10-Q: Domo Reports Q2 FY26 Results: Operational Efficiency Improves Amidst Modest Revenue Growth

Domo, Inc. reported a 2% increase in total revenue for the three months ended July 31, 2025, alongside improved operating loss and positive cash flow from operations for the six-month period.

Summary

• Total revenue for the three months ended July 31, 2025, increased by 2% to $79.7 million, up from $78.4 million in the prior year period.
• Subscription revenue grew by 3% to $72.7 million for the three months ended July 31, 2025, compared to $70.9 million in the same period last year.
• Professional services and other revenue decreased by 7% to $7.0 million for the three months ended July 31, 2025, from $7.5 million in the prior year.
• Operating loss significantly improved, decreasing to $7.3 million for the three months ended July 31, 2025, from $14.5 million in the prior year period.
• Net loss for the three months ended July 31, 2025, was $22.9 million, compared to $19.5 million in the prior year, primarily due to a $10.3 million increase in the remeasurement of warrant liability.
• For the six months ended July 31, 2025, net cash provided by operating activities was $7.3 million, a significant improvement from net cash used in operating activities of $4.3 million in the prior year period.
• Total remaining performance obligations (RPO) increased to $430.9 million as of July 31, 2025, up from $358.9 million as of July 31, 2024.
• The trailing twelve-month gross retention rate improved slightly to 85% as of July 31, 2025, from 84% in the prior year.
• Sales and marketing expenses as a percentage of total revenue decreased to 44% for the three months ended July 31, 2025, from 47% in the prior year.
• Research and development expenses as a percentage of total revenue decreased to 24% for the three months ended July 31, 2025, from 28% in the prior year.
• As of July 31, 2025, 76% of annual recurring revenue (ARR) was utilizing the consumption-based service model, and 72% of customers were under multi-year contracts on a dollar-weighted basis.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company continues to report net losses and an increasing accumulated deficit, there are significant operational improvements. The operating loss has been cut in half, and cash flow from operations has turned positive for the six-month period, indicating better underlying business health and efficiency. Revenue growth is modest, but the improved gross retention and reduced operating expenses as a percentage of revenue are favorable. The increase in net loss for the quarter is primarily due to a non-cash warrant revaluation, which obscures the operational improvements.

Positives

• Operating loss for the three months ended July 31, 2025, improved significantly to $7.3 million from $14.5 million in the prior year, indicating enhanced operational efficiency.
• Net cash provided by operating activities for the six months ended July 31, 2025, turned positive at $7.3 million, compared to a cash outflow of $4.3 million in the prior year, demonstrating improved cash generation from core operations.
• Total remaining performance obligations (RPO) increased by $72.0 million to $430.9 million as of July 31, 2025, suggesting future revenue visibility.
• Gross retention rate improved slightly to 85% as of July 31, 2025, indicating better customer retention.
• Sales and marketing expenses as a percentage of revenue decreased from 47% to 44% for the three months ended July 31, 2025, reflecting improved sales efficiency.
• Research and development expenses as a percentage of revenue decreased from 28% to 24% for the three months ended July 31, 2025, showing better R&D cost management.
• The company's shift to a consumption-based pricing model is progressing, with 76% of ARR now under this model, which is expected to increase customer adoption and align pricing with value delivered.

Negatives

• Net loss for the three months ended July 31, 2025, worsened to $22.9 million from $19.5 million in the prior year, primarily due to a significant non-cash remeasurement of warrant liability.
• Accumulated deficit increased to $1,528.5 million as of July 31, 2025, from $1,487.5 million as of January 31, 2025, reflecting continued historical losses.
• Total customer count decreased slightly from July 31, 2024, to July 31, 2025, indicating challenges in new customer acquisition.
• Revenue growth remains modest at 2% for the quarter and 1% for the six-month period, suggesting a slower pace of expansion.
• Professional services and other revenue declined by 7% for the quarter, partially offsetting subscription revenue growth.
• Long-term debt increased to $121.9 million as of July 31, 2025, from $117.7 million as of January 31, 2025.
• The warrant liability significantly increased to $20.5 million as of July 31, 2025, from $11.2 million as of January 31, 2025, impacting net loss due to revaluation.

