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Following a turbulent windup, Utah's Domo stock sails on IPO

FILE - Domo Technologies in American Fork Wednesday, March 30, 2016.
FILE - Domo Technologies in American Fork Wednesday, March 30, 2016.
Jeffrey D. Allred, Deseret News

AMERICAN FORK — A very small percentage of big thinkers successfully turn an idea into a business, build that company into an operation sizeable enough and worthy enough to attract the interest of outside funders and then finally make the plunge into the public investment markets.

But it's a feat of capturing lightning in a bottle that Utah serial entrepreneur Josh James has, as of Friday's public stock launch of business intelligence company Domo, accomplished not once, but twice.

The initial public offering effort raised $193 million in new capital for the company and earned 13 percent over the $21 a share pricing in an initial trading bump. The stock, trading under the ticker tag DOMO, ended the regular trading day at nearly $27 a share, up about 28 percent.

This year’s Domopalooza event kicked off with dancing ninjas, one of whom was Domo CEO Josh James.
FILE - The 2018 Domopalooza event kicked off with dancing ninjas, one of whom was Domo CEO Josh James.
Herb Scribner

James spoke to the Deseret News shortly after Domo's stock went live on the Nasdaq exchange Friday, reflecting on his experience taking web analytics company Omniture, which he co-founded, public almost exactly 12 years ago.

"The first one, I guess, we didn't really know what was possible or not possible, but we were like, 'Oh, we can do this,'" James said. "For Domo … we've been at the world stage and we know what it takes."

The path to James' tech IPO redux, however, has been decidedly different than the one that led to the acquisition of Omniture by Adobe Systems for $1.8 billion back in 2009. And the last few weeks leading up to Domo's public investment coming out party may have been the toughest ever for the veteran founder/CEO.

A required filing with the U.S. Securities and Exchange Commission in early June revealed financial details that led to a flurry of commentary, most of it negative, regarding Domo expenditures of over $2 million to other companies with which James had direct, or family-based, involvement. Those items included the leasing of a corporate jet from a company James controls, catering services from another company he owns and furniture purchases from a third company, which he co-owns.

Headlines included, "Hype and plunder: This high-tech company may be setting a new low for self-indulgent IPOs" from a Los Angeles Times story, and "Here's the poster child for Silicon Valley excess" on a Bloomberg piece on the company's IPO plans.

While published at a time when James could not — per SEC-mandated "quiet time" rules in effect for companies that have filed for IPOs — offer a comment or response, he told the Deseret News on Friday that he felt some of the reporting was the result of "people taking potshots" and "writing about things with half the information."

"The third-party transactions were done at cost and had no profits in them," James said, "but saved the company a lot of money."

FILE - Domo Technologies employees hold a standing meeting in American Fork Wednesday, March 30, 2016.
FILE - Domo Technologies employees hold a standing meeting in American Fork Wednesday, March 30, 2016.
Jeffrey D. Allred, Deseret News

The American Fork-based company revised that filing on June 18, with new information that detailed the decision to sever ties with all three companies James has connections with and added a note about a new companywide business conduct/ethics code.

Other filing information included that the company was out of credit, cash starved and that without an infusion of fresh capital via an initial public stock offering, was headed for financial dire straits.

"To the extent additional capital is not obtained through an IPO, management will seek other forms of financing," reads a section of the company's SEC filing. "If other equity or debt financing is not available by August 2018, management will then begin to implement plans to significantly reduce operating expense."

The company's new valuation, following the IPO, comes in at about $511 million, a precipitous drop from a 2017 valuation that pegged the company's worth in excess of $2 billion. Fiscal details in the SEC filing reflect debt north of $800 million and revenues last year of $108.5 million against $176.6 million in losses and the year before, revenues of $74.5 million against $183 million in losses.

On Friday, with nearly $200 million in freshly minted funding, James was upbeat in his prognosis for Domo's future and said the financing will carry the company to a cashflow break-even footing.

"We just need to go out and do more of what we've been doing," James said. "We've gotten to a level where we can really scale it up."

Domo reports it has a client list of over 1,500 companies currently and has invested some $330 million in developing its software-as-service product that gathers business data from multiple sources and processes the information, in real time, via an application that can be operated from a smartphone. James said the CEO of one client company raved that it gave him "Godlike power" to know exactly what is going on with his business, at multiple levels of detail, in real-time and at anytime.

Weber State University professor Dave Noack, who teaches entrepreneurship and is also the executive director of the Hall Global Entrepreneurship Center, said he expects the company will prioritize addressing its cost-to-sales ratios to get financially back on track.

"If you look at Domo compared to other companies in the software-as-service space, they are about 20 percent lower in their gross margins than other competitors," Noack said. "In my opinion, the first thing to address is going to be those margins."

Noack also noted Domo's share prices were highly competitive and would not be surprised to see the early rising trend to continue. He also said that while some industry pundits have criticized James for retaining almost 90 percent of voting control of the company through a dual-class share structure, the majority power may bode well for the company.

"This continued role, as the company goes public, may be very good for them," Noack said. "Typically, that comes with a sense of ownership and stewardship behaviors that lead to decisions that are in the best interest of the company."

James was also the creator of the now ubiquitous "Silicon Slopes" label for Utah's growing tech sector, originally referring to the concentration of companies along the central Wasatch Front. The name has since been transferred to a nonprofit tech advocacy group, of which James is a board member.

Silicon Slopes Executive Director Clint Betts lauded Domo's successful IPO in a statement Friday.

"Not many entrepreneurs get to take a company public once in their lifetime," Betts said. "Josh has now done it twice, and it doesn't seem like he's slowing down anytime soon. It's hard to overstate the enormous impact Josh has had on the Utah tech ecosystem over the past two decades.

"There's been a lot of external chatter leading up to Domo's IPO today, but I'd never bet against Josh James, the ultimate wartime CEO and Silicon Slopes legend."