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spk06: Greetings, and welcome to the Sumo Logic first quarter fiscal 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Paul Thomas.
spk01: You may begin. Thank you. Good afternoon, and welcome to Sumo Logic's first quarter fiscal 2022 earnings conference call. I'm Paul Thomas, Sumo Logic's Vice President of Investor Relations. Joining me on the call today are Ramin Sayar, President and CEO, and Sydney Carey, Chief Financial Officer. Our format today will include prepared remarks by Ramin and Sydney, followed by a question and answer session. Some of our discussions and responses to your questions will contain forward-looking statements, including statements related to the expected impact of the COVID-19 pandemic, the expected performance of our business, expectations regarding our platform and solutions, expectations regarding our go-to-market efforts, the expected benefits and the impact of the acquisitions of DF Labs and Censu, future financial results and guidance, strategy, and overall future prospects. These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Security and Exchange Commission. including our risk factors filed with our most recent annual report on Form 10-K and the risk factors that will be included in our Form 10-Q that will be filed subsequent to this call. Sumo Logic assumes no obligation and does not intend to update or comment on forward-looking statements made on this call except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our gap results. Information regarding our non-gap financial results, including a reconciliation of our historical gap to non-gap results, may be found in our earnings release, which was furnished on our Form 8K filed today with the SEC and on our investor relations website at investor.sumologic.com. For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in our earnings release posted on our investor relations website. With that, let me turn the call over to Ramin.
spk04: Thanks, everyone, for joining us today on our first quarter earnings call. Our year is off to a strong start, driven by a demand from our global enterprise and our mid-market customers for Sumo Logic's continuous intelligence platform. Our results give us confidence that we are in the early stages of stabilization and pre-pandemic recovery as we continue to see signs of a return to more normal activity and demand. With this stabilization, we continue to increase our investments to further expand and grow our platform capabilities in both security and observability, powered by analytics and machine learning. Combined with our investments to increase our routes to market, we are well positioned to capture the $50 billion plus market opportunity created by digital transformation and cloud migration. I would like to start with some highlights from the quarter and then go into more detail on each of these topics. First, we delivered strong revenue performance at the top end of our guidance range, driven by robust demand for our differentiated continuous intelligence platform. we saw multiple seven-figure ACV deals from both enterprise and mid-market customers. Second, we saw continued improvement in customer metrics. Total customers and 100K-plus customers increased, and we added the most $1 million-plus customers of the last eight quarters. We added customers that span the Fortune Global 500 to innovative SMB cloud-first companies across U.S., EMEA, and Asia-Pacific theaters. Third, as cybersecurity breaches and supply chain attacks continue to be an increasing concern, we continue to expand our capabilities and customers, as well as gain industry and analyst recognition for our visionary cloud SIEM solution. As such, we continue to enhance our security offering with the closing of DF Labs to further expand our cloud SIEM and security orchestration, automation, and response, or SOAR, capabilities for hybrid cloud customers and managed service providers. Together, our joint solution will help further reduce manual tasks and accelerate threat detection analysis, incident response, and forensic investigations for security analysts and operations teams. Next, we extended our open source strategy and strengthened our observability suite with the announcement of our intent to acquire Censu, a leader in open source monitoring. Sensu has a great team, a large and active community, and easy-to-use technology, which is why their product is being leveraged by over 3,000 companies globally and is one of the top open-source observability tools used in DevOps. More specifically, by joining forces, we will help to further grow the existing large and active OSS community and accelerate monitoring as code for DevOps organizations of all sizes. Finally, we continue to expand our strategic partnerships and routes to market for both observability and security during the quarter. Building on our strategy to grow and support our joint customers, we signed an agreement to be listed and have launched on the IBM Red Hat Marketplace, which is