Q3, here's a few more examples of how consumption is changing the game for us. A health care analytics company, which is using several of our larger competitors, is looking to replace some business objects and other legacy providers. Consumption is allowing the company to replace the other vendors and expand Domo without the friction of a new contract discussion. Can Domo benefit from vendor consolidation? Yes, we can. Another small highlight is a digital asset company that was about to cancel because they thought we were too expensive for the number of users that had in the account on seat-based pricing. They moved to a consumption contract with unlimited users. Additionally, they agreed to triple their contract size. And then just last week, agreed to triple it again. So they are now close to 10x their original size as opposed to just recently being on the brink of canceling. Do I wish that all my customers were on consumption contracts? Yes, I do.

Lastly, an insurance company that was paying us $200,000 a year, moved to consumption because our seat-based model didn't allow them to expand as rapidly as they wanted to. With the initial move to consumption, they increased their contract with us by over $100,000. 15 months later, after they've been able to fully realize the value Domo can provide due to having unlimited users and functionality, they added another $200,000 annually to their contract to replace their spend with Cognos.

So in totality, I think these are some great examples of multiple customers that highlight the progress we are making as a company. Now while we are marching toward improving the prospects of the company, we are also optimizing our costs so we can operate as efficiently as possible.

To that end, we've made changes that impact approximately 7% of our workforce as well as reductions in contractors, marketing programs and other expenses. We are cognizant of the effect this has on people and would like to take a moment to express our gratitude to everyone for their contributions.

Now as we look to the future, I'm sure you can feel my energy around these pivots we're making and the signals we're seeing from customers and partners that resoundingly has convinced us that they are the right moves. Even when we were growing 30% quarter -- year-over-year, I wasn't this optimistic about our future and our stability as I am now. We're quickly migrating to the consumption model. In Q4, we'll have the vast majority of our new logo customers on consumption, and we will continue to encourage our existing customers to switch to consumption resulting in the vast majority of our ARR transition to the consumption model within the next year.

Freemium, our adoption programs, and our AI investments will continue to bolster our efforts in moving to consumption, where customers are able to experience value and see the vision of what Domo can mean to their company before having to pay and commit to everything. All of these changes will also lead to a dramatic shift in our approach and success with partners and the broader ecosystem over the next 12 months, which should meaningfully impact our ability to generate leads efficiently.

Domo is becoming a much more interesting company with prospects that excite our broader team. And with that, I'll now turn it over to David.

[David Jolley, executive]

Thanks, Josh. I love those examples. Like you, I'm excited about our key areas of focus and believe we are really well positioned to execute on the opportunities in front of us. Now while we aspire to higher growth rates that we're currently experiencing, I'm pleased that we were able to exceed the billings guidance that we provided at the beginning of the quarter, we delivered Q3 billings of $74.8 million, a year-over-year increase of 1%. Total revenue was $79.7 million, also a year-over-year increase of 1%. Subscription revenue represented 89% of our total revenue and growth.

[Technical Difficulty]

[Operator]

One moment, everyone, while we reconnect the speaker line. Please stand by and do not disconnect. Once again everyone please standby.

[David Jolley, executive]

All right. Very good. Sorry for the short delay. But thanks, Josh. I appreciate that. I appreciate those great examples. Like you, I'm excited about our key areas of focus and believe we're well positioned to execute on the opportunities in front of us. Now while we aspire to higher growth rates than we're currently experiencing, I'm pleased that we were able to exceed the billings guidance that we provided at the beginning of the quarter. We delivered Q3 billings of $74.8 million, a year-over-year increase of 1%. Total revenue was $79.7 million, also a year-over-year increase of 1%. Subscription revenue represented 89% of our total revenue and grew 3% year-over-year and our ARR grew roughly in line with subscription revenue growth.

In reviewing the metrics that will impact the remainder of the year, our current RPO was $230.8 million, consistent with last year, and our total RPO grew 4% to $367.2 million as of October 31. On a dollar-weighted measure, we continue to have approximately 2/3 of our customers under multiyear contracts. Our gross retention was above 85% net retention was about 95%.

Last quarter, we identified potential renewal challenges with several large customers. And while we and some of our customers continue to face challenging IT spending environment. In Q3, these renewal discussions played out somewhat better than expected, which did help our results. In regards to the large renewal risk that we had identified last quarter, we have saved a few of them and have not identified any beyond those that we had identified in last quarter -- for the fourth quarter.

