Document
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
Form 10-Q
__________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to .
Commission File Number 001-38553.

DOMO, INC.
(Exact Name of Registrant as Specified in its Charter)
__________________________
Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
 
27-3687433
(I.R.S. Employer
Identification Number)
772 East Utah Valley Drive
American Fork, UT 84003
(Address of principal executive office, including zip code)

(801) 899-1000
(Registrant's telephone number, including area code)
__________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer ý
 
Smaller reporting company o
 
 
Emerging growth company ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No ý
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading symbol(s)
  
Name of each exchange on which registered
Class B Common Stock, par value $0.001 per share
 
DOMO
 
The Nasdaq Global Market
As of May 31, 2019, there were approximately 3,263,659 shares of the registrant's Class A common stock and 24,108,096 shares of the registrant's Class B common stock outstanding.



TABLE OF CONTENTS
 
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Information (unaudited)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Loss
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' (Deficit) Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
Signatures



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Domo, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
 
As of January 31,
 
As of April 30,
 
2019
 
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
176,973

 
$
90,763

Short-term investments

 
63,238

Accounts receivable, net of allowances of $3,387 and $1,839 as of January 31, 2019 and April 30, 2019, respectively
48,421

 
36,207

Contract acquisition costs, net
10,425

 
10,829

Prepaid expenses and other current assets
10,935

 
15,545

Total current assets
246,754

 
216,582

Property and equipment, net
12,595

 
12,581

Contract acquisition costs, noncurrent, net
18,030

 
16,889

Intangible assets, net
4,415

 
4,261

Goodwill
9,478

 
9,478

Other assets
1,360

 
1,187

Total assets
$
292,632

 
$
260,978

Liabilities, convertible preferred stock and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,609

 
$
3,142

Accrued expenses and other current liabilities
48,139

 
37,936

Deferred revenue
88,959

 
89,219

Total current liabilities
139,707

 
130,297

Deferred revenue, noncurrent
4,943

 
4,950

Other liabilities, noncurrent
6,210

 
6,030

Long-term debt
97,245

 
98,156

Total liabilities
248,105

 
239,433

Commitments and contingencies (Note 11)


 


Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value per share; 10,000 shares authorized as of January 31, 2019 and April 30, 2019; no shares issued and outstanding as of January 31, 2019 and April 30, 2019

 

Class A common stock, $0.001 par value per share; 3,264 shares authorized as of January 31, 2019 and April 30, 2019; 3,264 shares issued and outstanding as of January 31, 2019 and April 30, 2019
3

 
3

Class B common stock, $0.001 par value per share; 500,000 shares authorized as of January 31, 2019 and April 30, 2019; 23,435 and 24,089 shares issued and outstanding as of January 31, 2019 and April 30, 2019, respectively
23

 
24

Additional paid-in capital
956,145

 
968,754

Accumulated other comprehensive income
438

 
382

Accumulated deficit
(912,082
)
 
(947,618
)
Total stockholders' equity
44,527

 
21,545

Total liabilities and stockholders' equity
$
292,632

 
$
260,978

See accompanying notes to condensed consolidated financial statements.

1


Domo, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended April 30,
 
2018
 
2019
Revenue:
 
 
 

Subscription
$
26,663

 
$
34,391

Professional services and other
5,282

 
6,407

Total revenue
31,945

 
40,798

Cost of revenue:
 
 
 
Subscription
8,056

 
8,035

Professional services and other
3,510

 
4,769

Total cost of revenue
11,566

 
12,804

Gross profit
20,379

 
27,994

Operating expenses:
 
 
 
Sales and marketing
39,656

 
35,949

Research and development
19,064

 
17,099

General and administrative
4,644

 
8,017

Total operating expenses
63,364

 
61,065

Loss from operations
(42,985
)
 
(33,071
)
Other expense, net
(1,919
)
 
(2,325
)
Loss before income taxes
(44,904
)
 
(35,396
)
Provision for income taxes
603

 
140

Net loss
$
(45,507
)
 
$
(35,536
)
Net loss per share, basic and diluted
$
(27.63
)
 
$
(1.32
)
Weighted-average number of shares used in
computing net loss per share, basic and diluted
1,647

 
26,966

See accompanying notes to condensed consolidated financial statements.

2


Domo, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
Three Months Ended April 30,
 
2018
 
2019
Net loss
$
(45,507
)
 
$
(35,536
)
Foreign currency translation adjustments
(37
)
 
(58
)
Unrealized gains on securities available for sale

 
2

Comprehensive loss
$
(45,544
)
 
$
(35,592
)
See accompanying notes to condensed consolidated financial statements.

3


Domo, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' (Deficit) Equity
(in thousands, except share amounts)
(unaudited)
 
Three Months Ended April 30, 2018
 
 
 
 
 
 
Stockholders' (Deficit) Equity
 
Convertible Preferred Stock
 
 
Class A Common Stock
 
Class B Common Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total
Stockholders'
(Deficit) Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of January 31, 2018
14,098,937

 
$
693,158

 
 

 
$

 
1,638,648

 
$
2

 
$
35,301

 
$
506

 
$
(757,773
)
 
$
(721,964
)
Exercise of stock options

 

 
 

 

 
16,221

 

 
212

 

 

 
212

Stock-based compensation expense

 

 
 

 

 

 

 
2,076

 

 

 
2,076

Other comprehensive loss

 

 
 

 

 

 

 

 
(37
)
 

 
(37
)
Net loss

 

 
 

 

 

 

 

 

 
(45,507
)
 
(45,507
)
Balance as of April 30, 2018
14,098,937

 
$
693,158

 
 

 
$

 
1,654,869

 
$
2

 
$
37,589

 
$
469

 
$
(803,280
)
 
$
(765,220
)
 
Three Months Ended April 30, 2019
 
 
 
 
 
 
 
 
 
 
Stockholders' (Deficit) Equity
 
Convertible Preferred Stock
 
 
Class A Common Stock
 
Class B Common Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income
 
Accumulated
Deficit
 
Total
Stockholders'
(Deficit) Equity
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance as of January 31, 2019

 
$

 
 
3,263,659

 
$
3

 
23,434,542

 
$
23

 
$
956,145

 
$
438

 
$
(912,082
)
 
$
44,527

Vesting of restricted stock units

 

 
 

 

 
357,565

 

 

 

 

 

Shares repurchased for tax withholdings on vesting of restricted stock

 

 
 

 

 
(20,726
)
 

 
(900
)
 

 

 
(900
)
Issuance of common stock under employee stock purchase plan

 

 
 

 

 
253,104

 
1

 
4,518

 

 

 
4,519

Exercise of stock options

 

 
 

 

 
61,844

 

 
1,338

 

 

 
1,338

Stock-based compensation expense

 

 
 

 

 

 

 
7,653

 

 

 
7,653

Exercise of common stock warrants

 

 
 

 

 
3,130

 

 

 

 

 

Other comprehensive loss

 

 
 

 

 

 

 

 
(56
)
 

 
(56
)
Net loss

 

 
 

 

 

 

 

 

 
(35,536
)
 
(35,536
)
Balance as of April 30, 2019

 
$

 
 
3,263,659

 
$
3

 
24,089,459

 
$
24

 
$
968,754

 
$
382

 
$
(947,618
)
 
$
21,545


See accompanying notes to condensed consolidated financial statements.

4


Domo, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Three Months Ended April 30,
 
2018
 
2019
Cash flows from operating activities
 
 
 
Net loss
$
(45,507
)
 
$
(35,536
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,285

 
1,764

Amortization of contract acquisition costs
1,727

 
2,678

Stock-based compensation expense
2,093

 
7,575

Other, net
(3,180
)
 
(659
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
7,066

 
12,214

Contract acquisition costs
(1,923
)
 
(2,062
)
Prepaid expenses and other
602

 
(4,493
)
Accounts payable
4,428

 
551

Accrued expenses and other liabilities
(6,247
)
 
(8,977
)
Deferred revenue
1,769

 
267

Net cash used in operating activities
(36,887
)
 
(26,678
)
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(1,617
)
 
(1,474
)
Purchases of securities available for sale

 
(63,008
)
Net cash used in investing activities
(1,617
)
 
(64,482
)
Cash flows from financing activities
 
 
 
Payments of costs related to initial public offering
(1,311
)
 

Proceeds from issuance of convertible preferred stock, net of issuance costs
(87
)
 

Proceeds from shares issued in connection with employee stock purchase plan

 
4,518

Shares repurchased for tax withholdings on vesting of restricted stock

 
(900
)
Debt proceeds, net of issuance costs
49,674

 

Proceeds from exercise of stock options
212

 
1,338

Principal payments on capital lease obligations
(44
)
 

Net cash provided by financing activities
48,444

 
4,956

Effect of exchange rate changes on cash and cash equivalents
24

 
(6
)
Net increase (decrease) in cash and cash equivalents
9,964

 
(86,210
)
Cash and cash equivalents at beginning of period
61,972

 
176,973

Cash and cash equivalents at end of period
$
71,936

 
$
90,763

Supplemental disclosures of cash flow information
 
 
 
Cash paid for income taxes
$
182

 
$

Cash paid for interest
$
937

 
$
2,796

Non-cash investing and financing activities
 
 
 
Stock-based compensation capitalized as internal-use software
$

 
$
132

Debt issuance costs in accounts payable, accrued liabilities and other liabilities, noncurrent
$
682

 
$

Deferred initial public offering costs in accounts payable and accrued liabilities
$
703

 
$

Issuance of warrants in connection with credit facility
$
166

 
$

See accompanying notes to condensed consolidated financial statements.

