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Domo Inc (DOMO) Q2 2020 Earnings Call Transcript

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Domo Inc (NASDAQ: DOMO)
Q2 2020 Earnings Call
Sep 5, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to Domo Second Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]

With that, I would now like to introduce Peter Lowry, Domo's Vice President of Investor Relations. Sir, you may begin.

Peter Lowry -- Vice President of Investor Relations

Okay. Good afternoon and welcome. On the call today, we have Josh James, our Founder and CEO; Bruce Felt, our CFO; and Julie Kehoe, our Chief Communications Officer. Julie will lead off with her safe harbor statement and then onto the call.

Julie Kehoe -- Chief Communications Officer

Hello, everyone. Our press release was issued after market closed and its posted on the Investor Relations section of our website, where this call is also being webcast. Statements made on this call include forward-looking statements related to our business under federal securities laws, including statements about financial projections, the plans and expectations for our go-to-market strategy, and our financial condition.

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

In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Domo's performance. Other than revenue, unless otherwise stated, we will be discussing our results of operations on a non-GAAP basis. These non-GAAP measures should be considered in addition to and not as a substitute for, or in isolation from GAAP results. Please refer to the tables in our earnings press release for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure.

With that, let me hand it over to Josh. Josh?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Thank you, Julie. Hello, everyone. Thanks for joining us on our Q2 fiscal year 2020 earnings call. For today's call, [Indecipherable] two things. First, our quarterly results with an update on our continued refinement of our go-to-market plans; and second, some insights into how our customers are leveraging the power of our platform and advanced data solutions to transform their businesses.

Although we are looking for more growth, in Q2 we posted a 22% year-over-year increase in revenue, and a 9% year-over-year increase in billings. We delivered this growth, while decreasing sales and marketing expense year-over-year by 9%, and also decreasing overall operating expenses by 7%. We are once again able to make meaningful progress on reducing our cash burn coming in nearly $2 million ahead of our guidance, and about half of what it was a year ago. And we remain committed to achieving cash flow positive status with the cash on our balance sheet.

We continue to refine our go-to-market model to accelerate our new business. We are enthusiastic about the transformational impact our product is having on some of the largest companies in the world. And we believe this will become more self evident to the market as the number of these successes grow and become more public.

That said, the kind of impact we have is so transformational and so widespread that it cuts across a significant number of functions. This requires us to cross many check points along the way, which affects the length of the sales cycle. I bring this up, because Q2 was definitely impacted by our pursuit of larger enterprise transactions, many of which were -- many of which we were not able to get to the final point of closure. Although historically, our international business has helped carry the day, this quarter was similarly impacted, particularly Asia-Pac, not including Japan.

Lastly, we spoke on our Q1 earnings call about announced acquisitions offering proof of the value in our space. Those acquisitions led to many customer conversations, which extended the sales process. That said, we didn't lose a single deal because of the acquisitions and I'll talk about this more in a minute. While it's true that we're more excited than ever about our pipeline, we were over focused in pursuing larger enterprise transactions, which had an impact on Q2 billings and new logos. However, early in Q3, we've already closed one of these customers an almost seven figure annual deal with a large aftermarket automotive retailer. That said, the timing of larger enterprise closings has been hard to predict.

We're making significant moves in favor of landing new customers more quickly to keep a healthy pace of new opportunities and to grow new business, while the larger transactions develop. Let me summarize the most important moves we're making. First, everyone knows, and you've recounted back to us that our offering in space have been difficult to explain. It's also been the number one complaint from our reps. As the recent round of acquisitions have brought more attention and structure to our space, and how people describe it and think about it, it's created an opportunity to simplify our message.

After talking to the leaders of many of the largest, largest SaaS companies also and testing messages on how to define our space about what we do, particularly how we fit into digital transformation and the major cloud platforms, we've come up with a better way to describe our product that seems to be resonating well. We've also very recently found that customers who've used our products, while in our sales pipeline buy it at a significantly higher rate than those who haven't. So we are expanding our focus on self-service proof of concepts, so more users can experience our product firsthand. And we believe that will result in landing more new customers.

Second or I guess third, John Mellor, is now on-board as our Chief Strategy Officer. And is one of the most talented people with whom I had worked at Omniture for over seven years, and whom I've been recruiting to Domo every year for the last several years. In addition to strategy, John is orchestrating focused, repeatable sales plays to target prospects and land new business more quickly. With such a broad platform that can do almost anything a customer would want to do with their data, we plan to narrow the focus of how we apply it to new customers in the sales process, so they are able to understand the value and adopt our technology more quickly and more easily.

Fourth, we are expanding our partnerships that focus on helping us -- that focus on help us go to -- helping us go-to-market. In particular, we are finding significant interest from other technology companies that can expand their footprint, deal size, and strategic relevance by promoting Domo as part of their solution. And you should expect several related partnership announcements from us in the next few months.

One of the drivers of some of these partnerships is the recent acquisitions in the market, which has left a void for an independent platform that's agnostic as to what cloud or software platform customers have adopted. Domo is an independent, pure play platform that's open to all the major players. And at the same time, these acquisition announcements validated the difficulty in providing data to companies and business users. Large players have now spent over $25 billion in acquisitions in the last 18 months to enhance their data capabilities that we believe only fractionally helps them do what we do. A few companies can afford to acquire companies to make up all the product gaps, but most will need to partner as well.