Moving on to margins and profitability. Our subscription gross margin was 84.8%, up 0.2 percentage points from Q3 of last year. And non-GAAP operating margin was a record high 6.3%, up 5.4 percentage points from a year ago. Our net loss was very close to breakeven at $24,000, which is our best result to date and a big improvement from a net loss of $4.4 million a year ago. Net loss per share was 0 based on 36.3 million weighted average shares outstanding, basic and diluted.

In Q3, cash used in operations was approximately $4.3 million. We capitalized approximately $2 million of software costs, resulting in a decline of our cash balance of $6.5 million from last quarter to $57.4 million. Cash flow from operations in Q3 was negatively impacted by the timing of collections on some receivables However, we're still on track to generate positive operating cash flow for FY '24 and therefore, expect our Q4 cash flow from operations to be in the range of $3 million to $4 million.

Looking forward to next year, we're committed to not only being operating cash flow positive, but we are targeting free cash flow positive for FY '25. I in order to bring our cost structure in alignment with this target, we recently reduced our headcount-related expense by approximately 7% and also optimize a handful of other costs.

For Q4 top line metrics, we are guiding to a billing range of $102 million to $103 million. and expect GAAP revenue to be in the range of $79 million to $80 million. For the full year of fiscal '24, we expect billings to be in the range of $317.7 million to $318.7 million. And we expect GAAP revenue to be in the range of $317.8 million to $318.8 million, representing year-over-year growth of approximately 3%.

We expect non-GAAP net loss per share, basic and diluted of $0.05 to $0.09 for Q4. This assumes a 36.8 million weighted average shares outstanding, basic and diluted. For the full year, we expect non-GAAP net loss per share, basic and diluted of $0.24 to $0.28. This assumes 36.1 million weighted average shares outstanding, basic and diluted.

Additionally of note is the fact that we've engaged an investment bank to assist us with refinancing and extending the maturity of our outstanding debt. And at this point in the process, we have a significant level of interest from potential lenders.

In conclusion, we posted better-than-expected top line results with record profitability and believe we are making the right moves to drive long-term profitable growth. With that, we'll open the call for questions. Operator?

[Operator]

[Operator Instructions] We'll take our first question from Eric Martinuzzi with Lake Street Capital Markets.

[Eric Martinuzzi, analyst]

Yes. Congrats on the good numbers for the quarter. And I appreciate the examples regarding the capacity-based pricing impacts.

I wanted to understand a little bit more on the risk of nonrenewals, I think last quarter, you talked about 4 or 5 enterprise accounts. that were in danger and that was part of the reset to the outlook for FY '24. Can you give us a little better color? Have we reached resolution on those 4 or 5 at-risk enterprise accounts?

[Joshua James, executive]

Yes. We've reached resolution. Good news, we were actually able to keep a couple of them just with down sales, but we still kept them as customers. So that was a little bit of a bright spot when it came to the bad news.

And this quarter, we've given the guidance, we're obviously not -- we're not on a [ toward ] pace here, but we, at the same time, feel pretty good about looking out over the next 3, 4 quarters in terms of the pacing of where customers are that are at risk, it feels like we hit the bottom of that, and we're recovering from that.

And like we mentioned, many of the examples with the consumption pricing, we actually end up on the consolidation -- being the consolidator side of the equation versus having just being impacted by others. So the move to consumption definitely changed the relationship with a lot of our customers and has helped us save a bunch of accounts and we think, especially as that plays out over the future.

Like we talked about, there's so many upsells that we're getting from these accounts. If you look at the cohort of customers that have been through renewal we haven't lost any customers that have signed up to consumption. And it's a smaller sample size 30 to 40. But as that number gets bigger, we'll keep watching that, but it certainly is extremely encouraging and looking at the 20% of our business that's purely consumption and knowing that we can get that number to a vast majority just over the next 12 months.

[Eric Martinuzzi, analyst]

Okay. The other comment that you made last quarter was regarding the pipeline. And you characterized the pipeline back then is soft in all stages. I'm wondering if you could update that view on the pipeline.

[Joshua James, executive]

Yes. It feels -- as we look at the numbers, it seems like we've started to turn. There's 7, 8, 9 numbers that all feel like they've barely started to turn, but it's barely, but all of that checks, it looks like things are -- hit the bottom last quarter and -- and just are starting to slightly improve. So hopefully, that's how things play out.