Risks

• A history of losses and uncertainty about achieving or maintaining future profitability.
• Challenges in effectively managing growth, including recruiting and training new employees, and expanding internationally.
• Limited ability to raise capital in the future, potentially hindering growth or forcing delays in product development.
• Adverse events or perceptions affecting the financial services industry could impact operating results and financial condition.
• Inability to attract new customers cost-effectively, leading to slower revenue growth.
• Customers not renewing contracts or reducing their use of the platform, causing revenue decline.
• Customers not expanding platform use or adopting additional use cases, affecting growth prospects.
• Intense competition in the market, potentially reducing demand and market share.
• Limitations on access to data (for Domo or its customers) could adversely affect business.
• Failure to effectively align and expand sales and marketing capabilities with the evolving pricing structure.
• Changes to management and board, creating uncertainties and potentially harming the business.
• Exposure to governmental laws, regulations, and legal obligations, particularly related to privacy, data protection, and cybersecurity, with potential for non-compliance penalties.
• Risks of network, application, or computer system breaches, unauthorized access to data, or other security incidents, leading to reputational damage and significant costs.
• Third-party claims of intellectual property infringement, potentially leading to costly litigation or expensive licenses.
• Dependence on the ability to protect and enforce intellectual property rights.
• The dual-class structure of common stock concentrates voting control with the CEO, limiting other stockholders' influence.
• Economic uncertainties or downturns could materially adversely affect business operations and customer spending.
• Future operating results and key metrics may fluctuate significantly due to various factors, making predictions difficult.
• Near-term changes in sales may not be immediately reflected in operating results due to ratable revenue recognition.
• Long, costly, and uncertain sales cycles for enterprise customers can lead to fluctuations in operating results.
• Increased international sales expose the company to potential currency exchange losses.
• Restrictive and financial covenants in the credit facility may limit operating flexibility.
• Potential for additional obligations to collect and remit sales tax and other taxes, and tax liability for past transactions.
• Changes in tax laws or regulations, including international tax reforms like Pillar One and Pillar Two, could increase costs or adversely impact financial performance.
• Limitations on the ability to use net operating losses (NOLs) to offset future taxable income.
• Incorrect or improper implementation or use of the platform could result in customer dissatisfaction and negative business impact.
• Use of open source software could lead to litigation or requirements to disclose proprietary code.
• Potential for future litigation, requiring significant management attention and legal expenses.
• Failure to attract, integrate, and retain additional qualified personnel, including top technical talent.
• Failure to offer high-quality professional services and support could harm business and reputation.
• Catastrophic events may disrupt business and impair platform availability.
• Challenges in international expansion, including regulatory compliance, cultural differences, and currency fluctuations.
• Future acquisitions could disrupt business, divert resources, and introduce new risks.
• Governmental export or import controls could limit ability to compete in foreign markets and subject to liability.
• Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could lead to penalties.
• Real or perceived errors, failures, or bugs in the platform could adversely affect operating results and growth.
• Interruptions or performance problems with technology and infrastructure may adversely affect business.
• Dependence on brand recognition and reputation, with potential for adverse impact from negative publicity or security incidents.
• Volatility in the market price of Class B common stock.
• Securities or industry analysts not publishing research reports or issuing adverse opinions.
• Future sales of Class B common stock in the public market, including pledged shares by the CEO, could cause stock price to fall.
• Anti-takeover provisions in charter documents and Delaware law could make an acquisition difficult.
• The designated exclusive forum for disputes could limit stockholders' ability to choose judicial forum.

Future Outlook

Management expects to incur losses for the foreseeable future but anticipates improved margins, sustained positive cash flow, and efficient growth in the long term through cost control and sales team alignment. Subscription gross margin is expected to remain stable in the near term and increase long term as the customer base shifts to consumption-based pricing. Professional services gross margin is expected to fluctuate. Interest expense is projected to increase modestly due to an increasing principal balance, and foreign currency gains and losses could become more pronounced due to market volatility. Income tax expense is expected to increase in the long term with higher taxable income from international subsidiaries. Customer retention is expected to increase over the long term through partner ecosystem expansion and strategic adoptions.

Management Comments

• We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.
• We have taken and intend to continue to take steps to better align our sales team and focus on controlling costs, which we expect will result in improved margins, sustained positive cash flow and efficient growth in the long term.
• We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months.
• As we continue to shift more of our customer base to consumption-based pricing, we expect subscription gross margin to remain relatively stable in the near term and increase in the long term.
• We expect sales and marketing expense as a percentage of revenue to increase in the near term and decrease in the long term.
• We expect research and development expense as a percentage of revenue to decrease in the long term.
• We expect general and administrative expense as a percentage of revenue to decrease in the long term.
• We expect interest expense to increase modestly in the near term due to an increasing principal balance.
• We expect foreign currency gains and losses could become more pronounced due to current market volatility.
• In the long term, we expect income tax expense to increase in conjunction with higher taxable income from our international subsidiaries.
• As we continue to expand our partner ecosystem and develop methods to encourage wider and more strategic adoptions, we expect that customer retention will increase over the long term.

Industry Context

Domo operates in the intensely competitive and rapidly evolving business intelligence and data analytics software market. The company is transitioning to a consumption-based pricing model, aligning with a broader industry trend towards flexible, usage-based cloud services. Macroeconomic conditions, including elongated software sales cycles and increased deal scrutiny, continue to impact the SaaS sector, leading Domo to focus on cost control and sales efficiency. The increasing adoption of AI and data products is a key industry driver, which Domo is addressing through investments in machine learning and predictive analytics. The regulatory landscape for data privacy and AI, such as the EU AI Act and DORA, is also shaping industry practices and compliance requirements.