We don't see any new competitive threats to change our momentum. Our customer feedback on our new platform pricing model has also been very positive. And we think this will be another tailwind to landing and expanding business with new and existing customers. Another bright spot in Q2 was our gross retention rate approaching 90%. As our customers use our products in more strategic ways and commit to more multi-year deals, we have an opportunity to achieve even higher rates.

Our corporate business remains solid, although enterprise like, in retention, technology needs, and ability to drive value, we've found that customers under $1 billion are less complex in regards to buying processes, approvals and their competing internal legacy installations. Our easier to use fully integrated platform continues to resonate with this segment, which often lacks the infrastructure or even resources to attempt to put together an alternative from scratch that would address the problem that Domo solves.

During the quarter, we added new Lighthouse customers, including one of the world's best known makers of luxury timepieces. We also signed EDP, a global energy company, and Inditex, one of the world's largest fashion retailers with international brands such as Zara. We signed key expansion deals with notable customers, including CPG giant L'Oreal. Also with a well-known manufacturer of electronic household products and with the real estate services company Zillow.

We do well whenever there is significant amount of fast moving cross departmental data that needs to get into the hands of business decision makers across the enterprise. We recently announced at TaylorMade Golf, which uses Domo in North America and in Japan, recently expanded its use of Domo across all of its Japanese operations. Now the company is putting real time data for key retail metrics such as traffic, sales, and inventory into the hands of every store employee, helping them understand how to better perform their jobs and have a better understanding of their customers, which they say has led to increased sales across the country.

I'm proud of our team for the innovation they keep delivering and their unwavering focus on customer success. And we continue to be encouraged by the validation our product receives from industry analysts. In the past quarter in Forrester Wave for vendor-managed BI and analytics platforms, Domo received the highest marks for customer satisfaction. Domo was also named an overall leader in the Dresner Advisory Services' Industry Excellence Awards for the third consecutive year based on high customer ratings for product quality, value delivered, sales and services. And Constellation Research also announced that Domo made Constellation ShortList for both BI and Analytics, as well as Marketing Analytics Solutions.

To conclude, we're working hard to improve the pace of new business. We continue to execute well on cost controls and manage our cost structure to maintain our commitment to having a fully funded business plan. We remain extremely optimistic about the opportunity in front of us.

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

Bruce Felt -- Chief Financial Officer

Thank you, Josh. I'll begin with our second quarter performance, followed by our third quarter and fiscal 2020 full year guidance. As Josh mentioned, the overweighting of our efforts on large deals with large customers resulted in decreased productivity from our enterprise reps, as there was insufficient new customer activity to compensate for those efforts.

Our enterprise customer count is now over 460. And these bonds were applying more resources for acquiring new customers and at the same time reallocating some of our large enterprise sales resources toward smaller enterprise customers. We've historically experienced good productivity from our corporate reps and we have seen that some of the things and market motion that [Phonetic] is working for the corporate segment, has also worked for the smaller enterprise customers. We expect this to help our total new business and also help our new logo account.

I'd like to highlight that the new deal sizes of our corporate business has been averaging over $50,000 and the gross renewal rates have been approaching 90%, and that's with many software companies equate with the enterprise category. As a reminder, we have historically defined enterprise as customers with revenue greater than $1 billion, and revenue and corporate is everything less than that.

In addition, we continue to target hiring more [Indecipherable] reps, but have now directed those efforts in favor of the corporate business, given how productive they have continued to be, even in the face of a 29% year-over-year decrease in marketing spending. The corporate business also has a much shorter sales cycle and sales rep ramping history, which provides the ability to more immediately impact our short-term new business. Lastly, the CAC for our corporate business is lower than the enterprise business.

For our enterprise business, our focus is on improving their overall productivity by closing the larger transactions and by increasing the new logo accounts. As our base net revenue retention rate continues to be greater than 100%, we also continue to see more customers entering into multi-year contracts, with 49% of our customers now under multi-year contracts at the end of Q2, compared to 38% at the end of Q2 last year. This drove our remaining performance obligations or RPO to grow 28% compared to the same quarter last year. Remaining performance obligations includes billed and unbilled revenue under contract that is yet to be recognized.

Our Q2 revenue was $41.7 million, a year-over-year increase of 22%, subscription revenue grew 24% and represented 84% of total revenue. Year-over-year subscription revenue growth was driven primarily by new customers. International revenue represented 26% of total revenue, consistent with Q1.

Our subscription gross margin was 74.9% and up 4 percentage points 70.9% in Q2 of last year. We plan to get additional leverage out of our subscription cost of revenue over time as we continue to effectively manage our data center operations through finding efficiencies, better utilizing certain services, and continuing to optimize the Domo platform. We believe we can get subscription gross margins to over 80% over the long-term.

Including our services business, our total gross margin was 66.2%, a 240 basis point improvement compared to 63.8% gross margin in the second quarter of last year. We were able to deliver these results once again with a further decrease in operating expenses. In Q2, we were able to decrease operating expenses by 7% from last year, even though revenue increased by 22% year-over-year. The decrease came primarily from lower marketing and R&D costs. The net effect of increased revenue, while effectively managing costs allowed us to improve our operating margin by 44 percentage points from the same quarter last year. Our net loss was $26.4 million and net loss per share was $0.96. This is based on 27.4 million weighted average shares outstanding based against alluded.