5


Domo, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Overview and Basis of Presentation
Description of Business and Basis of Presentation
Domo, Inc. (the Company) provides a cloud-based platform that digitally connects everyone from the CEO to the frontline employee with all the data, systems and people in an organization, giving them access to real-time data and insights and allowing them to manage their business from their smartphones. The Company is incorporated in Delaware. The Company's headquarters is located in American Fork, Utah and the Company has subsidiaries in the United Kingdom, Australia, Japan, Hong Kong, Singapore, New Zealand, and Canada.
The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America or GAAP. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on January 31.
Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of April 30, 2019, and the condensed consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' (deficit) equity, and cash flows for the three months ended April 30, 2018 and 2019 are unaudited. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments necessary to state fairly the Company's financial position as of April 30, 2019 and its results of operations and cash flows for the three months ended April 30, 2018 and 2019. The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended April 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2020 or for any other future year or interim period.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended January 31, 2019, included in the Company's Annual Report on Form 10-K.
Stock Split
On June 15, 2018, the Company amended its amended and restated certificate of incorporation to effect a 15-to-one reverse stock split of its common stock and convertible preferred stock. All of the share and per share information referenced throughout the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could differ from those estimates. The Company’s estimates and judgments include the determination of standalone selling prices for the Company’s services, which are used to determine revenue recognition for arrangements with multiple performance obligations; the amortization period for deferred contract acquisition costs; valuation of the Company’s stock-based compensation, including the underlying estimated fair value of common stock in periods prior to the date of the Company's IPO; useful lives of fixed assets; capitalization and estimated useful life of internal-use software; valuation estimates used when evaluating impairment of long-lived and intangible assets including goodwill; and the allowance for doubtful accounts.
Foreign Currency
The functional currencies of the Company’s foreign subsidiaries are the respective local currencies. The cumulative effect of translation adjustments arising from the use of differing exchange rates from period to period is included in accumulated

6


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
1. Overview and Basis of Presentation (Continued)

other comprehensive income within the condensed consolidated balance sheets. Changes in the cumulative foreign translation adjustment are reported in the condensed consolidated statements of convertible preferred stock and stockholders’ (deficit) equity and the condensed consolidated statements of comprehensive loss. Transactions denominated in currencies other than the functional currency are remeasured at the end of the period and when the related receivable or payable is settled, which may result in transaction gains or losses. Foreign currency transaction gains and losses are included in other expense, net in the condensed consolidated statements of operations. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period, and equity balances are translated using historical exchange rates.
Segment Information
The Company operates as one operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market funds and highly liquid investments purchased with an original maturity date of 90 days or less from the date of purchase. The fair value of cash equivalents approximated their carrying value as of January 31, 2019 and April 30, 2019.
Short-Term Investments
The Company’s short-term investments are primarily comprised of commercial paper, U.S. treasury securities, asset-backed securities and corporate debt securities. The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its short-term investments, including securities with stated maturities beyond twelve months, within current assets in the condensed consolidated balance sheets.
The Company's short-term investments are classified as available-for-sale securities and are recorded at fair value each reporting period. Unrealized gains and losses on these short-term investments are reported as a separate component of accumulated other comprehensive income in the condensed consolidated balance sheets until realized. Interest income is reported within other expense, net in the condensed consolidated statements of operations. The Company periodically evaluates its short-term investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value is less than the Company’s cost basis, and the financial condition and near-term prospects of the investee. If the Company determines that the decline in an investment’s fair value is other-than-temporary, the difference is recognized as an impairment loss in the condensed consolidated statements of operations. Realized gains and losses are reported in other expense, net in the condensed consolidated statements of operations.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount (net of allowances), do not require collateral, and do not bear interest. The Company’s payment terms generally provide that customers pay within 30 days of the invoice date. 
The Company maintains an allowance for doubtful accounts for amounts the Company does not expect to collect. In establishing the required allowance, management considers historical losses, current market conditions, customers’ financial condition, the age of the receivables, and current payment patterns. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

7


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)

Contract Acquisition Costs
Contract acquisition costs, net are stated at cost net of accumulated amortization and primarily consist of deferred sales commissions, which are considered incremental and recoverable costs of obtaining a contract with a customer. Contract acquisition costs for initial contracts are deferred and then amortized on a straight-line basis over the period of benefit, which the Company has determined to be approximately four years. The period of benefit is determined by taking into consideration contractual terms, expected customer life, changes in the Company's technology and other factors. Contract acquisition costs for renewal contracts are not commensurate with contract acquisition costs for initial contracts and are recorded as expense when incurred if the period of benefit is one year or less. If the period of benefit is greater than one year, costs are deferred and then amortized on a straight-line basis over the period of benefit. Contract acquisition costs related to professional services and other performance obligations with a period of benefit of one year or less are recorded as expense when incurred. Amortization of contract acquisition costs is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations.
Amortization expense related to contract acquisition costs was $1.7 million and $2.7 million for the three months ended April 30, 2018 and 2019, respectively. There was no impairment charge in relation to contract acquisition costs for the periods presented.
Property and Equipment
Property and equipment, net, are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets or over the related lease terms (if shorter). Repairs and maintenance costs are expensed as incurred.
The estimated useful lives of property and equipment are as follows:
Computer equipment and software
2-3 years
Furniture, vehicles and office equipment
3 years
Leasehold improvements
Shorter of remaining lease term or estimated useful life
Capitalized Internal-Use Software Costs
The Company capitalizes certain costs related to development of its platform incurred during the application development stage. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Maintenance and training costs are also expensed as incurred. Capitalized costs are included in property and equipment.
Capitalized internal-use software is amortized as subscription cost of revenue on a straight-line basis over its estimated useful life, which is generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill and indefinite-lived intangible assets are not amortized, but rather tested for impairment at least annually on November 1 or more often if and when circumstances indicate that the carrying value may not be recoverable. Finite-lived intangible assets are amortized over their useful lives.
Goodwill is tested for impairment based on reporting units. The Company periodically reevaluates the business and has determined that it continues to operate in one segment, which is also considered the sole reporting unit. Therefore, goodwill is tested for impairment at the consolidated level.
The Company reviews its long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever an event or change in facts and circumstances indicates that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount to the estimated undiscounted future cash flows

8


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)

expected to be generated. If the carrying amount exceeds the undiscounted cash flows, the assets are determined to be impaired and an impairment charge is recognized as the amount by which the carrying amount exceeds fair value.
There was no goodwill acquired and no impairment charges for goodwill or long-lived assets recorded during the periods presented.
Revenue Recognition
The Company derives revenue primarily from subscriptions to its cloud-based platform and professional services. Revenue is recognized when control of these services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services, net of sales taxes.
For sales through channel partners, the Company considers the channel partner to be the end customer for the purposes of revenue recognition as the Company's contractual relationships with channel partners do not depend on the sale of the Company's services to their customers and payment from the channel partner is not contingent on receiving payment from their customers. The Company's contractual relationships with channel partners do not allow returns, rebates, or price concessions.
The price of subscriptions is generally fixed at contract inception and therefore, the Company's contracts do not contain a significant amount of variable consideration.
Revenue recognition is determined through the following steps:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, performance obligations are satisfied
Subscription Revenue
Subscription revenue primarily consists of fees paid by customers to access the Company’s cloud-based platform, including support services. The Company's subscription agreements generally have annual contractual terms and a smaller percentage have multi-year contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. The Company recognizes revenue ratably because the customer receives and consumes the benefits of the platform throughout the contract period. The Company's contracts are generally non-cancelable.
Professional Services and Other Revenue
Professional services revenue consists of implementation services sold with new subscriptions as well as professional services sold separately. Other revenue includes training and education. Professional services arrangements are billed in advance, and revenue from these arrangements is recognized as the services are provided, generally based on hours incurred. Training and education revenue is also recognized as the services are provided.
Contracts with Multiple Performance Obligations
Most of the Company's contracts with new customers contain multiple performance obligations, generally consisting of subscriptions and professional services. For these contracts, individual performance obligations are accounted for separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices are determined based on historical standalone selling prices, taking into consideration overall