But we're feeling like we have our arms wrapped around the situation much better, and we feel like we're in a much better position in terms of the relationship that we have with our customers and our ability to sell consumption and our ability to get our customers over to consumption, training up the reps, training up the client services folks, focusing on adoption and helping people to find these additional use cases.

So we feel like we're much better positioned and feel like we've got much better visibility into the customers and the contracts at this stage.

[Eric Martinuzzi, analyst]

I understand. Good luck in Q4.

[Operator]

[Operator Instructions] We'll take our next question from Oliver Crookenden with JMP Securities.

[Patrick Walravens, analyst]

Actually, it's Pat, but Pat Walravens at JMP Securities. So Josh, I do love the shift to consumption. And we've seen a lot of other people do it. But I was wondering if you could balance it out a little bit. I mean there are some negatives to the consumption model, too, right? So what do you give up when you make this shift?

[Joshua James, executive]

Yes. We -- I think if you went around the room and [e-staffed] and try to figure out what the negatives are, I don't -- we're not seeing any negatives. The 1 difference in the model is you're not going to sign up any 7-figure new logo deals, right?

When you go start to use AWS, you don't walk in and be like, give me a couple of million bucks worth. You try it out and you start spending and if you like it, you get -- you decide that you want to commit to get lower rates, and we're seeing that same thing. So brand-new 7-figure billings walking in the door, we're not going to have as many of those, they'll happen, but they'll happen as those customers grow.

So we're seeing those relationships. We have some really big customers that are signing up right now that on the old seat model, we'd be signing up for $3 million, $4 million but -- annually, but in the consumption model, you sign them up for $400,000 and then another $500,000 and then you get to a couple of million bucks and you still get to the same spot, you get them more efficiently, more effectively. There's not as many -- not as much hemming and hawing. You're not going through as many use cases and approvals internally. But at the same time, you also don't have the big billings hits until they've had time to bake. So we'll have to wait for some of those things to bake a little bit.

[Patrick Walravens, analyst]

Okay. Great.

[David Jolley, executive]

I think another -- just another comment was that I think early on, there was a concern, well, geez, if we've given the whole platform is you're going to be able to sell them later on. And -- and there was some concern about that. But the way that's working is when we provide the whole platform and open up all the seats, it's then just about helping the customer identify how to solve more of their data issues and more use cases. And as they do that, that's the upsell and it happens very naturally.

[Patrick Walravens, analyst]

Okay. So there's not a near-term hit on cash flow, like you don't get less cash upfront when you go to a consumption model. I mean, maybe not.

[David Jolley, executive]

No. Still AIA. Yes, subscription AIA.

[Patrick Walravens, analyst]

And then my second question is actually if you could go a little deeper -- actually may just tell you my other question, I'll put them out front. So for Josh, if you could go a little deeper on the architectural change and help us understand the history of that, what was it before and what is it now? And how does it work?

And then maybe if you guys could address the debt in a little more detail, just sort of what's the current rate when the current -- when's the maturity and what your options look like? Both of those things would be really helpful.

[Joshua James, executive]

Yes. So the problem before when we were starting to get excited about the ecosystem and we were building relationships with some folks, especially the big data providers, we walk into accounts with reps and then their customer that they introduced us to might start pulling some compute out of our partner and putting it into Domo.

And of course, that's the end of those relationships, right? You're taking dollars out of the pockets of the reps of the partners. And so that was DOA as soon as that started. And so what we've done now is we said, okay, we can take that compute component where the data lives and how it gets queried and processed, and we can run that inside Snowflake or inside AWS or inside Microsoft.

So any partner that brings us in, we can keep all the computing charges and credits that are being used up actually with the partner. And so that changes the dynamic pretty meaningfully because now we have a complete alignment except for instead of 40 users that you may have that even a big Fortune 500 company, you go from 40 users or 100 users to 5,000, 10,000 when you add the Domo front end on top of that. And that's 5,000 to 10,000 people that are now querying and running reports that are all driving compute on the back end of a snowflake or a [ Databricks ] or a Microsoft or AWS or Google.

So we feel like we're in a much, much better position. And that, coupled with freemium, there's been plenty of conversations where we're talking to a partner and someone that maybe we have 300 customers that have connected to their data. So we know it's popular inside our network. And we know that we provide a lot of visibility into the data that's inside that partner's analytics.

And the partner will come to us and say, gosh, it'd be great if we could give this to the other 10,000 customers that we have. And then we say, "Yes, great, you should do that. It's let's see, $840,000." And the partner is like, what, Well, we don't know the value is yes, right? Yes, but we'll give you upside if they converted to the Domo customers. like, yes, that seems like a good idea on paper, but I don't know if we can lean in and make the commitment, make the investment without seeing a return. So maybe we should just try it out with a couple of customers. And by then, you've lost momentum.