designed to enable organizations to more easily purchase, deploy, and manage software running Red Hat OpenShift, as well as support hybrid and multi-cloud strategies. We believe that IBM's focus on OpenShift ties well into Sumo's observability strategy and allows us to align with IBM in the Fortune 500 and Global 1000 accounts. Similarly, we have had a long, fruitful partnership with AWS, and we recently announced a significant expansion of our relationship with AWS. This is an important and unique partnership opportunity for both of us in order to help further transform security for multi-cloud and hybrid threat protection. Together, we created and launched a new Sumo Logic SIM powered by AWS solution built on top of our continuous intelligence platform and which includes out-of-the-box integration with key AWS security services to help companies of all sizes and security maturity address modern security challenges. This joint initiative is important as organizations of all sizes increasingly requires strategic alignment from their security ecosystem partners of choice, and pulling together a deeply integrated solution between Sumo Logic and AWS further gives our joint customers even more confidence to modernize their security operations. Now, let's turn to revenue. We saw strong revenue performance this quarter with a total revenue of $54.2 million, up 15% year over year. Revenue growth was driven by continued improvement in our customer base. This quarter's gross customer ads continued to be robust above the trailing four-quarter average. Customers who generate more than $100K in annualized recurring revenue, or ARR, increased to 376, accelerating to 14% year-over-year growth, and we had our best quarter in $1 million-plus ARR customer ads of the last two years. Now I'd like to share a few examples of these exciting new customer wins. This quarter, we signed a seven-figure new logo deal with a large life insurance company to replace their legacy SIM solution with our Cloud Sim Enterprise, or CSE. The legacy solution had become too cumbersome to manage, expensive to scale, and lacked important capabilities critical in supporting modern cloud architecture. Our CSE solution won because of its quick time to value, scalability, and features like automatic threat hunting that helps reduce alert fatigue. This win demonstrates our ability to support large enterprise customers that want to rapidly enable their digital transformation and migrate to the cloud. Another seven-figure land in the quarter was with a Fortune Global 500 enterprise software company. The customer had a legacy internal solution built on open source, They were planning to modernize their legacy stack to support a Kubernetes-based architecture, but doing so on top of their open-source platform was going to take a significant amount of time and resources. Sumo provided the observability functionality they needed in a quick time-to-deploy and easy-to-use solution. With Sumo, this enterprise software company was able to focus its resources on modernizing their customer-facing product and service rather than maintaining and developing a cumbersome legacy platform. In addition to our significant new lands, we continue to expand at large enterprise customers we have recently won. In 3Q of last year, we announced a seven-figure land at a Fortune 50 customer. This quarter, we expanded that relationship by adding an international subsidiary, and we're still just beginning to scratch the surface of the opportunity at this large global customer. We continue to add new logos and increase adoption and usage to drive upgrades internationally as well. This quarter, our APAC region delivered robust performance, including a six-figure new logo land at an Asia-based global financial tech company. In addition, we had a six-figure upgrade with a million-dollar customer in that region. We also had a compelling quarter in our mid-market segment. This quarter, we signed a six-figure expansion with an e-commerce customer that had seen a surge of business during COVID. Flexibility is key to this customer as they see elevated seasonality in their shipping business and needed an observability solution that matches their business needs. Our credits model was an excellent fit for this customer. With this expansion, they are now over a million dollars in ARR and over 30x expansion from their initial land. As we've highlighted in the past, our cloud-native architecture advantage allows for us to differentiate further through our innovative licensing and packaging in multiple ways. Customers are able to easily adopt existing capabilities and gain early access to new features. Take, for example, our real user monitoring, or RUM, for more comprehensive APM, or our distributed tracing for Kubernetes and microservices-based applications. This past quarter, we had a large Kubernetes-based observability customer that moved their workloads into production and increased their ingest volume by 100% while allowing unlimited access to a variety of users to ensure