9


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)

pricing objectives, market conditions and other factors, including contract value, customer demographics and the number and types of users within the contract.
Deferred Revenue
The Company's contracts are typically billed annually in advance. Deferred revenue includes amounts collected or billed in excess of revenue recognized. Deferred revenue is recognized as revenue as the related performance obligations are satisfied. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as a current liability and the remaining portion is recorded as a noncurrent liability.
Cost of Revenue
Cost of subscription revenue consists primarily of third-party hosting services and data center capacity; employee-related costs directly associated with cloud infrastructure and customer support personnel, including salaries, benefits, bonuses and stock-based compensation; amortization expense associated with capitalized software development costs; depreciation expense associated with computer equipment and software; certain fees paid to various third parties for the use of their technology and services; and allocated overhead. Allocated overhead includes items such as information technology infrastructure, rent, and employee benefit costs.
Cost of professional services and other revenue consists primarily of employee-related costs associated with these services, including stock-based compensation; third-party consultant fees; and allocated overhead.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $7.3 million and $2.3 million for the three months ended April 30, 2018 and 2019, respectively.
Research and Development
Research and development expenses consist primarily of employee-related costs for the design and development of the Company's platform, contractor costs to supplement staff levels, third-party web services, consulting services, and allocated overhead. Research and development expenses, other than software development costs qualifying for capitalization, are expensed as incurred.
Stock-Based Compensation
The Company records stock-based compensation based on the grant date fair value of the awards, which include stock options and restricted stock units, and recognizes the fair value of those awards as expense using the straight-line method over the requisite service period of the award. For restricted stock units that contain performance conditions, the Company recognizes expense using the accelerated attribution method if it is probable the performance conditions will be met. The Company estimates the grant date fair value of stock options using the Black-Scholes option-pricing model.
Stock-based compensation expense related to purchase rights issued under the 2018 Employee Stock Purchase Plan (ESPP) is based on the Black-Scholes option-pricing model fair value of the estimated number of awards as of the beginning of the offering period. Stock-based compensation expense is recognized using the straight-line method over the offering period.
The determination of the grant date fair value of stock-based awards is affected by the estimated fair value of the Company's common stock as well as other assumptions and judgments, which are estimated as follows:
Fair Value Per Share of Common Stock. Because there was no public market for the Company's common stock prior to the IPO, the board of directors determined the common stock fair value at the grant date by considering numerous objective and subjective factors, including contemporaneous valuations of the Company’s common stock, actual operating and financial performance, market conditions, and performance of comparable publicly traded companies, business developments, the likelihood of achieving a liquidity event, and transactions involving preferred and common stock, among other factors. Subsequent to the IPO, the Company determines the fair value of common stock as of each grant date using the market closing price of the Company's Class B common stock on the date of grant.

10


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)

Expected Term. The expected term is determined using the simplified method, which is calculated as the midpoint of the option’s contractual term and vesting period. The Company uses this method due to limited stock option exercise history. For the ESPP, the expected term is the beginning of the offering period to the end of each purchase period.
Expected Volatility. Since a public market for the Company's common stock did not exist prior to the IPO and, therefore, the Company does not have sufficient trading history of its common stock, expected volatility is estimated based on the volatility of similar publicly held companies over a period equivalent to the expected term of the awards.
Risk-free Interest Rate. The risk-free interest rate is determined using U.S. Treasury rates with a similar term as the expected term of the option.
Expected Dividend Yield. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero.
Income Taxes
The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, the Company recognizes a liability or asset for the deferred income tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. These deferred income tax assets or liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to affect taxable income.
Valuation allowances are provided when it is more-likely-than-not that some or all of the deferred income tax assets may not be realized. In assessing the need for a valuation allowance, the Company has considered its historical levels of income, expectations of future taxable income and ongoing tax planning strategies. Because of the uncertainty of the realization of its deferred tax assets, the Company has a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development. Realization of its deferred tax assets is dependent primarily upon future U.S. taxable income.
Tax positions are recognized in the condensed consolidated financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. The Company’s policy for recording interest and penalties related to income taxes, including uncertain tax positions, is to record such items as a component of the provision for income taxes.
Concentrations of Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable.
The Company maintains its cash accounts with financial institutions where, at times, deposits exceed federal insurance limits. The Company invests its excess cash in money market funds and in short-term investments consisting of highly-rated debt securities.
No single customer accounted for more than 10% of revenue for the three months ended April 30, 2018 and 2019 or more than 10% of accounts receivable as of January 31, 2019 and April 30, 2019.
The Company is primarily dependent upon third parties in order to meet the uptime and performance requirements of its customers. Any disruption of or interference with the Company's use of these third parties would impact operations.
Net Loss per Share
The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses. Before the IPO, the Company’s participating securities also included convertible

11


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)

preferred stock. The holders of convertible preferred stock did not have a contractual obligation to share in the Company’s losses, and as a result net losses were not allocated to these participating securities.
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased by common shares that could be issued upon conversion or exercise of other outstanding securities to the extent those additional common shares would be dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net loss per share by application of the treasury stock method. During periods when the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are anti-dilutive.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record most leases on the balance sheet and recognize the expenses on the income statement in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. For public entities, the new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2019 and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. The Company expects to adopt this standard as of February 1, 2020, assuming it remains an emerging growth company. The Company is currently evaluating the impact to its condensed consolidated financial statements and related disclosures, but expects assets and liabilities related to leases to increase as a result of adopting this standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for certain financial instruments, which includes the Company's accounts receivable and available-for-sale debt securities. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. For available-for-sale debt securities, credit losses should be recorded through an allowance for credit losses. ASU 2016-13 becomes effective for the Company for the fiscal year beginning February 1, 2020 and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company is evaluating the impact of the adoption of ASU 2016-13 on its condensed consolidated financial statements.
3. Cash, Cash Equivalents and Short-Term Investments
The amortized cost, unrealized gain (loss) and estimated fair value of the Company’s cash equivalents and short-term investments as of January 31, 2019 and April 30, 2019 were as follows (in thousands):
 
January 31, 2019
 
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Cash
$
5,975

 
$

 
$

 
$
5,975

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
170,998

 

 

 
170,998

Total cash and cash equivalents
$
176,973

 
$

 
$

 
$
176,973


12


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
3. Cash, Cash Equivalents and Short-Term Investments (Continued)


 
April 30, 2019
 
Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Cash
$
12,055

 
$

 
$

 
$
12,055

Cash equivalents:
 
 
 
 
 
 
 
Money market funds
61,229

 

 

 
61,229

Commercial paper
14,980

 

 

 
14,980

Corporate debt securities
2,499

 

 

 
2,499

Total cash and cash equivalents
$
90,763

 
$

 
$

 
$
90,763

Short-term investments:
 
 
 
 
 
 
 
Commercial paper
$
31,655

 
$

 
$

 
$
31,655

U.S. treasury securities
19,910

 
2

 

 
19,912

Asset-backed securities
8,674

 
1

 

 
8,675

Corporate debt securities
2,997

 

 
(1
)
 
2,996

Total short-term investments
63,236

 
3

 
(1
)
 
63,238

Total cash, cash equivalents and short-term investments
$
153,999

 
$
3

 
$
(1
)
 
$
154,001

All short-term investments were designated as available-for-sale securities and had contractual maturities due within less than one year as of April 30, 2019. The Company had no short-term investments as of January 31, 2019.
The Company had one short-term investment in an unrealized loss position as of April 30, 2019. There were no material gross unrealized gains or losses from available-for-sale securities and no realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three months ended April 30, 2019.
For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (1) it has the intention to sell any of these investments and (2) whether it is not more likely than not that it will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis. Based on this evaluation, the Company determined that there were no other-than-temporary impairments associated with short-term investments as of April 30, 2019.
4. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis
Financial instruments recorded at fair value in the financial statements are categorized as follows:
Level 1: Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs reflecting management's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

13


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
4. Fair Value Measurements (Continued)

The following table summarizes the assets measured at fair value on a recurring basis as of January 31, 2019 and April 30, 2019 by level within the fair value hierarchy (in thousands):
 
January 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
170,998

 
$

 
$

 
$
170,998

 
April 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
61,229

 
$

 
$

 
$
61,229

Commercial paper

 
14,980

 

 
14,980

Corporate debt securities

 
2,499

 

 
2,499

Total cash equivalents
$
61,229

 
$
17,479

 
$

 
$
78,708

Short-term investments:
 
 
 
 
 
 
 
Commercial paper
$

 
$
31,655

 
$

 
$
31,655

U.S. treasury securities
19,912

 

 

 
19,912

Asset-backed securities

 
8,675

 

 
8,675

Corporate debt securities

 
2,996

 

 
2,996

Total short-term investments
19,912

 
43,326

 

 
63,238

Total cash equivalents and short-term investments
$
81,141

 
$
60,805

 
$

 
$
141,946

During the three months ended April 30, 2018 and 2019, the Company had no transfers between levels of the fair value hierarchy of its assets and liabilities measured at fair value.
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, accounts payable, accrued liabilities, and other liabilities approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
 
As of January 31,
 
As of April 30,
 
2019
 
2019
Computer equipment and software
$
16,575

 
$
7,047

Capitalized internal-use software development costs
18,140

 
19,733

Leasehold improvements
2,849

 
720

Furniture, vehicles and office equipment
2,537

 
862

 
40,101

 
28,362

Less accumulated depreciation and amortization
(27,506
)
 
(15,781
)
 
$
12,595

 
$
12,581


14


Domo, Inc.
Notes to Consolidated Financial Statements (Continued)
(unaudited)
5. Property and Equipment (Continued)

Depreciation and amortization expense related to property and equipment was $2.3 million and $1.6 million for the three months ended April 30, 2018 and 2019, respectively.
The Company capitalized $1.3 million and $1.6 million in software development costs during the three months ended April 30, 2018 and 2019, respectively. Amortization of capitalized software development costs was $1.0 million and $0.8 million for the three months ended April 30, 2018 and 2019, respectively.
6. Intangible Assets
Intangible assets consisted of the following (in thousands):
 
As of January 31,
 
As of April 30,
 
2019
 
2019
Intellectual property excluding patents
$
2,289

 
$
2,289

Software licenses
1,603

 
1,603

Patents
950

 
950

 
4,842

 
4,842

Less accumulated amortization
(427
)
 
(581
)
 