Whereas now we can grow in that same customer, that same conversation, we say, yes, we can't get it to all 10,000, let's do it on freemium, let's build some quick start guide so that the second you roll this out, the customer is able to log in to Domo, see all of the data from you as a partner, we'll build out the dashboards, we'll build out the alerts. They're going to get this great white glove perfect experience replicated 10,000x automatically. And in there, they can see, hey, this is your Domo experience for this data from your partner, if you want it for everything else, here's your freemium account just keep going.

And then we tell the partner any upside we're going to give you guys a piece of it. So all of a sudden, providing data to their customers becomes not a cost center, becomes a profit center. And we've seen a bunch of traction in just even the last month for that. So we're really excited about our ability to provide Domo Everywhere through our freemium offering.

[Patrick Walravens, analyst]

Great. And then Dave, on the debt.

[David Jolley, executive]

Yes. So our current debt, as you might recall, we raised that debt even prior to our IPO when we were still using a lot -- consuming a lot of cash. And so it's very expensive debt. It carries a cash interest component and a PIK interest component, some other payments that pushed the effective interest rate north of 14% is where we're at today.

And -- and it's got a maturity of April '25. And so we've gone out with the refinancing and got a bank helping us. And we're looking at cash interest component of a little over 11% right now based on where SOFR is at. we're hearing some good things about where rates might go next year, but it will bring our rate down substantially and push our maturity date out to '29 or '30. So it sort of puts it out well out into the future, and it eliminates some of the other PIK interest and some of the other elements.

[Patrick Walravens, analyst]

All right. Terrific.

[Operator]

[Technical Difficulty ]

[Joshua James, executive]

All right. It sounds like Pat said, thanks, we heard, and we're -- there was another question. Is the question still on?

[Operator]

Yes. One moment, we'll take our next question from Derrick Wood with T.D. Cowen.

[Unknown Analyst]

This is Cole on for Derek. On the risk that you talked about, we'd just like to give a little more color. Is that across sales, G&A? If you can just unpack that a bit, that would be helpful.

[David Jolley, executive]

Yes. We -- it was across every department. There was -- the majority of it was in sales. We're in terms of growth not where we want to be. And so for the most part, it was based on performance. Some of it was just positions that were eliminated as we found more optimized way of accomplishing certain things. It wasn't a huge number, but we're still -- still several dozen humans that were affected.

So a little bit of a rough day here at the office, but at the same time, we feel like the company is in a better position and it's not a dramatic effect on our ability to produce. We think in many cases, actually taking a smaller number of leads distribute -- I mean taking the same number of leads distributed to a smaller number of reps will actually be an improvement for the reps that are here to make sure that they're being fed.

So overall, I don't think it's going to be too impactful to our company. It just obviously impacts the folks that were affected by it.

[Unknown Analyst]

Sounds good, helpful. Just building on that too for the reps that you still have at Domo, how is productivity trending? Any new initiatives around helping them sell consumption better, would be helpful to hear about.

[Joshua James, executive]

Yes. We have all kinds of initiatives around helping them to consumption. We had a Board meeting just recently and walked through our consumption deck and showed the Board members all the positive things that are happening and all the negative things that we might be able to find as well. And the resounding answer was from the Board was move as fast as you possibly can. We don't see anything that would cause us concern about you moving as fast as you possibly can.

So to that end, doing as many things as we can to drive the transition to consumption, things like we've built out a brand-new adoption group that's focused on going into our -- especially our bigger customers and helping them, it's a great phone call. We call a customer and we're not asking for -- we're not asking for a new contract. we're not asking people get approval from procurement. We're just walking in and saying, "Hey, -- we'd love to come in and show you best uses for data science or we'd love to come in and talk to you about identifying opportunities inside your marketing spend, and they love those conversations.

All we're doing is walking in and helping them, but we're helping to identify additional use cases, which, of course, ends up driving consumption. So those are the types of things that we're doing with the customer.

And then we're reevaluating the different departments that we have and what each group does. So reps, their job on renewal. What is the job on renewal? Is the job to go and procure another contract? Or is the job to help identify some more use cases? And so just identifying those different ways that we can interact with our customers to help get them excited about adding additional users and adding additional use cases. It's really fun for the customer, and it's really fun for us. They end up happier, they end up spending more and those are the types of things that we can really do to address transitions to consumption.