Turning now to our balance sheet. As of July 31, we had cash, cash equivalents and short-term investments of approximately $134 million, an amount we believe is adequate to allow us to manage the business efficiently until we reach a cash flow positive position. Our net cash used in operations was $18.7 million, an improvement of $3.4 [Phonetic] million over the prior quarter and a 48% reduction compared to Q2 of the prior year.

Now to discuss what we expect in Q3 and fiscal '20. We expect Q3 billings of about $36.5 million. We now expect fiscal year '20 billings to be about a $172 million. Our billings guidance assumes the same business and operating conditions we experienced in Q2 will continue in Q3 and Q4. And we're not factoring in all the new initiatives we have undertaken, given it takes time to implement them, and also to provide for or we provide for a low weighting factor for large deals, given the unpredictability of their closing. This approach is not to be interpreted as anything other than us being prudent in our approach to providing guidance.

We're planning on our Q3 operating expenses to be up slightly from Q2. For the year, we expect operating expenses to be down slightly from fiscal year '19. We plan to execute on our plan to decrease cash burn sequentially each quarter of fiscal year '20, and we expect Q3 adjusted cash used in operations of about $17.5 million and $74.5 million for the year. Going forward, we'll manage our ongoing cash burn to achieve our cash flow positive position with the cash on hand.

Now the formal guidance for the third quarter fiscal year '20. We expect GAAP revenue to be in the range of $41.5 million to $42.5 million. We expect non-GAAP net loss per share basic and diluted of $1.00 to $1.04. This assumes 27.7 million weighted average shares outstanding, basic and deluded. For the full year fiscal '20, we expect GAAP revenue to be in the range of $168 million to $169 million, representing year-over-year growth of approximately 18%. We expect non-GAAP net loss per share basic and diluted of $4.00 to $4.10. This assumes 27.5 million weighted average shares outstanding, basic and diluted.

In closing, as we exit our quiet period, we will be participating in as many investor conferences and non-deal roadshows as possible, as we believe there is a substantial amount of information we'd like to convey to investors about our initiatives.

With that, we'll open up the call for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Sanjit Singh with Morgan Stanley. Your line is now open.

Sanjit Singh -- Morgan Stanley -- Analyst

Hi. Thank you for taking the questions. I wanted to go and ask a couple questions on go-to-market strategy. So coming out of IPO, I think the message that we are all hearing is that, we need to move upmarket to larger enterprise customers. And, you know, thus far in the first half of the year, it seems like that's going below plan, sales cycles are longer, some issues, some confusion on the competitive environment. And so what I'm hearing today is, while we need to go toggle back to commercial, which what I thought was part of the issue, you know, coming out of the IPO. So I'm just trying to understand what the right go-to-market strategy is for the products that you have because it seems like it's going back and forth.

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes. So we certainly have been able to keep customers happy in both segments. And in the enterprise, you know, this quarter in particular, especially the bigger deals that we have in our pipeline. We've talked about our pipeline and there's real customers there, we didn't lose any of those deals. They mostly just, you know, are taking longer than what we had hoped for. But we have proof points in those segments where we have very happy customers that are growing and expanding their business with us. We've been trying to figure out how to effectively and efficiently find those new logos at a pace that makes sense and is predictable.

But it's a good business for us. And what we're saying is, you know, we've got -- we probably over indexed on how fast we were trying to grow that enterprise. And at the same time, with our corporate business, which Bruce and I both mentioned, is more enterprise like. I think we've done ourselves a little bit of a disservice by drawing the definition where we've drawn it. We have customers there that new deals are about $50,000 a year. The retention -- growth retention is very similar to our enterprise business. It doesn't have -- they don't have as much upsell potential as the enterprise business, which is partly why we're interested in enterprise. And also the more enterprise customers you have, the more complex your product gets in, in terms of complex, but the more breadth you get to your product and more you're able to solve all the needs that are out there in the marketplace.

But I think what we're saying right now is, we're going to take a chunk of those reps and have them focus on the lower end of the enterprise space. And we'll still have some out there, that are out there hunting the big -- the really big logos and continuing to do what we've been doing. But we're going to take the extra resources and the new heads, and really focus them on the businesses in that $1 billion to $5 billion revenue range, where we've seen corporate reps that are pounding the phones, that are managing their pipes and looking at numbers and looking at leads and contacts. That process has worked really well and it's actually scaled up beyond $1 billion in many cases. And so since we've been seeing success there and since our corporate business is really successful, more so than we thought it was going to be -- when we're going public, we said, let's make sure that we allocate these resources appropriately.

And then the second piece that we talked about in Asia-Pac. Asia-Pac was growing really well last year and we put a lot of extra heads there. And it just didn't take the way the it has been performing the first three years. The incremental dollars that we put there, it takes a while to figure out if they're going to perform, they didn't perform. So we're -- that's another area where we're not going to continue to invest more dollars. We'll invest those dollars -- those incremental dollars back into the lower enterprise space and to the upper corporate space.

Sanjit Singh -- Morgan Stanley -- Analyst

Got it. And then maybe for Bruce. The gross retention rates, it sounds like they're improving, as they are overall at 90%. So I'm trying to put that improvement in gross retention in context with the decelerating billings growth. And billings growth was growing right around plus or minus 30% for most of your last year, and now were down to below 10% by Q2, and yet gross retention is up. Can you sort of connect the dots for me there? Is it just new business that's declining negative? I just want to get understand what the dynamics between the renewal portfolio in the new businesses?