$
4,415

 
$
4,261

Amortization expense related to intangible assets was $20,000 and $154,000 for the three months ended April 30, 2018 and 2019, respectively. Intellectual property excluding patents is considered an indefinite-lived asset due to the fact that it is renewable in perpetuity. Software licenses are amortized over an estimated useful life of three years. The patents were acquired and are being amortized over a weighted-average remaining useful life of approximately 8 years.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
 
As of January 31,
 
As of April 30,
 
2019
 
2019
Accrued payroll and benefits
$
6,142

 
$
9,373

Accrued payroll taxes
12,251

 
9,158

Accrued expenses
8,688

 
8,417

Accrued commissions
6,495

 
3,340

Accrued bonus
5,338

 
2,940

Sales and other taxes payable
1,409

 
1,368

Employee stock purchase plan liability
3,848

 
640

Other accrued liabilities
3,968

 
2,700

 
$
48,139

 
$
37,936


15


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

8. Deferred Revenue and Performance Obligations
Deferred Revenue
Significant changes in the Company's deferred revenue balance for the three months ended April 30, 2019 were as follows (in thousands):
Balance as of January 31, 2019
 
 
$
93,902

Revenue recognized that was included in the deferred revenue balance at the beginning of the period:
 
 
 
Subscription
$
(29,146
)
 
 
Professional services and other
(2,173
)
 
 
Total
 
 
(31,319
)
Increase due to billings excluding amounts recognized as revenue during the period
 
 
31,586

Balance as of April 30, 2019
 
 
$
94,169

Transaction Price Allocated to Remaining Performance Obligations
Transaction price allocated to remaining performance obligations represents the remaining amount of revenue the Company expects to recognize from existing noncancelable contracts, whether billed or unbilled. As of April 30, 2019, approximately $181.8 million of revenue was expected to be recognized from remaining performance obligations for subscription contracts. The Company expects to recognize approximately $92.2 million of this amount during the year ending January 31, 2020, with an additional $53.4 million being recognized during the year ending January 31, 2021, and the balance recognized thereafter. As of April 30, 2019, approximately $14.7 million of revenue was expected to be recognized from remaining performance obligations for professional services and other contracts, $11.9 million of which is expected to be recognized during the year ending January 31, 2020, and the balance recognized thereafter.
9. Geographic Information
Revenue by geographic area is determined by the billing address of the customer. The following table sets forth revenue by geographic area (in thousands): 
 
Three Months Ended April 30,
 
2018
 
2019
United States
$
25,119

 
$
30,246

Japan
2,638

 
4,219

Other
4,188

 
6,333

Total
$
31,945

 
$
40,798

Percentage of revenue by geographic area:
 
 
 
United States
79
%
 
74
%
Japan
8
%
 
10
%
Other
13
%
 
16
%
Other than the United States and Japan, no other individual country exceeded 10% of total revenue for the three months ended April 30, 2018 and 2019. As of April 30, 2019, substantially all of the Company’s property and equipment was located in the United States.

16


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

10. Credit Facility
In December 2017, the Company entered into an $80.0 million credit facility and drew $50.0 million at closing, which was scheduled to mature on January 1, 2021. The Company had until April 30, 2018 to request an additional term loan of up to $30.0 million under the credit facility. In April 2018, the Company entered into an amendment to this credit facility pursuant to which the Company was able to incur an additional $20.0 million in term loan borrowings, for a total availability of $100.0 million under the amended facility. The Company drew the remaining $50.0 million during April 2018, which was scheduled to mature on May 1, 2021. The credit facility is secured by substantially all of the Company's assets.
Under the amended credit facility, the Company was required to pay a $2.0 million fee upon the earlier of (1) the closing of a transaction in which the Company was acquired by a third party and (2) December 4, 2027. The obligation to pay this $2.0 million fee terminated upon the closing of the IPO.
In January 2019, the Company entered into an amendment to this credit facility which extended the maturity date for both outstanding loans to October 1, 2022. The amendment also revised the maximum debt ratio financial covenant and increased the amount of the closing fee.
Each term loan under the credit facility requires interest-only payments until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year. This interest rate was approximately 8.1% as of April 30, 2019. In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year. During the three months ended April 30, 2018 and 2019, $0.3 million and $0.6 million of interest was capitalized, respectively.
The amended credit facility requires a closing fee of $7.0 million to be paid on the earliest of (1) the date the term loan is prepaid, (2) the term loan maturity date, which is October 1, 2022, and (3) the date the term loan becomes due and payable. Due to the long-term nature of the closing fee, it was recorded at present value as an increase to other liabilities, noncurrent and an increase to debt issuance costs. The closing fee liability will be accreted to its full value over the term of the loan, with such accretion recorded as interest expense in other income (expense), net in the consolidated statements of operations. Debt issuance costs are presented as an offset to the outstanding principal balance of the term loans on the consolidated balance sheets and are being amortized as interest expense in other income (expense), net in the consolidated statements of operations over the term of the loan using the effective interest rate method.
The balances in long-term debt consisted of the following:
 
As of January 31,
 
As of April 30,
 
2019
 
2019
Principal
$
102,494

 
$
103,129

Less: unamortized debt issuance costs
(5,249
)
 
(4,973
)
Net carrying amount
$
97,245

 
$
98,156

The $100.0 million credit facility as amended contains customary conditions to borrowing, events of default and covenants, including covenants that restrict the Company's ability to dispose of assets, make material changes to the nature, control or location of the business, merge with or acquire other entities, incur indebtedness or encumbrances, make distributions to holders of the Company's capital stock, make investments or enter into transactions with affiliates. In addition, the Company is required to comply with a financial covenant based on the ratio of outstanding indebtedness to annualized recurring revenue. Under the amended facility, the minimum ratio is 0.85 on January 31, 2019 and April 30, 2019; 0.80 on July 31, 2019 and October 31, 2019; 0.75 on January 31, 2020 and April 30, 2020; 0.70 on July 31, 2020 and October 31, 2020; 0.65 on January 31, 2021 and April 30, 2021; and 0.60 on July 31, 2021 through the maturity date. The credit facility defines annualized recurring revenue as four times the Company's aggregate revenue for the immediately preceding quarter (net of recurring discounts and discounts for periods greater than one year) less the annual contract value of any customer contracts pursuant to which the Company was advised during such quarter would not be renewed at the end of the current term plus annual contract value of existing customer

17


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
10. Credit Facility (Continued)


contract increases during such quarter. This covenant is measured quarterly on a three-month trailing basis. Upon the occurrence of an event of default, such as non-compliance with covenants, any outstanding principal, interest and fees become due immediately. The Company was in compliance with the covenant terms of the credit facility at January 31, 2019 and April 30, 2019.
The Company incurred interest expense of $1.7 million and $3.1 million for the three months ended April 30, 2018 and 2019, respectively.
Stock Warrants
In connection with the credit facility described above, in December 2017 the Company issued fully vested warrants to purchase 28,462 shares of Series D-2 convertible preferred stock (Series D-2 warrants) with an exercise price of $126.47 per share. The fair value of the Series D-2 warrants at the time of issuance was recorded as an increase to debt issuance costs. In connection with the April 2018 amendment, the Series D-2 warrants were amended to warrants to purchase 66,664 shares of Class B common stock with an exercise price of $45.00 per share (common warrants). Upon execution of the April 2018 amendment, unamortized debt issuance costs related to the Series D-2 warrants were adjusted based on the difference in fair value of the Series D-2 warrants and the common warrants at the time of the April 2018 amendment. In connection with the January 2019 amendment to the credit facility, the common warrants were amended to be exercisable for an aggregate of 125,000 shares of Class B common stock at an exercise price of $17.8736 per share (amended common warrants). Upon execution of the January 2019 amendment, unamortized debt issuance costs related to the common warrants were adjusted based on the difference in fair value of the common warrants and the amended common warrants at the time of the January 2019 amendment. See Note 12 for further details regarding stock warrants.
11. Commitments and Contingencies
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
The Company is involved in legal proceedings from time to time arising in the normal course of business. As of January 31, 2019 and April 30, 2019, there were no significant outstanding claims against the Company.
Warranties and Indemnification
The Company’s subscription services are generally warranted to perform materially in accordance with the terms of the applicable customer service order under normal use and circumstances. Additionally, the Company’s arrangements generally include provisions for indemnifying customers against liabilities if its subscription services infringe a third party’s intellectual property rights. Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements. To date, the Company has not incurred significant costs and has not accrued a liability in the accompanying condensed consolidated financial statements as a result of these obligations.
The Company has entered into service-level agreements with some of its customers defining levels of uptime reliability and performance and permitting those customers to receive credits for prepaid amounts related to unused subscription services if the Company fails to meet certain of the defined service levels. In very limited instances, the Company allows customers to early terminate their agreements if the Company repeatedly or significantly fails to meet those levels. If the Company repeatedly or significantly fails to meet contracted upon service levels, a contract may require a refund of prepaid unused subscription fees. To date, the Company has not experienced any significant failures to meet defined levels of uptime reliability and performance as set forth in its agreements and, as a result, the Company has not accrued any liabilities related to these agreements in the condensed consolidated financial statements.