collaboration and continuous intelligence. Similarly, prospects and customers have been able to accelerate their cloud migration efforts by leveraging our packaged solution for AWS observability. Our easy-to-use solution comes with auto instrumentation and collection and auto telemetry, as well as out-of-the-box pre-built dashboards and alerting, which enable developers and site reliability engineers to quickly and easily gain end-to-end infrastructure to application observability and, more importantly, reliability. As I mentioned earlier, we made a strategic decision to further accelerate and expand our observability portfolio by signing a definitive agreement to acquire Sensu, which will further extend our open source strategy and strengthen our observability suite. Sensu is a leader in open source and a provider of monitoring as a code solution. More specifically, combining Sensu with our existing Sumo Logic observability suite will provide customers with an affordable, extensible, and scalable end-to-end solution for infrastructure and application monitoring and management. This acquisition, which is expected to close in the second quarter of fiscal 22, also reinforces Sumo's commitment to open source to drive deeper engagement with the developer and DevOps community. In addition, this quarter, we continue to organically build out on our key differentiators. Customers recognize us for ease of use, and we enhanced that ability this quarter with the announcement of Sumo Organizations. This functionality makes Sumo the first DevOps and security multi-tenant solution that enables managed service providers and large enterprise customers to monitor and manage multiple operational and security intelligence deployments across multiple customer and or department accounts. We continue to expand and enhance our security intelligence solutions with the closing of the DF Labs acquisition, and we also expanded our Cloud SIEM solution availability to Australia, and will further expand into Japan and India later this summer. Finally, we made some exciting partnership announcements which further help drive new routes to market. As I previously mentioned, our new IBM partnership includes our listing on the Red Hat Marketplace, where we will offer our cloud-native security and observability solutions for companies running on the Red Hat OpenShift platform. As part of the integration, we extended our existing Kubernetes solution to support Red Hat's OpenShift operator model, making it easier to deploy and manage data from customers' OpenShift Kubernetes clusters and helping Red Hat extend its OpenShift strategy to multi-cloud. As previously discussed, we also announced a significant new collaboration agreement with AWS to jointly transform security for multi-cloud and hybrid threat protection. Sumo Logic and AWS have a long history of partnering together to address the most critical challenges associated with cloud adoption. This new solution, called the Sumo Logic Cloud Sim, powered by AWS, is cloud native, scalable, and offers unified security visibility across multi-cloud, hybrid environments, and multiple third-party on-premises and SaaS security tools. This joint solution helps quickly provide operators and security practitioners with deep insights powered by machine learning and analytics, which helps reduce the time to detect and respond to ever-growing types of threats. The service has been launched, and we are selling it through the direct sales force as well as through AWS. We continue to see heightened focus and a major change or shift and security as evidenced by our continued traction with customers and new partnerships like I just described. We will be discussing this along with our ecosystem of customers and partners at our upcoming Modern SOC Summit taking place on June 8th and 9th, 2021. The event is a free virtual education event for security and IT professionals looking to better understand how to modernize the security operations and the latest in cloud-native security. we invite you to participate as well. In summary, we are pleased with the progress we demonstrated this quarter with our compelling financial performance, improving customer metrics, expanded and differentiated product portfolio, and the exciting new partnerships. Our year is off to a strong start, giving us more confidence that we are seeing continued stability and a recovery to pre-pandemic activity levels. Therefore, Looking more broadly, the secular tailwinds of digital transformation and cloud migration continue to power long-term demand for Sumo. Our product portfolio has never been stronger, and our go-to-market partnerships are well aligned with these investments and secular trends. As such, we'll continue to invest to drive growth acceleration in the back half of this year and position us for continued success as the macroeconomic environment continues to recover. With that, It's my pleasure to now have Sydney, our Chief Financial Officer, provide more details on our financial results in Q1 and our outlook for FY22.