Bruce Felt -- Chief Financial Officer

Yes. I mean, well, first of all, the high renewal rates across the board, including what we characterized as corporate approaching 90%, we think is a very healthy sign of the business, a very healthy sign of how much we've developed the platform, how our customers use it across the board, across every segment, across any kind of customer side. So that's really a -- we think, a very positive sign and a great foundation to kind of continue to kind of grow our footprint within these businesses.

But yes, the -- it's the new business is where we've come up short of where we wanted to be. And that's why we are -- have all these initiatives that really focus on accelerating the adoption of -- that's really accelerating the new business and particularly getting new customers on board with the number one priority, given what we just said, actually number one priority, getting new enterprise customers on board. So we want to make sure we are indicating that we are really de-emphasizing the enterprise opportunity. It's still there. We're just being a little bit more precise in how we're segmenting and how we're going after it. And taking some of the learnings that we found at the smaller company and applying it to smaller enterprises, but they're still enterprises.

And I'll say what happened this quarter is, we're so strong at the largest enterprises in the world, we're so unique in our ability to solve problems that, frankly, aren't solvable. It's very hard to not pursue those, because it's so unique. The problem is, as we found out is, they're just extremely compact -- complex institutions and we have a requirement here to grow nevertheless. And so, we will continue to pursue those. They will be transformational as we announced them. They will help us across every segment. But first things first, let's get more new customers, let's get new business accelerating. Those customers were still attacking them, but we're going to be a little bit more discreet in how we're targeting these segments so that we can still achieve that, but have high growth across the board at the same time.

Joshua G. James -- Chief Executive Officer and Chairman of the Board

And then I'll just add. I think we saw that with -- in the prepared remarks, we talked about one of the deals that slipped last quarter that we've already signed this quarter that was almost a seven figure annual deal. So as enterprise deals work, they just -- they were-- so far they haven't worked on our time line. But, they're there and they work and they're successful.

The second thing is, especially in the core business, we -- we've done this with decreasing marketing expense pretty meaningfully. And so we weren't sure exactly how that was going to play out. But if you look at the numbers with corporate in particular and with a meaningful decrease in marketing expense, there they've figured out how to still perform. And [Indecipherable] and his team, they've done a great job continuing to execute there.

And so in addition to a lot of new reps that we've talked about hiring this year, remember, they're all still new. They haven't really had an opportunity to completely cure it and get through the full ramp. So that's out there, as a tailwind, we think. But seeing the performance with the lower marketing spend is also really encouraging. And that's why we're looking what they're doing and reallocating some of the investment to the lower end of the enterprise space, which we think is going to behave very similar to the corporate space.

And then the other thing I really want to touch on, I mentioned in the prepared remarks, but I don't think I can overstate how excited we are and how encouraged we are. And this is brand new data literally as of a week ago. And that is, you mentioned the IPO. We're going public and gosh, even a few years before we're going public, we've been talking about trying to find ways to decrease our customer acquisition cost. And we've been looking and searching and turning over every rock and trying to find how to do this more efficiently and effectively, while bringing down marketing expense.

And we found in the data as we went through and we looked at all the new logos that we signed up, that there was one element that had a dramatic impact on close rates. And that was, if customers are using a POC and not just log in once, but really using it, their close rates are dramatically multiples difference of a qualified opportunity that is in our pipeline, that's not using a POC with us. So we knew it was better, but we didn't know it was better to the point where tell every -- all the reps to push everyone into POC, even if the customer doesn't want to get into POC. I think we're changing our stance, seeing that it's multiples better, and we need to do anything and everything we can to get everyone in our products. Because when they get in our products, they convert and they convert at higher rates than industry averages for leads to close. So that's probably the most exciting piece of news that we've seen in a long time. Unfortunately, it's only a week old and we're just really getting into. But we think that at some point that's going to make an impact as well.

Sanjit Singh -- Morgan Stanley -- Analyst

Got it. Appreciate the comments. Thank you.

Operator

Thank you. And our next question comes from Bhavan Suri with William Blair and Company. Your line is now open.

Bhavan Suri -- William Blair and Company -- Analyst

Hey, guys, thanks for taking my question. I guess, I just want to touch first, Josh, maybe for you. Was there -- has there been any change, especially in the larger businesses on the competitive environment? Is it sort of the, hey, I can use Glue and Snowflake and Redshift and other things combination potentially slowing things down? Is it that Looker is out there with Google or Tableau? So any of that just maybe impacting anything at all do you see? And when you look at your analysis of sort of what's happening in the enterprise from the delays or the slowdown of longer sales cycle?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

I mean, they definitely impacted last quarter. It seems like it was a one-time impact. It's -- because all those acquisitions happened at the same time. And so, it kind of threw a bunch of just questions into the air for most of our deals. And, you hear about the reps that needed to have a call just to address the Google Looker combination. And, other customers that weren't a Google shop, but they were a big Salesforce shop, and they just want to understand, like, what does this mean relative to Tableau and -- or Tableau and MuleSoft. But like we've said a few times, we didn't lose any deals because of that, but we did have to have phone calls.

And once kind of the dust settled, it didn't seem like it is causing any deals to be lost. And we're better at the messaging now and it's not brand new, so other executives or our customers aren't asking the CIO or the business leader who is buying our product, what about this deal that I just read about. But it did cause some confusion out there certainly. What it does seem to be doing in your -- you threw some names out there, combinations of different things. Some of those folks were partners with the Tableau's and Looker's of the world who aren't interested in being partners with them anymore, at least not the same way. And that's created some real opportunities for us.