18


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
11. Commitments and Contingencies (Continued)

Operating Leases
The Company has entered into noncancelable operating lease arrangements primarily for office space with various expiration dates through 2027. Certain of the leases include periods of free rent beginning with the lease effective date and increasing rental rates over the term of the leases. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Rent expense under operating leases totaled $1.6 million and $1.7 million for the three months ended April 30, 2018 and 2019, respectively.
Other Purchase Commitments
The Company has also entered into certain noncancelable contractual commitments related to cloud infrastructure services in the ordinary course of business. There have been no material changes in these commitments as disclosed in the Annual Report on Form 10-K.
12. Stockholders' Equity
Preferred Stock
The Company's Board of Directors has the authority, without further action by the Company's stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, and privileges thereof, including voting rights. As of January 31, 2019 and April 30, 2019, no shares of preferred stock were issued and outstanding.
Common Stock
The Company has two classes of common stock, Class A and Class B. Each share of Class A common stock is entitled to 40 votes per share and is convertible at any time into one share of Class B common stock. Each share of Class A common stock will convert automatically into one share of Class B common stock upon any transfer, whether or not for value. Each share of Class B common stock is entitled to one vote per share. Holders of Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or the Company's certificate of incorporation. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of Class A common stock and Class B common stock are entitled to receive dividends, if any, as may be declared by the Company's board of directors.
At January 31, 2019 and April 30, 2019, there were 3,263,659 shares of Class A common stock authorized. There were 3,263,659 shares of Class A common stock issued and outstanding at January 31, 2019 and April 30, 2019.
At January 31, 2019 and April 30, 2019, there were 500,000,000 shares of Class B common stock authorized and 23,434,542 and 24,089,459 shares of Class B common stock issued and outstanding, respectively.
Class B Common Stock Warrants
In connection with the amendment to the credit facility that occurred in April 2018, the warrants to purchase 28,462 shares of Series D-2 convertible preferred stock described in Note 10 were amended to warrants to purchase 66,664 shares of Class B common stock at an exercise price equal to $45.00 per share. The warrants are exercisable at any time prior to expiration, which was to occur on the earlier of the third anniversary of the IPO or December 2027. Due to the exercise price-related contingency that existed with the Class B common stock warrants, they were being accounted for as a liability and were included in other liabilities, noncurrent on the consolidated balance sheets. The liability was revalued each reporting period until the contingency was resolved and the change in fair value was recorded in other income (expense), net. The contingency was resolved on the effective date of the Company's IPO, at which time the liability was remeasured to fair value and the remaining liability balance was reclassified to additional paid-in capital within stockholders' equity.
In connection with the January 2019 amendment to the credit facility, the warrants to purchase 66,664 shares of Class B common stock were amended to be exercisable for an aggregate of 125,000 shares of Class B common stock at an exercise price of $17.8736 per share. The warrants are exercisable at any time prior to expiration, which occurs on June 28, 2021 (the third anniversary of the IPO). The difference in the fair value of the Class B common stock warrants at the time of the amendment

19


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
12. Stockholders' Equity (Continued)

to the credit facility in January 2019 associated with the increase in shares and the lower exercise price was recorded as an adjustment to additional paid-in capital and debt issuance costs.
In connection with a line of credit signed in July 2016, the Company issued a warrant to purchase 3,333 shares of Class B common stock with a strike price of $34.35 per share. The warrant expires ten years from the date of issuance.
In connection with a loan signed in November 2011 and for which the last principal payment was made in September 2015, the Company issued a warrant to purchase 3,729 shares of Class B common stock with a strike price of $4.80 per share. The warrant expires ten years from the date of issuance. This warrant was net exercised in February 2019, resulting in the issuance of 3,130 shares of Class B common stock.
At January 31, 2019, all warrants were outstanding and exercisable. At April 30, 2019, all warrants were outstanding and exercisable with the exception of the warrant exercised in February 2019.
13. Equity Incentive Plans
In April 2011, Domo established the 2011 Equity Incentive Plan (2011 Plan), which was amended in September 2011 to provide for the issuance of stock options and other stock-based awards. In June 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan provides for the grant of incentive and nonstatutory stock options, restricted stock, RSUs, stock appreciation rights, performance units, and performance shares to employees, consultants, and members of the Company's board of directors.
The number of shares available for issuance under the 2018 Plan includes an annual increase on the first day of each fiscal year equal to the least of: (1) 3,500,000 shares; (2) 5% of the outstanding shares of Class A and Class B common stock as of the last day of the immediately preceding fiscal year; and (3) such other amount as the Company's board of directors may determine no later than the last day of the immediately preceding year. During the three months ended April 30, 2019, the number of shares available for grant under the 2018 Plan was increased by 1,334,910 shares. As of April 30, 2019, there were 5,588,693 shares available for grant under the 2018 Plan.
In connection with the IPO, the 2011 Plan was terminated. With the establishment of the 2018 Plan, the Company no longer grants equity-based awards under the 2011 Plan and any shares that expire, terminate, are forfeited or repurchased by the Company, or are withheld by the Company to cover tax withholding obligations, under the 2011 Plan, will become available for future grant under the 2018 Plan.
The Company recognized stock-based compensation expense related to its equity incentive plans as follows (in thousands):
 
Three Months Ended April 30,
 
2018
 
2019
Cost of revenue:
 
 
 
Subscription
$
15

 
$
123

Professional services and other
8

 
93

Sales and marketing
305

 
4,008

Research and development
483

 
2,065

General and administrative
1,265

 
1,238

Interest expense
17

 
48

Total
$
2,093

 
$
7,575

Stock Options
Stock options typically vest over a four year period and have a term of ten years from the date of grant. The weighted-average grant-date fair value of stock options granted was $14.95 per share for the three months ended April 30, 2019. No stock

20


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
13. Equity Incentive Plans (Continued)

options were granted during the three months ended April 30, 2018. The grant-date fair value of stock options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Expected stock price volatility
47 %
Expected life of options
6 years
Risk-free interest rate
2.47 %
Expected dividend yield
Fair value of common stock
$31.20
The following table sets forth the outstanding common stock options and related activity for the three months ended April 30, 2019:
 
Shares
Subject to Outstanding Options
 
Weighted- Average Exercise
Price per Share
 
Weighted-Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding as of January 31, 2019
1,856,339

 
$
23.64

 
5.6
 
$
8,443

Granted
25,000

 
31.20

 
 
 
 
Exercised
(61,844
)
 
21.63

 
 
 
 
Forfeited
(935
)
 
28.58

 
 
 
 
Expired
(7,716
)
 
44.29

 
 
 
 
Outstanding as of April 30, 2019
1,810,844

 
$
23.73

 
5.5
 
$
27,353

Vested and exercisable at April 30, 2019
1,671,358

 
$
23.30

 
5.3
 
$
26,002

The aggregate intrinsic value of options exercised was $0.2 million and $1.0 million for the three months ended April 30, 2018 and 2019, respectively. The intrinsic value represents the excess of the estimated fair value of the Company's common stock on the date of exercise over the exercise price of each option. The intrinsic value of options as of April 30, 2019 is based on the market closing price of the Company's Class B common stock on that date.
As of April 30, 2019, there was $1.8 million of unrecognized stock-based compensation expense related to outstanding stock options which is expected to be recognized over a weighted-average period of 1.4 years.
Restricted Stock Units
Restricted stock units (RSUs) granted under the Plan vest and settle upon the satisfaction of a service-based condition and, for RSUs granted prior to the IPO, a liquidity event-related performance vesting condition. The service-based condition for these awards is generally satisfied over three or four years with a cliff vesting period of one or two years and quarterly vesting thereafter. Some RSUs have a two-year vesting schedule, with one third of the RSUs vesting at twelve, eighteen, and twenty-four months. Upon the effectiveness of the registration statement for the Company's IPO, which was June 28, 2018, the liquidity event-related performance vesting condition associated with RSUs granted prior to the IPO was deemed probable of being satisfied.

21


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
13. Equity Incentive Plans (Continued)

The following table sets forth the outstanding RSUs and related activity for the three months ended April 30, 2019:
 
Number of Shares
 
Weighted- Average Grant Date Fair Value
Outstanding as of January 31, 2019
2,328,122

 
$
19.77

Granted
282,886

 
32.28

Vested
(357,565
)
 
24.54

Canceled
(65,757
)
 
20.29

Outstanding as of April 30, 2019
2,187,686

 
$
20.59

As of April 30, 2019, there was $31.9 million of unrecognized stock-based compensation expense related to outstanding RSUs which is expected to be recognized over a weighted-average period of 2.0 years.
Employee Stock Purchase Plan
In June 2018, the Company's board of directors adopted the ESPP. The number of shares of Class B common stock available for issuance under the ESPP increases on the first day of each fiscal year equal to the least of: (1) 1,050,000 shares of Class B common stock, (2) 1.5% of the outstanding shares of Class A and Class B common stock of the Company on the last day of the immediately preceding fiscal year, and (3) such other amount as the administrator of the ESPP may determine on or before the last day of the immediately preceding year. During the three months ended April 30, 2019, the number of shares available under the ESPP was increased by 400,473 shares. As of April 30, 2019, there were 1,195,053 shares available under the ESPP.
The ESPP generally provides for consecutive overlapping 24-month offering periods comprised of four six-month purchase periods; provided, however, that the first purchase period in the first offering period will have a duration of approximately nine months. The offering periods are scheduled to start on the first trading day on or after April 1 and October 1 of each year. The first offering period commenced on June 29, 2018 and is scheduled to end on the first trading day on or after October 1, 2020. The ESPP is intended to qualify as a tax-qualified plan under Section 423 of the Internal Revenue Code and permits participants to elect to purchase shares of Class B common stock through payroll deductions of up to 15% of their eligible compensation. A participant may purchase a maximum of 2,000 shares during each purchase period.
Amounts deducted and accumulated by the participant will be used to purchase shares of Class B common stock at the end of each purchase period. The purchase price of the shares will be 85% of the lower of the fair market value of Class B common stock on the first trading day of each offering period or the fair market value of Class B common stock on the applicable exercise date. If the fair market value of a share of Class B common stock on the exercise date of an offering period is less than it was on the first trading day of that offering period, participants automatically will be withdrawn from that offering period following their purchase of shares on the exercise date and will be re-enrolled in a new offering period. Participants may end their participation at any time during an offering period and will be paid their accrued contributions that have not yet been used to purchase shares of Class B common stock. Participation ends automatically upon termination of employment.
As of April 30, 2019, a total of 609,885 shares were issuable to employees based on contribution elections made under the ESPP and 253,104 shares had been purchased. As of April 30, 2019, total unrecognized stock-based compensation related to the ESPP was $4.3 million, which is expected to be recognized over a weighted-average period of 1.5 years.
The fair value of the purchase rights for the ESPP are estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
 