There are some customers that are on seat-based licenses with us, and they don't have access to all the features, we have new features rolling in all the time and if you want to use those features, then you need to be on consumption. And so as we go out and market the different product offerings that we have and the new product offerings that we have those all lead to additional consumption conversations.

So we're definitely laser focused on that. We've seen this 20% cohort of consumption that's in our business today, and it looks better than every other 20% cohort that you could find. So we're going to do anything and everything we can to get the entire business moved over to that because just everyone ends up happier on the consumption model.

[Operator]

We'll take our next question from Sanjit Singh with Morgan Stanley.

[Sanjit Singh, analyst]

Sorry, I've been toggling between multiple calls. So if I'm repeating a question. I apologize upfront. But David, just given the -- sort of the refinancing of the debt and sort of the higher rate environment and given the sort of actions you guys are doing today on cost, to what extent could debt paydown be part of like the capital allocation strategy given that the budget environment is still pretty constrained right now? How do you look at debt pay down as potential lever for increasing sort of the equity value?

[David Jolley, executive]

Yes. I mean the good thing is even sort of as is with a very modest growth expectation for next year. I think we're free cash flow positive, which puts us in a great position. So if we're able to accomplish some of the things that Josh talked about and accelerating our shift to consumption. And if we get any sort of help from the -- from the macro environment, then we're into producing some meaningful cash flow that then could be used to potentially retire some debt.

As you know, there's usually some penalties when you pay it down in the first year. So we'll look at that. But I think it will be probably -- we'll be a lot better positioned as we move into some of the succeeding years to start reducing that well in advance of a maturity, certainly.

[Sanjit Singh, analyst]

Great. Appreciate that thought. And then, Josh, on -- I was just kind of coming out of the AWS conference, and when I hear about people's data strategies, 1 of the bigger themes is sort of English being the new programing language and English being the New SQL.

And I just want to get a sense of how you guys are sort of abstracting away kind of traditional BI type user interfaces to more of that generative AI modality where -- where users are just sort of using natural language English to get the insights that they need from Domo?

[Joshua James, executive]

Yes. I mean it's terribly exciting because one of the most challenging things in business intelligence or in leveraging the data that you have in your company is just getting access to it. And the big part of getting access to it is connecting to it, all of the ETL that needs to go into it.

And you're right, that's where these antiquated languages used to be a big part of it. And going forward, it is about English. And we have a bunch of stuff that we've already incorporated into our products, a bunch of AI that we've incorporated into our product and a bunch of generative AI that we're going to be incorporating over the next few months. into exploring the data, into building cards and to sharing data, having a data set and having AI suggest to you what you should look at, what format it should look like, being able to pick and choose from things that suggest to you fully formed reports, And so it's going to dramatically alter the landscape. It's going to dramatically alter the interactions and the benefits that the customers get. So we're really excited about that. We feel like we're extremely well positioned.

When you look at the data that powers AI, if -- it all depends on how organized that data is. And if your data is organized like a bunch of trash, then that's exactly what you're going to get back. And when you use Domo, you actually not only organize your data, but you have a bunch of meta data about that data. And that's what helps AI really come up with great conclusions when it actually has an indication of what type of data is sitting there because in the data world, it could be anything. It could be unstructured messy data and it might be data that's coming from another data warehouse, you actually don't know the root source of it.

And so you need to be able to have the meta data around that and have data organized in a way and that's one of the things that we really do with our customers to help them organize that so that they can take advantage of all the different technologies and innovations that are rapidly coming out from AI.

So we feel like we're extremely well positioned for that. And that's another big part of why we want to be in the middle of consumption because, again, if you're using consumption, anything that is in our product, you can try out. It's going to cost you a buck to try it out. It's not a $50,000 commitment, and you got to buy a couple of seats, it's just go and click on it, see what does see if it produces something that's effective.

And then if it does, of course, you're going to start using it more. And because you already know it's effective, even though you're using it more and you're getting a bill for it, you don't care because you already approved the value.

So that's just another reason why consumption is such an important part of this where we see 2x, 3x usage of the additional features and functionality we have in our product when it's a consumption customer because they're able to try it out and prove that it works.

So we're really excited about AI and the way it's going to impact our business, broadly speaking, and feel like we're really well positioned to take advantage of that.

[Operator]

And that does conclude today's presentation. Thank you for your participation today, and you may now disconnect.