And as we get into those opportunities, we've found that, not only do we not have a partnership with someone who we wanted to have a partnership with, but, may have been affecting us more negatively than we had realized before that.

So we also said in the call that, we expect some announcements coming out over the next few months. We have partnerships that are signed and working out details of announcements and that kind of thing, where we feel like they're going to have a really positive impact on our ability to be successful out there in the marketplace. So it definitely caused some confusion temporarily. It doesn't seem like it's had any kind of material negative impact for the long haul. And to the contrary, it actually seems like it's going to help us because our ecosystem is strengthening and we're getting more people in our corner.

Bhavan Suri -- William Blair and Company -- Analyst

Got it. It's helpful color. I guess I want to touch on one other. When sort of John came on board and sort of the idea of not whipping out an entire implementation at a large customer, a large like Fortune 500, but saying, OK, we're not going to get them rip them out right away. But we're going to sit and tell them we can connect really quickly and do pieces of that architecture, they can't fully flesh out themselves.

I guess, if you look at that strategy, do you think that strategy isn't working out? Or do you think that strategy is something that's just going to take time to play out? Obviously, in the sort of commercial side, it's simpler because in many ways you don't have the complexity of the historical legacy infrastructure. How should we think about sort of that idea, that approach? And if may be that -- that's not the right way to do that, I don't know, I was just wondering, how you guys are sort of thinking about that? Or if that continues, at least for the enterprise, while de-emphasizing it's still continue to be a way go after that market?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

No, that's the right question for sure. I mean, you go and you look at these different accounts. And some of the magic is, when we can walk in and a customer does have a data element they want to connect to, and we can literally in the conference room right then there connect, and they're looking at data that would have taken them weeks to be able to get access to any other way. And it does have an impact.

I think one of the challenges that we've had here and this isn't -- this hasn't been a secret. We've said it, we've been trying to figure it out. But if you went and looked at our top customers -- to go look at our top 20 customers, it wasn't 20 case studies that were similar. It's 20 different cases that is. So go in and figure out how to find, what are some stories that we can tell and repeat, what can we make repeatable, rinse and repeat, what can we make more cost effective.

And so we've been really trying to get through that find and repeatable sales play. And we feel like we're we're in a good position. We have the assets. We have customers that are starting to do the same things. We have apps where now we can go in and be prescriptive to customers, if they're interested in sales, analytics and ops or marketing, analytics and ops or finance and operations.

And -- but we didn't go in to those enterprises and lead with that. And it's been frustrating for us because many executives that our Company will go in sales calls and we'll either lead the sales call, and shame on us or the rep will be leading the sales call and you get halfway through it, hear like, where is this going? We don't -- when we don't have a point that we want to take this customer. And if it wasn't surfaced in that call, what they wanted to do, we were not being nearly prescriptive enough. So over the last several months, we've been trying to figure out sales place to really focus in on. And it was great timing because we knew John was coming, and this is what he's done at Adobe for the last several years. And he's really good at it.

And -- so now taking -- looking at what we're doing across our customer segments, creating people that come from our marketing group, from our lead group, from our ADM group, to our sales group, to people in mark -- I mean, to people in product, and having standups twice a week for a very particular sales play. So that next time we walk into an enterprise, we walk in and we are very focused on delivering one message, this is the journey we're taking you on, and this is the prescription that we're going to give to you, and we know it works.

And we just haven't been able to do that historically. So we're finally in a place where we feel very confident that we can go and do that. It doesn't help last quarter, bu we feel really good about the stuff that's in front of us. We don't know exactly how it's going to impact the future quarters yet, but we feel very strongly that it's going to. And it's just going into work on those things as fast as we possibly can.

Bhavan Suri -- William Blair and Company -- Analyst

Thank you. Appreciate the color. Thanks, gentlemen.

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes.

Operator

Thank you. And our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.

Syed Talha Saleem -- Credit Suisse -- Analyst

This is Syed on for Brad. Josh, we came away from last quarter, thinking the Looker and Tableau acquisitions by validation of your model and architecture. And we're even optimistic that some of the disruption in the near-term could actually be an opportunity for you to gain share. But here, can you actually give us some insight, why are you seeing issues with closing large enterprise deals? And is this geographically concentrated, is this vertically concentrated? And to what extent is just the overall environment getting tougher for what you sell?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

No. The overall environment is not getting tougher for what we sell. I think those -- like we talked about the enterprise deals, it's -- they just didn't close and we wanted them to close. We still think that many of them are going to close, but they just pushed. And that -- all those acquisitions taking place at the same time in a matter of weeks didn't help in terms of having a clean environment. It definitely caused them questions and and conversations that needed to be had.

But I do think that, over the mid-term, over the short-term event, over the next few quarters, it is going to be a positive impact for us, because not everyone feels the same about Google as they might have felt about Looker independently. And I'm sure Google, we get some business, because they have Looker as well for some people that are hardcore Google. But there's just a lot more pieces to the ecosystem and a lot more people that were partners with Looker and partners with Tableau that don't feel strongly about Google and Salesforce.

And so I think there's a real opportunity for us to jump in there. And we're already seeing that. We've already seen transactions with new partners that we've signed over the last quarter, where we're influencing deals for them, they're influencing deals for us. And we think there is a lot more of that to come.

Syed Talha Saleem -- Credit Suisse -- Analyst

Thanks for that color. And I guess one more question for Bruce. And you said that more customers were signing multi-year deals. Can you give us an idea on why is this happening? And is the Salesforce being incentivized for longer duration deals right now?