June 2018
 
April 2019
Expected stock price volatility
31% - 36%
 
43% - 52%
Expected term
0.75 - 2.25 years
 
0.5 - 2.0 years
Risk-free interest rate
2.22% - 2.54%
 
2.33% - 2.46%
Expected dividend yield
 

22


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

14. Income Taxes
The Company calculated the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax loss and adjusted for discrete tax items in the period. The Company's income tax expense was $0.6 million and $0.1 million for the three months ended April 30, 2018 and 2019, respectively. The income tax expense for these periods was primarily attributable to foreign taxes.
For the periods presented, the difference between the U.S. statutory rate and the Company's effective tax rate is primarily due to the full valuation allowance on its U.S. tax assets. The effective tax rate is also impacted by earnings realized in foreign jurisdictions with statutory tax rates lower than the federal statutory tax rate.
15. Net Loss Per Share
The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses. Before the IPO, the Company’s participating securities also included convertible preferred stock. The holders of convertible preferred stock did not have a contractual obligation to share in the Company’s losses, and as a result net losses were not allocated to these participating securities.
The following tables set forth the calculation of basic and diluted net loss per share during the periods presented. The shares issued in the IPO and the shares of Class A and Class B common stock issued upon conversion of the outstanding shares of convertible preferred stock in the IPO are included in the table below weighted for the period outstanding in the three months ended April 30, 2018 and 2019 (in thousands, except per share amounts):
 
Three Months Ended April 30,
 
2018
 
2019
 
Class A
 
Class B
 
Class A
 
Class B
Numerator:
 
 
 
 
 
 
 
Net loss
$

 
$
(45,507
)
 
$
(4,301
)
 
$
(31,235
)
Denominator:
 
 
 
 
 
 
 
Weighted-average number of shares used in
computing net loss per share, basic and diluted

 
1,647

 
3,264

 
23,702

Net loss per share, basic and diluted
$

 
$
(27.63
)
 
$
(1.32
)
 
$
(1.32
)
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. The weighted-average impact of potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive was as follows:
 
Three Months Ended April 30,
 
2018
 
2019
Convertible preferred stock on an if-converted basis
14,098,937

 

Options to purchase common stock
515,638

 
610,440

Restricted stock units

 
1,408,651

Employee stock purchase program

 
264,065

Common stock warrants
2,967

 
62,473

 
14,617,542

 
2,345,629


23


Domo, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

16. Related Party Transactions
Certain members of the Company's board of directors serve as directors of and/or are executive officers of and, in some cases, are investors in, companies that are customers or vendors of the Company. Certain of the Company’s executive officers also serve as directors of or serve in an advisory capacity to companies that are customers or vendors of the Company. As of January 31, 2019 and April 30, 2019, the Company had $0.6 million and $0.1 million receivable from these customers, respectively. As of January 31, 2019 and April 30, 2019, amounts payable to these vendors were immaterial. During the three months ended April 30, 2018 and 2019, the Company recognized revenue of $0.5 million and $0.3 million, respectively, related to these customers. During the three months ended April 30, 2018 and 2019, the Company recognized expense of $0.2 million and $0.1 million, respectively, related to these vendors.
The Company previously utilized an aircraft owned by one of the Company's executive officers on an as-needed basis. This arrangement was terminated in June 2018. The Company recorded expenses related to usage of the aircraft of $0.2 million and $0 during the three months ended April 30, 2018 and 2019, respectively.

24


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements containing words such as “may,” “believe,” “could,” "will,” “seek,” “depends,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. They include, but are not limited to, statements about:
our ability to attract new customers and retain and expand our relationships with existing customers;
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, key metrics, ability to generate cash flow and ability to achieve and maintain future profitability;
the anticipated trends, market opportunity, growth rates and challenges in our business and in the business intelligence software market;
the efficacy of our sales and marketing efforts;
our ability to compete successfully in competitive markets;
our ability to respond to and capitalize on rapid technological changes;
our expectations and management of future growth;
our ability to enter new markets and manage our expansion efforts, particularly internationally;
our ability to develop new product features;
our ability to attract and retain key employees and qualified technical and sales personnel;
our ability to effectively and efficiently protect our brand;
our ability to timely scale and adapt our infrastructure;
our ability to protect our customers' data and proprietary information;
our ability to maintain, protect, and enhance our intellectual property and not infringe upon others’ intellectual property; and
our ability to comply with all governmental laws, regulations and other legal obligations.
Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, including those factors discussed in Part II, Item 1A (Risk Factors).
In light of the significant uncertainties and risks inherent in these forward-looking statements, you should not regard these statements as a representation or warranty by us or anyone else that we will achieve our objectives or plans in any specified time frame, or at all, or as predictions of future events. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
We founded Domo in 2010 with the vision of digitally connecting everyone within the enterprise with real-time, rich, relevant data and then encouraging all employees to collaborate and act on that data. We realized that many organizations were unable to access the massive amounts of data that they were collecting in siloed cloud applications and on-premise databases. Furthermore, even for organizations that were capable of accessing their data, the process for doing so was time-consuming, costly, and often resulted in the data being out-of-date by the time it reached decision makers. The delivery format, including alert functionality, and devices were not adequate for the connected and real-time mobile workforce. Based on these observations,

25



it was apparent that all organizations, regardless of size or industry, were failing to unlock the power of all of their data, systems and people. To address these challenges, we provide a cloud-based platform that digitally connects everyone from the CEO to the frontline employee with all the data, systems and people in an organization, giving them access to real-time data and insights and allowing them to manage their business from their smartphones.
We offer our platform to our customers as a subscription-based service. Subscription fees are based on the number of users and the tier of package deployed. Business leaders and managers are typically the initial subscribers to our platform, deploying it for a specific use case or department. Over time, as customers recognize the value of our platform, we increasingly engage with CIOs and other executives to facilitate broad enterprise adoption. A majority of our customers subscribe to our services through one-year contracts, but recently a growing percentage of new and existing customers have entered into multi-year contracts. As of January 31, 2019 and April 30, 2019, 42% and 45% of our customers were under multi-year contracts, respectively. This transition to a higher percentage of multi-year contracts, among both new and existing customers, has enhanced the predictability of our subscription revenue. We typically invoice our customers annually in advance. Given the higher average annual contract value (ACV) and renewal rates we experience with larger customers, we are focused on customers with over $100 million in revenue, with a particular emphasis on enterprise customers with over $1 billion in revenue.
We had total revenue of $31.9 million and $40.8 million for the three months ended April 30, 2018 and 2019, respectively, reflecting a year-over-year increase of 28%. Our enterprise customers were a key driver of revenue growth, with revenue of $14.6 million and $19.4 million for the three months ended April 30, 2018 and 2019, respectively, or 33% year-over-year growth. For the three months ended April 30, 2018 and 2019, no single customer accounted for more than 10% of our total revenue, nor did any single organization when accounting for multiple subsidiaries or divisions which may have been invoiced separately. Revenue from customers with billing addresses in the United States comprised 79% and 74% or our total revenue for the three months ended April 30, 2018 and 2019, respectively. We are focused on growing our international business and will continue to invest in sales operations outside the United States.
We have incurred significant net losses since our inception, including net losses of $45.5 million and $35.5 million for the three months ended April 30, 2018 and 2019, respectively, and had an accumulated deficit of $947.6 million at April 30, 2019. We expect to incur losses for the foreseeable future and may not be able to achieve or sustain profitability.
Factors Affecting Performance
Continue to Attract New Customers
We believe that our ability to expand our customer base is an important indicator of market penetration, the growth of our business, and future business opportunities. We define a customer at the end of any particular quarter as an entity that generated revenue greater than $2,500 during that quarter. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced at a separate billing address is treated as a separate customer. In cases where customers purchase through a reseller, each end customer is counted separately.
As of April 30, 2019, we had over 1,800 customers. In order to accelerate customer growth, we intend to further develop our partner ecosystem by establishing agreements with more software resellers, systems integrators and implementation partners to provide broader customer and geographic coverage. We believe we are underpenetrated in the overall market and have significant opportunity to expand our customer base over time.
Customer Upsell and Retention
We employ a land and expand sales model, and our performance depends on our ability to retain customers and expand the number of users and use cases at existing customers over time. It currently takes multiple years for our customers to fully embrace the power of our platform. We believe that as customers deploy greater volumes and sources of data for multiple use cases, the unique features of our platform can address the needs of everyone within their organization. We are still in the early stages of expanding within many of our customers.
We have invested in platform capabilities and online support resources that allow our customers to expand the use of our platform in a self-guided manner. Our professional services, customer support and customer success functions also support our sales force by helping customers to successfully deploy our platform and implement additional use cases. In addition, we believe our partner ecosystem will become increasingly important over time. We work closely with our customers to drive increased engagement with our platform by identifying new use cases through our customer success teams, as well as in-platform, self-guided experiences. We actively engage with our customers to assess whether they are satisfied and fully realizing the benefits of our platform. While these efforts often require a substantial commitment and upfront costs, we believe our investment in