Comparison to Industry Standards

• Domo's gross retention rate of 85% is a key metric for SaaS companies, indicating customer loyalty. While specific industry benchmarks vary by sub-sector and company maturity, a rate in the mid-80s is generally considered acceptable, though top-tier SaaS companies often aim for 90% or higher. The slight improvement from 84% to 85% is a positive sign in a challenging macroeconomic environment.
• The shift to a consumption-based pricing model, now accounting for 76% of ARR, aligns with trends seen in cloud infrastructure providers like Amazon Web Services (AWS) and Microsoft Azure, which offer flexible, usage-based billing. This model aims to better align pricing with value delivered and increase customer adoption, a strategy that has proven successful for many cloud-native companies.
• Domo's operating expense efficiency, with sales and marketing decreasing from 47% to 44% of revenue and R&D from 28% to 24% of revenue, suggests a focus on profitability and sustainable growth, a common objective for mature SaaS companies facing market pressures. This is a positive trend compared to earlier-stage growth companies that might prioritize market share over immediate efficiency.
• The company's continued net losses and accumulated deficit of $1.53 billion indicate it is still in a growth phase, similar to many high-growth technology companies that prioritize investment over short-term profitability. However, the positive cash flow from operations for the six-month period is a strong indicator of improving financial health, often a critical milestone for investors evaluating SaaS companies.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings from time to time arising in the normal course of business. Management believes the outcome of these proceedings will not have a material impact on the company's financial condition, results of operations, or liquidity.

Related Party Transactions

• Joshua G. James, the founder and chief executive officer, beneficially owns all outstanding shares of Class A common stock through Cocolalla, LLC, and as of July 31, 2025, controlled approximately 78% of the voting power of outstanding capital stock.
• Mr. James has pledged all beneficially owned Class A and Class B common stock shares to secure a loan with a financial institution. Default on this loan could lead to the sale of pledged shares, potentially affecting the stock price.

Stakeholder Impact

• **Shareholders:** Experience dilution risk from potential future equity offerings and the existing dual-class structure concentrates voting power with the CEO. The market price of Class B common stock may be volatile due to various factors, including potential sales of pledged shares by the CEO.
• **Employees:** Benefit from equity incentive plans (2018 Plan, ESPP) designed to attract and retain talent. However, volatility in stock price may affect the attractiveness of equity compensation.
• **Customers:** May experience improved platform functionality and support due to continued R&D investments and focus on customer retention. The shift to consumption-based pricing aims to better align value, but macroeconomic conditions could lead to reduced spending or non-renewals.
• **Creditors:** The company's credit facility is secured by substantially all assets and contains restrictive covenants. Compliance with these covenants is crucial for maintaining financial stability and avoiding default.

Next Steps

• Continue to invest in growth opportunities, product development, and sales and marketing.
• Further develop the partner ecosystem by establishing agreements with more software resellers, systems integrators, and other partners.
• Expand platform functionality, including investments in machine learning algorithms, predictive analytics, and other artificial intelligence technologies.
• Extend the functionality and effectiveness of the platform through improvements to the Domo Appstore and developer toolkits.
• Monitor legislative and regulatory developments related to international tax reform (Pillar Two) and artificial intelligence (EU AI Act, DORA, Utah AI Policy Act) to assess potential impacts and ensure compliance.
• Evaluate the impact of adopting new accounting pronouncements: ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Expense Disaggregation Disclosures), and ASU 2025-05 (Credit Losses for Accounts Receivable and Contract Assets).

Key Dates

Recommendation

The company shows improved operational efficiency, evidenced by a significantly reduced operating loss and positive cash flow from operations for the six-month period. This indicates a stronger underlying business performance. However, revenue growth remains modest, and the company continues to incur net losses, with an increasing accumulated deficit. The significant non-cash warrant liability revaluation impacted the quarterly net loss. While the focus on cost control and the transition to consumption-based pricing are positive strategic moves, the slow revenue growth, competitive market, and risks associated with the dual-class stock structure and CEO's pledged shares warrant caution. A 'hold' recommendation is appropriate as the operational improvements are encouraging, but the company has not yet demonstrated consistent profitability or accelerated growth to justify a 'buy' rating, nor are the results poor enough to warrant a 'sell'.

Keywords

Cloud-based platform, Business intelligence, Data analytics, AI and data products, Consumption-based pricing, Subscription revenue, SEC filing, 10-Q, Financial results, Software as a Service, SaaS, Corporate governance, Risk management, Financial reporting, Data protection, Cybersecurity, Intellectual property