Bruce Felt -- Chief Financial Officer

Well, I think it maps nicely to the experience our customers are having with the platform. It's making -- it's a much more strategic use cases that we have now at any size customer than we've ever had. And when that's pretty clear and our customers committed, -- it also means on the front and the customers are pretty much committing to the platform because they're using a much more strategic way. And I contrast that with maybe three years ago, when it's just a reporting tool, it just replaced the spreadsheet. But now that it helps them run their business. It helps them save time and money. It helps give them insight.

And we're collectively as an organization getting much, much better at having these kinds of conversations with customers. And then we're also much, much better at delivering it on the back end. And the product, of course, keeps getting better and better, customers are just willing to sign up to multi-year deals. And we're finding that at every size customer, even at the small companies, which we find again, very interesting, as small companies don't tend to do that.

Yes, there is incentive for our reps to do that. No, probably even less so than what we've seen had in prior years. Less so, but we're still seeing an increase in the multi-year deals. So I think it's more driven by the way our customers are using the product and how we're talking to them about the use than it is about any kind of incentive plan. And we think it's going to continue. And we also think there's still upside to the retention rates just because as companies use our product more strategically, they're going to keep it longer as well.

Syed Talha Saleem -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Pat Walravens with JMP Securities. Your line is now open.

Joe Goodwin -- JMP Securities -- Analyst

Hi. This is Joe Goodwin on for Pat. Just a quick question from us. Given the message is tough right now, should you really be cutting back on marketing spending? And then I have a follow up.

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Should we cutting back on marketing spending, no, I think we're still encouraged by the opportunity that's there for us. You know, hopefully this will be a --this is a kind of one quarter hole here. We're going to be cautious about what we do. But we feel like we've been cutting the marketing expense back and getting -- becoming as efficient as possible. And we're definitely continuing to refine and reroute and look for the most efficient ways to spend that money as possible.

But, with the sales place that we have coming, that shouldn't increase marketing expense. With the opportunity -- I think the real opportunity, that was -- what I talked about, not worrying so much about the top of the funnel. But once they're in the funnel, what can we do to convert them more effectively. And that's the data that's new instead of, when you look at the whole conversion funnel, obviously, our customer acquisition costs have been higher than industry average. But if you look at the segment of customers that are in a POC, where they're using the product, that segment of customers and that conversion funnel converts at higher than industry averages. So we need to do everything we can to focus on that. And that's where the focus is going to be over the next few months, certainly in a very meaningful and massive way internally.

Joe Goodwin -- JMP Securities -- Analyst

Understood. And then, you know, what is the new way of explaining what you do? Where do you guys say you fit into this digital transformation of these companies?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes. So we're still refining it and we'll roll it out, and, kind of make sure that everyone is aware of it. It will be reflective on our website, etc. But the quick message is, everybody is out there looking for digital transformation. Everyone is talking about it. Everyone is trying to figure out what's my digital relationship with my customer, with my employee, and how can I get digital productivity increases.

And everyone gets that, a part of that is going to be with the cloud. But CIOs look around and you go talk to thousands of CIOs, and they're saying, I'm looking around, I've got hundreds of different cloud platforms. And I know he needs a cloud, because it's more efficient, it's more scalable, it's easier to manage. But I got 100 plus different cloud vendors in here, so I want to get that down to a handful of cloud platforms. And so you're seeing people standardize on companies like Office 365 and Salesforce, and Workday, ServiceNow, Adobe Marketing Cloud. But then, you look at those platforms, which one of those platforms helps you make money off of all the data you do you have in your organization? Which one of those platforms gets data in every employee's hands?

Well, there isn't one, and that's what we do. And we do it in three ways. We do it by doing three things, I should say. First, we help you connect and transform your data. And you know, a lot of people probably recognize [Indecipherable] you know, about that acquisition. But we built this from the ground up, have over 1,000 connectors and we built it with the next step in mind. So then you take that data and we don't care where you put it. You put it any of the public clouds, you can put it in Snowflake, you can store behind your own firewall, or we can manage it for you. But the second thing we do, once you've connected and transform that data, is we help you visualize and analyze that data.

And everyone's probably heard of Tableau. You know, when we're like Tableau in that area, except we're in the cloud, we're much more scalable. It's automatically connected to the first piece that we talked about. And we have customers where before they were using Tableau, they can only look at 20 million rows of data. They start using us , and they can look at over 100 billion rows of data. Before they were using Tableau, they had an ELA and they might have had 200 or 300 users that were actually using the product. They use us, they get an ELA, six months later, they have over 10,000 active users using the product. And so it's just very different.

And once you do step one and step two, then you get the payoff. And the payoff is, now you can get an app framework in apps that have machine learning and AI automatically built into them. And then we can take our customer through these demos of applications that are being used as some of the largest organizations and then delivering that data to employees hands, and being able to do significant things that they would not be able to do, any other way unless they were getting custom software application and spending fives or tens of millions of dollars. Or they can just come by Domo and they have access to all of their data, because we connect and transform it, we visualize and analyze it, and we provide this app framework.

So that's the piece that we do. And then right on the heels of that, you follow-up with the sales play, and we talk to them based on what you know about them before you walk into the room and you talk to them about sales, operations and analytics or marketing operations and analytics, because you know that customer and you know what they're looking for. And then you take them into a POC, because guess what? If we get you into a POC, we're going to close you higher than average industry average for anybody in a conversion funnel.