26



product, customer support, customer success and professional services will create opportunities to expand our customer relationships over time.
Our ability to drive growth and generate incremental revenue depends heavily on our ability to retain our customers and increase their usage of our platform. With that objective in mind, we allocate our customer success and customer support resources to align with maximizing the retention and expansion of our subscription revenue.
As we continue to enhance our product and develop methods to encourage wider and more strategic adoptions, including focusing our sales and marketing activities towards enterprise customers, we expect that customer retention will increase over the long term; however, our ability to successfully upsell and the impact of cancellations may vary from period to period. The extent of this variability depends on a number of factors including the size and timing of upsells and cancellations relative to the initial subscriptions.
Sales and Marketing Efficiency
We are focused on increasing the efficiency of our sales force and marketing activities by enhancing account targeting, messaging, field sales operations and sales training in order to reduce our sales and marketing expense as a percentage of revenue and accelerate the adoption of our platform. Our sales strategy depends on our ability to continue to attract top talent, to increase our pipeline of business, and to enhance sales productivity. We focus on productivity per quota-carrying sales representative and the time it takes our sales representatives to reach full productivity. We manage our pipeline by sales representative to ensure sufficient coverage of our sales targets. Our ability to manage our sales productivity and pipeline are important factors to the success of our business. We are shifting marketing spending from broad based initiatives that are better suited to attracting smaller organizations towards enterprise-targeted marketing campaigns and user events that we believe will result in larger initial new customer ACV and more upsell ACV potential.
Leverage Research and Development Investments for Future Growth
We plan to continue to make investments in areas of our business to continue to expand our platform functionality. This includes investing in machine learning algorithms, predictive analytics, and other artificial intelligence technologies to create alerts, detect anomalies, optimize queries, and suggest areas of interest to help people focus on what matters most. It also includes extending the functionality and effectiveness of our platform through improvements to the Domo Appstore and developer toolkits, which enable customers and partners to quickly build and deploy custom applications. The amount of new investments required to achieve our plans is expected to decrease as a percentage of revenue compared to historical years.
Key Business Metric
Billings
Billings represent our total revenue plus the change in deferred revenue in a period. Billings reflect sales to new customers plus subscription renewals and upsells to existing customers, and represent amounts invoiced for subscription, support and professional services. We typically invoice customers in advance in annual installments for subscriptions to our platform. Because we generate most of our revenue from customers who are invoiced on an annual basis and have a wide range of annual contract values, we may experience variability due to typical enterprise buying patterns and timing of large renewals.
The following table sets forth our billings for the three months ended April 30, 2018 and 2019:
 
Three Months Ended April 30,
 
2018
 
2019
Billings (in thousands)
$
33,714

 
$
41,065

Components of Results of Operations
Revenue
We offer subscriptions to our cloud-based platform. We derive our revenue primarily from subscriptions and professional services. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform, which includes online customer support resources at no additional cost. Professional service fees include implementation services, optimization services, and training.

27



Subscription revenue is a function of the number of customers, the number of users at each customer, and the price per user. Subscription revenue is recognized ratably over the related contractual term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of one to three years, and we generally invoice our customers in annual installments at the beginning of each year in the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period.
Professional services and other revenue consists of implementation services sold with new subscriptions, as well as professional services sold separately, including training and education. Professional services are generally billed in advance and revenue from these arrangements is recognized as the services are performed. Our professional services engagements typically span from a few weeks to several months.
Cost of Revenue
Cost of subscription revenue consists primarily of third-party hosting services and data center capacity; salaries, benefits, bonuses and stock-based compensation, or employee-related costs, directly associated with cloud infrastructure and customer support personnel; amortization expense associated with capitalized software development costs; depreciation expense associated with computer equipment and software; certain fees paid to various third parties for the use of their technology and services; and allocated overhead. Allocated overhead includes items such as information technology infrastructure, rent, and certain employee benefit costs.
Cost of professional services and other revenue consists primarily of employee-related costs directly associated with these services, third-party consultant fees, and allocated overhead.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing staff and commissions. Other sales and marketing costs include digital marketing programs and promotional events to promote our brand, including Domopalooza, our annual user conference, as well as tradeshows, advertising and allocated overhead. Contract acquisition costs, including sales commissions, are deferred and then amortized on a straight-line basis over the period of benefit, which we have determined to be approximately four years for initial contracts. Contract acquisition costs related to renewal contracts and professional services are recorded as expense when incurred if the period of benefit is one year or less.
Research and Development. Research and development expenses consist primarily of employee-related costs for the design and development of our platform, contractor costs to supplement staff levels, third-party web services, consulting services, and allocated overhead. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new product features throughout our history. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenue over the estimated life of the new feature or incremental functionality, which is generally three years.
General and Administrative. General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, recruiting and administrative personnel; professional fees for external legal, accounting, recruiting and other consulting services; and allocated overhead costs.
Other Expense, Net. Other expense, net consists primarily of interest expense related to long-term debt and interest income earned on our cash, cash equivalents and short-term investments. It also includes the effect of exchange rates on foreign currency transaction gains and losses as well as foreign currency gains and losses upon remeasurement of intercompany balances. The transactional impacts of foreign currency are recorded as foreign currency losses (gains) in the condensed consolidated statements of operations.
Provision for Income Taxes. Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. Because of the uncertainty of the realization of the deferred tax assets, we have a full valuation allowance for domestic net deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development.

28



Results of Operations
The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenue for each of the periods indicated (in thousands):
 
Three Months Ended April 30,
 
2018
 
2019
Revenue:
 
 
 
Subscription
$
26,663

 
$
34,391

Professional services and other
5,282

 
6,407

Total revenue
31,945

 
40,798

Cost of revenue:
 
 
 
Subscription(1)
8,056

 
8,035

Professional services and other(1)
3,510

 
4,769

Total cost of revenue
11,566

 
12,804

Gross profit
20,379

 
27,994

Operating expenses:
 
 
 
Sales and marketing(1)
39,656

 
35,949

Research and development(1)
19,064

 
17,099

General and administrative(1)(2)(3)
4,644

 
8,017

Total operating expenses
63,364

 
61,065

Loss from operations
(42,985
)
 
(33,071
)
Other expense, net(1)
(1,919
)
 
(2,325
)
Loss before income taxes
(44,904
)
 
(35,396
)
Provision for income taxes
603

 
140

Net loss
$
(45,507
)
 
$
(35,536
)
________________
(1)
Includes stock-based compensation expense as follows (in thousands):
 
Three Months Ended April 30,
 
2018
 
2019
Cost of revenue:
 
 
 
Subscription
$
15

 
$
123

Professional services and other
8

 
93

Sales and marketing
305

 
4,008

Research and development
483

 
2,065

General and administrative
1,265

 
1,238

Other expense, net
17

 
48

Total
$
2,093

 
$
7,575


(2)
Includes amortization of certain intangible assets of $20,000 and $20,000 for the three months ended April 30, 2018 and 2019, respectively.

(3)
Includes reversals of contingent tax-related accruals of $3.5 million and $1.3 million for the three months ended April 30, 2018 and 2019, respectively.

29



 
Three Months Ended April 30,
 
2018
 
2019
Revenue:
 
 
 
Subscription
83
 %
 
84
 %
Professional services and other
17

 
16

Total revenue
100

 
100

Cost of revenue:
 
 
 
Subscription
25

 
20

Professional services and other
11

 
11

Total cost of revenue
36

 
31

Gross margin
64

 
69

Operating expenses:
 
 
 
Sales and marketing
124

 
88

Research and development
60

 
42

General and administrative
15

 
20

Total operating expenses
199

 
150

Loss from operations
(135
)
 
(81
)
Other expense, net
(6
)
 
(6
)
Loss before income taxes
(141
)
 
(87
)
Provision for income taxes
2

 

Net loss
(143
)%
 
(87
)%
Discussion of the Three Months Ended April 30, 2018 and 2019
Revenue
 
Three Months Ended April 30,
 
 
 
 
 
2018
 
2019
 
$ Change
 
% Change
 
 
 
(in thousands)
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Subscription
$
26,663

 
$
34,391

 
$
7,728

 
29
%
Professional services and other
5,282

 
6,407

 
1,125

 
21

Total revenue
$
31,945

 
$
40,798

 
$
8,853

 
28

Percentage of revenue:
 
 
 
 
 
 
 
Subscription
83
%
 
84
%
 
 
 
 
Professional services and other
17

 
16

 
 
 
 
Total
100
%
 
100
%
 
 
 
 
Total revenue was $40.8 million for the three months ended April 30, 2019, compared to $31.9 million for the three months ended April 30, 2018, an increase of $8.9 million, or 28%. Subscription revenue was $34.4 million, or 84% of total revenue, for the three months ended April 30, 2019, compared to $26.7 million, or 83% of total revenue, for the three months ended April 30, 2018. The increase in subscription revenue was primarily due to a $6.0 million increase from new customers and a $1.8 million increase from existing customers. Our customer count increased 13% from April 30, 2018 to April 30, 2019.
Professional services and other revenue was $6.4 million, or 16% of total revenue, for the three months ended April 30, 2019, compared to $5.3 million, or 17% of total revenue, for the three months ended April 30, 2018. This increase was due to a higher volume of implementation and training services provided to our customers.