So that's dramatically different than where we were three months ago. I wish we had figured that out two years ago, five years ago. But we have figured it out and we're really excited about seeing what it does to our business.

Joe Goodwin -- JMP Securities -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Derrick Wood with Cowen and Company. Your line is now open.

Derrick Wood -- Cowen and Company -- Analyst

Thanks. First question, so you guys have been through a full quarter of the change in the pricing strategy. Do you think that's been disruptive? Maybe could you just talk about the puts and takes and how that rollout has gone from an internal standpoint, and just an external customer reception? And do you think that -- that's the right pricing strategy for the corporate segment?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes, it is the right pricing strategy. I mean, a big part of what we're trying to do there is get the products into more people's hands. So it's been-- we were tentative at first because you want to go and disrupt the business and screw up pipeline, etc. But we've been able to roll it out in a meaningful way with enough customers that we know that it's working. And it's helping us get, in some cases, larger deals than we were getting before; in almost all cases, at least what we were getting before.

But in addition to that, we have a lot more users using the product because as we discovered also in the POCs, the more people using the product, the higher the retention is going to be, the more likely they're going to buy the product, the more likely they're gonna buy more product down the road. And that's the real thing that we were trying to accomplish with the pricing was just getting higher adoption rates and having more opportunities to sell additional product down the road, and increasing the pace that we can get upsells.

Derrick Wood -- Cowen and Company -- Analyst

Okay. So that's still the plan going forward?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Sure.

Derrick Wood -- Cowen and Company -- Analyst

And second question, could you give us a sense where you are in terms of your sales rep hiring goals and kind of what we should expect for the rest of the year? And I guess, can you remind us what a sales cycle looks like in the -- in a corporate customer versus what it is with an enterprise opportunity?

Bruce Felt -- Chief Financial Officer

Sure. Well, we still are firm believers in you have to have feet on the street, so we're continuing to hire them. We are allocating more toward a smaller enterprise in corporate. And that's because we think we can get traction so much quicker. We will also see the enterprise as we see fit. But at the same pace of hiring that we have been doing and we're going to continue to do that, because we really do think that we can turn that into productive salespeople quickly, and start contributing to grow sooner we get them on board.

On sales cycles, the corporate has been in the -- really the 50 to 60 day range. So very fast, a lot of business that we get there comes in the quarter. Again, pointing to the math works better, if you put some -- the short-term math works better, if you put some resources there sooner rather than later. And the early indications are that it also works in the smaller enterprises. So that's where we're -- and that's one of the reasons why we're focusing there as well.

And as we've also found out, it doesn't have to be a very large customer to get a very large deal. I mean, we can get $300,000, $400,000, $500,000 deals out the corporate segment. We don't know that we can get the $10 million deal out of them, that we get out of the mega enterprise. Again, that's very attractive to us, because we can do what nobody else can do. So why don't we just build a portfolio that's very balanced here that de-risks every segment that gives us a better shot at getting growth short-term and long-term. And that's kind of what the play is right now.

Derrick Wood -- Cowen and Company -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from Jennifer Lowe with UBS. Your line is now open.

Jennifer Lowe -- UBS -- Analyst

Great. Thank you. Next -- the first question for me is, looking at sort of the conservatives or the downtick in spending on marketing, it seem like that was more focused around the corporate business, which also seems to be the better performing business. But is there a chance that, that could have been in any way responsible for some of the challenges you saw on the enterprise side? It seems like there are other challenges there too. But I'm -- is there any sort of risk that the constraint on sales and marketing expenditures also contributing to some of the challenges that you saw on the quarter?

Bruce Felt -- Chief Financial Officer

Well, on the -- no, we don't think so. The biggest deals in the enterprise, it's happened to be with current customers. That's why we're still confident they will close. That's why we have a lot of visibility into them. And we know it's not competitive. It's more an internal operations, so it certainly could not have affected that. Our basic observation and assessment is, we focused on a lot of these very interesting opportunities at current customers, just because they were large and significant -- had significant impacts on these customers. So we focused on it. And we -- the other side of the coin is, with more resources put there, it's less put on going after kind of new business. So it's less of -- a function of the marketing spend and more of a function of the focus.

Having said that, what we are doing is, we are putting the focus back on it. So let's -- if you can run plays right at the enterprise with simpler messaging, with very, very tight focus, very focused effort that we think every rep can actually learn from it and do and take 1,800 use cases and bring it down to four, just for now, to get new customers, we think that's the right approach. It will require some marketing spending to do so. We think we have enough, doesn't have to change substantially. But I think the focus is what will really yield great results, not so much upping or downing the spending.

Jennifer Lowe -- UBS -- Analyst

Okay. And then, just to circle back on the guide. When we're going through and looking at the billings guidance, it seems to imply a pretty sharp drop off on new idea activity. And I know on the prepared remarks, you said, it assumes no change to the conditions that you saw in this quarter. But I guess, you know, will you parse through what exactly that means? Is the assumption that some of these pushed out deals land in Q3, but you see sort of a similar push out or sorry, gets land, but some of the things get pushed out further or end so it's sort of best, [Phonetic] or is it just everything keeps pushing indefinitely? Could you just be a bit more specific around what exactly you mean by current conditions persist?