30



Cost of Revenue, Gross Profit and Gross Margin
 
Three Months Ended April 30,
 
 
 
 
 
2018
 
2019
 
$ Change
 
% Change
 
 
 
(in thousands)
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
Subscription
$
8,056

 
$
8,035

 
$
(21
)
 
 %
Professional services and other
3,510

 
4,769

 
1,259

 
36

Total cost of revenue
$
11,566

 
$
12,804

 
$
1,238

 
11

Gross profit
$
20,379

 
$
27,994

 
$
7,615

 
37

Gross margin:
 
 
 
 
 
 
 
Subscription
70
%
 
77
%
 
 
 
 
Professional services and other
34

 
26

 
 
 
 
Total gross margin
64

 
69

 
 
 
 
Cost of subscription revenue was $8.0 million for the three months ended April 30, 2019, a slight decrease compared to $8.1 million for the three months ended April 30, 2018.
Cost of professional services and other revenue was $4.8 million for the three months ended April 30, 2019, compared to $3.5 million for the three months ended April 30, 2018. This increase is primarily due to a higher volume of services provided by third-party consultants related to implementation and training as well as increased rates charged by these consultants.
Subscription gross margin improved due to cost improvements from continued proactive management and optimization of our third-party hosting services. Services gross margin declined due to heavier reliance on third-party implementation consultants. In addition, rates for these consultants have increased from the prior year.
We expect the gross margin for professional services to fluctuate from period to period due to changes in the proportion of services provided by third-party consultants, seasonality as well as timing of projects with higher margins.
Operating Expenses
 
Three Months Ended April 30,
 
 
 
 
 
2018
 
2019
 
$ Change
 
% Change
 
 
 
(in thousands)
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
$
39,656

 
$
35,949

 
$
(3,707
)
 
(9
)%
Research and development
19,064

 
17,099

 
(1,965
)
 
(10
)
General and administrative
4,644

 
8,017

 
3,373

 
73

Total operating expenses
$
63,364

 
$
61,065

 
$
(2,299
)
 
(4
)
Percentage of revenue:
 
 
 
 
 
 
 
Sales and marketing
124
%
 
88
%
 
 
 
 
Research and development
60

 
42

 
 
 
 
General and administrative
15

 
20

 
 
 
 
Sales and marketing expenses were $35.9 million for the three months ended April 30, 2019, compared to $39.7 million for the three months ended April 30, 2018, a decrease of $3.7 million, or 9%. The change was primarily due to an $8.4 million decrease in expense related to marketing programs. This decrease was partially offset by a $4.3 million increase in employee-related costs, which was primarily driven by a $3.7 million increase in stock-based compensation related to RSUs, for which expense was not recognized until the IPO. The remaining increase in employee-related costs was due to higher headcount. Another item offsetting the decrease in marketing programs was a $0.5 million increase in amortization of contract acquisition costs related to seasonally high sales in the prior quarter.

31



Sales and marketing expense as a percentage of total revenue decreased from 124% in the three months ended April 30, 2018 to 88% in the three months ended April 30, 2019. We expect sales and marketing expense to continue to decline as a percentage of total revenue in the long term.
Research and development expenses were $17.1 million for the three months ended April 30, 2019, compared to $19.1 million for the three months ended April 30, 2018, a decrease of $2.0 million, or 10%. Contract labor and allocated overhead decreased by $0.5 million and $0.4 million, respectively. Employee-related costs other than stock-based compensation decreased by $2.0 million due to lower headcount. This decrease was partially offset by a $1.7 million increase in stock-based compensation related to RSUs, for which expense was not recognized until the IPO. Other changes included software subscriptions, web hosting, and capitalized software, which represented a combined $0.6 million decrease.
Research and development expense as a percentage of revenue decreased from 60% in the three months ended April 30, 2018 to 42% in the three months ended April 30, 2019. We expect research and development expense to continue to decline as a percentage of total revenue in the long term as we leverage our research and development organization.
General and administrative expenses were $8.0 million for the three months ended April 30, 2019, compared to $4.6 million for the three months ended April 30, 2018, an increase of $3.4 million, or 73%. The increase was primarily due to reversals of contingent tax-related accruals being $2.2 million lower in the three months ended April 30, 2019. The remaining increase was driven by a $0.7 million increase in professional and legal fees and a $0.4 million increase in costs associated with operating as a public company.
General and administrative expenses as a percent of revenue increased from 15% in the three months ended April 30, 2018 to 20% in the three months ended April 30, 2019. In the long term, we expect general and administrative expense to decline as a percentage of total revenue as we leverage our general and administrative organization; however, we expect general and administrative expense to increase in absolute dollars due to additional costs associated with operating as a public company including incremental costs for accounting, compliance, insurance, and investor relations.
Other Income (Expense), Net
 
Three Months Ended April 30,
 
 
 
 
 
2018
 
2019
 
$ Change
 
% Change
 
 
 
(in thousands)
 
 
 
 
Other expense, net
$
(1,919
)
 
$
(2,325
)
 
$
(406
)
 
21
%
Other expense, net increased by $0.4 million primarily due to an increase in interest expense of $1.4 million related to the credit facility, offset by an increase in interest income of $1.0 million from interest earned on IPO proceeds. In the short term, we expect interest expense to increase due to the outstanding balance under the credit facility. We also expect interest income to decrease over time in conjunction with the expected use of cash to fund our operations.
Provision for Income Taxes
 
Three Months Ended April 30,
 
 
 
 
 
2018
 
2019
 
$ Change
 
% Change
 
 
 
(in thousands)
 
 
 
 
Provision for income taxes
$
603

 
$
140

 
$
(463
)
 
(77
)%
Provision for income taxes decreased due to refunds received in the three months ended April 30, 2019. In the long term, we expect income tax expense to increase in conjunction with growth in our international subsidiaries.
Liquidity and Capital Resources
As of April 30, 2019, we had $90.8 million of cash and cash equivalents and $63.2 million of short-term investments, which were held for working capital purposes. Our cash, cash equivalents, and short-term investments consist primarily of cash, money market funds, commercial paper, U.S. treasury securities, asset-backed securities, and corporate debt securities. In December 2017, we entered into an $80 million credit facility and drew $50 million. In April 2018, we amended the credit facility pursuant to which we were able to incur an additional $20 million in term loan borrowings, for a total availability of $100 million under the amended facility. We drew the remaining $50 million during April 2018.

32



Since inception, we have financed operations primarily through the periodic sale of convertible preferred stock, cash collected from customers for our subscriptions and services, our IPO and to a lesser extent, debt financing. Our principal uses of cash have consisted of employee-related costs, marketing programs and events, payments related to hosting our cloud-based platform and purchases of short-term investments.
We believe our existing cash and cash equivalents, together with our short-term investments, will be sufficient to meet our projected operating requirements for at least the next 12 months.  We may need to raise additional funds to invest in growth opportunities, product development, sales and marketing, and other purposes. Our future capital requirements will depend on many factors, including our growth rate; the level of investments we make in product development, sales and marketing activities and other investments to support the growth of our business; the continuing market acceptance of our platform; and customer retention rates, and may increase materially from those currently planned. We may seek to raise additional funds through equity or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness likely would have rights that are senior to holders of our equity securities and could contain covenants that restrict operations in the same or similar manner as our credit facility. Any additional equity financing likely would be dilutive to existing stockholders. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all.
Although we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. We have no present understandings, commitments or agreements to enter into any such acquisitions.
Credit Facility
The credit facility, as amended, permits us to incur up to $100 million in term loan borrowings, all of which had been drawn as of April 30, 2019. Each term loan requires that we pay only interest until the maturity date. A portion of the interest that accrues on the outstanding principal of each term loan is payable in cash on a monthly basis, which portion accrues at a floating rate equal to the greater of (1) 7% and (2) three-month LIBOR plus 5.5% per year. As of April 30, 2019, the interest rate was approximately 8.1%. In addition, a portion of the interest that accrues on the outstanding principal of each term loan is capitalized and added to the principal amount of the outstanding term loan on a monthly basis, which portion accrues at a fixed rate equal to 2.5% per year. In December 2017, we incurred $50 million in term loan borrowings under the credit facility.
We incurred the remaining $50 million in term loan borrowing under the amended credit facility in April 2018. The amendment increased the closing fee from $3.6 million to $4.5 million.
In January 2019, we entered into an amendment to this credit facility which extended the maturity date for both outstanding loans to October 1, 2022. The amendment also revised the maximum debt ratio financial covenant and increased the amount of the closing fee from $4.5 million to $7.0 million.
The credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, make material changes to the nature, control or location of our business, merge with or acquire other entities, incur indebtedness or encumbrances, make distributions to holders of our capital stock, make investments or enter into transactions with affiliates. In addition, we are required to comply with a financial covenant ba