Bruce Felt -- Chief Financial Officer

Yes. But let me start with a general comment. I'm like you guys. You give me one data point, I extrapolate. So I'm extrapolating. I'm saying, what happen, you know, what I'm seeing right this minute is exist forever and that's the guidance. And that's totally -- probably unrealistic, but I think extremely prudent. And what that means is, because the big deal is going to close, so they are going to close. That's not realistic, but that's kind of the way the guidance is. And the way we saw conversions kind of work in the pipeline, they're going to happen again, which I think is probably a little bit unrealistic. But I think it's safe for the moment.

So that's what we're saying. We're just saying that the rest of our future is what we just saw from a guidance point of view. And that's why I made the comment, please don't overread that to mean anything more about the business other than I'm extrapolating one data point out, a long way. And I'm just being very clear to you, that's what I'm doing. And we certainly don't want it to play out that way by any means. But that's what we think we should do right now.

Jennifer Lowe -- UBS -- Analyst

Okay, great. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from Jack Andrews with Needham & Company. Your line is now open.

Jack Andrews -- Needham & Company -- Analyst

Well, good afternoon and thanks for taking my question. Josh, I want to get a -- ask you, I guess, where do you think you are in terms of finding call it a killer app or a killer use case for Domo? I mean, do you think it's more on the platform side? Do you think it could be vertical use cases? I mean, are -- is there enough sort of customer behavior that you're starting to coalesce around some particular themes that would drive toward this repeatable sales process?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes, I think we're pretty close with the -- and that's why we're starting run the sales place. I don't feel like we're guessing with sales place. We're looking at information from customers. We're seeing similar behaviors. And not only are we seeing similar behaviors, we're seeing similar solutions that we're offering up to them that fulfilled our needs. And when we started seeing the similar -- similarities in the solutions that we were providing to them, and that's when we started saying, OK, here's something that we can go, be little more prescriptive about, and we can walk into a customer and instead of them guiding us, we can say, hey, we can guide you here. You guys want to do something in marketing analytics? Here is exactly what you should do. Well, this will get you 90% of the way there. And then you can -- it's a platform, you can do anything you want after that. But that gets you started. And once these customers get started on Domo, then it seems to take on a life of their own.

We just had a heck of a time figuring out that initial starting point. So I feel like we do. We are getting close to identifying what those killer apps can be. And not only that, we have the muscle memory that's getting developed now and this -- and the motions that we can go through with John leading that team with all the sales leaders being on board with some things that we brought to market recently, also for not just sales place, but also some overlay teams associated and -- specialized teams associated with things like -- with -- like data science, like Domo everywhere, we've been having a tremendous amount of success.

And so we've been running these experiments. We've been finding solutions that are working and now it's productizing and operationalizing that process. And it feels really close. And I haven't said that before. It does feel really close.

Jack Andrews -- Needham & Company -- Analyst

Okay. I appreciate your comments there. And just as a follow up. You talked about expanding focus on self-service capabilities. I was wondering what sort of use cases do you envision following out of that initiative?

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Yes. And so what I mean by that is just, being able to do a bunch of POCs. We a little over two years ago kind of created our first premium product. And we were proud of the fact that, basically over that next year, we finally got it to the point where someone can go to our website and they can sign up for Domo and do a free trial. And they don't have to talk to anybody and they can connect and put in billions of rows of data and connect to 50 different data sources, and build out all these cards, and analyze users, they can do it all on their own, A, it's self-service.

And I guess the reason that we're calling out that word is, when we do a bunch of more POCs, it doesn't necessarily mean that we're going to have a ton of man hours associated with each one of those. It's just building the processes around that very first call you have with the customer, OK, I'm glad you're interested. I like -- I'd like to get you in touch with our sales executive, Julie. And when you go on the phone with Julie, she'll take your call, but you need to be prepared to jump into a POC after that because that's part of the interaction that you're going to have with us. It's all about the POC here.

We can talk to you, till you blew in the face, but you're not going to understand till you use the product. So setting it up that way in the very first call with an ADM. And then Julie gets on the phone and she's like, yes, we'll come on site. But we need to make sure that we're identifying who is going to help us out with this POC. Who internally on your side is going to do the POC -- the self-service POC. We'll be here to guide you and hold your hand, and get you -- people will take up the training wheels at the appropriate time. But we're going to make sure that everyone's geared toward thinking about those POCs because [Indecipherable] multiple better conversion rate when you do a POC and actively use it, compared to when you don't do a POC at all or you barely use it. So that's just data we didn't have. We thought it might be like a 25% increase if you do a POC. It's dramatically different than that. And so we need to be very focused on that as a Company.

Jack Andrews -- Needham & Company -- Analyst

Great. Appreciate the color. Thanks for taking my questions.

Joshua G. James -- Chief Executive Officer and Chairman of the Board

You bet. Thanks for the question.

Operator

Thank you. I'm not showing any further questions at this time. This concludes today's question-and-answer session. [Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Peter Lowry -- Vice President of Investor Relations

Julie Kehoe -- Chief Communications Officer

Joshua G. James -- Chief Executive Officer and Chairman of the Board

Bruce Felt -- Chief Financial Officer

Sanjit Singh -- Morgan Stanley -- Analyst

Bhavan Suri -- William Blair and Company -- Analyst

Syed Talha Saleem -- Credit Suisse -- Analyst

Joe Goodwin -- JMP Securities -- Analyst

Derrick Wood -- Cowen and Company -- Analyst

Jennifer Lowe -- UBS -- Analyst

Jack Andrews -- Needham & Company -- Analyst

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