spk00: Thanks, Ramin, and thanks, everyone, for joining the call today. I will provide a brief overview of our first quarter financial results and discuss our outlook for fiscal year 22. I'd like to start with a brief summary of the financial highlights for the quarter. First, we saw robust new business in the quarter, including mid-market and international segments. Next, our operational execution delivered strong top-line revenue growth. And finally, we continue to see excellent performance and contribution from investments in our channel business. As Ramin highlighted earlier, we are pleased with our performance this quarter. I'll add some additional color to the drivers of the performance. First, we saw robust demand in our platform as new business increased, by more than 50% year-over-year, and new logo business more than doubled over the same period. Our North America mid-market business had its best quarter in the last four quarters. Our international business overall grew over 100% year-over-year, driven by outstanding performance in our Asia Pacific region. The strength in our business reflects improvements we are seeing in our go-to-market functions. This quarter, we saw a substantial increase in both the number of transactions and new logo average deal size. This translated into a re-acceleration of growth in our greater than 100K customers and our best 1 million plus customer ads in the last eight quarters. Our channel partners again had an excellent quarter. In Q1, business through our channel more than doubled year over year. The increase was driven by both the number of deals and larger average deal size. In total, we now have over 325 channel partners globally. Additionally, we continue to see the AWS marketplace as a strong contributor to our growth. This quarter, we saw transaction volume through the AWS marketplace grow by more than 3x year over year. Moving to our dollar-based net retention, as we have previously discussed, we did see it decline in the quarter a few percentage points below 115%. In the quarter, we continue to see slower expansion in our install base due to budget pressures, but this quarter there were also two renewal transactions that had large downgrades due to M&A consolidation. In each case, one Sumo customer acquired another Sumo customer, and the two contracts were consolidated. Despite the consolidation, both of these customers continue to be significant users of Sumo with ARR of over 1 million each. While we see improving strength across our total customer base, we do expect to continue to see volatility in our net retention rate. Looking across our customer base, we are seeing customers continue to make larger and longer commitments to our platform. This quarter, our remaining performance obligations, or RPO, increased 62% year-over-year, driven by the size and the duration of new and expansion contracts. Our average land agreement is now approximately two years, double the length from a year-ago period. In addition, our current RPO also increased 39% year-over-year. Calculated billings for the trailing 12-month period totaled $238.8 million, up 25% year-over-year. Recall that we look at the calculated billings over a trailing 12-month period as this metric can fluctuate from quarter to quarter due to the timing of our renewals and billing duration of large customers. Therefore, we believe a 12-month measurement period best reflects the fundamentals of our business. Now I'll review the income statement in more detail. As a reminder, and unless otherwise noted, all metrics are non-GAAP. A reconciliation of GAAP to non-GAAP financials is included in our earnings release and posted on our website. We delivered compelling performance in the first quarter. Total revenue increased to $54.2 million, up 15% year-over-year. First quarter revenue, excluding our largest customer, was 51 million, up 18% year-over-year. Recall that we break out our largest customer because of variability and seasonality that differs from the rest of our business. In Q1, we saw a robust gross margin of 75%, up from 73% in the year-ago period. The improvements in the quarter were primarily driven by our efforts to improve our platform efficiency over the last year and more favorable AWS expenses year over year. Sales and marketing expense was $26.6 million, or 49% of revenue, compared to 59% of revenue in the year-ago period. The decline as a percentage of revenue was driven by reduced travel expenses and lower marketing program spend from digital and online events compared with last year's in-person events. Research and development expense was $15.6 million or 29% of revenue compared to 33% of revenue in the year-ago period. The decline as a percentage of revenue was driven primarily by lower headcount costs as a percentage of revenue and reduced discretionary spend. General administrative expense was $9.2 million or 17% of revenue compared to 16% of revenue in the year-ago period. G&A expense includes increased costs associated with operating as a public company. In total, the strong performance in revenue and the improvements we saw in gross margin, sales and marketing, and R&D drove significant improvements in our operating performance. Our operating loss was $10.8 million, or an operating loss of 20%, improving from an operating loss of 35% in the year-ago period. Net loss in the quarter was $11.2 million, or 11 cents per diluted share, based on approximately 104 million weighted average diluted shares outstanding. Turning to our balance sheet and cash flow, we ended the period with $408.5 million in cash and equivalents and marketable securities. Free cash flow in the quarter was negative $3 million, or negative 5% of revenue compared to negative 25% in the year-ago period. Before moving on to guidance, I'll share some perspective on our current environment. This quarter's performance gives us confidence that we're in the early stages of stabilization and pre-pandemic recovery. However, there's still uncertainty in some of the markets and geographies we serve. The tailwood of digital transformation is growing, but in some cases offset by near-term budget constraints. We expect this mix of headwinds and tailwinds to continue through the remainder of this year, driving volatility in our dollar-based net retention. That said, we are confident in the investments we made in the second half of last year in sales and marketing and new product innovation will drive improved revenue growth in the second half of this year as our capacity becomes productive. We have already seen productivity improvements this quarter, giving us confidence going forward. We will continue to invest this year in our go-to-market and innovation engine to extend our routes to market and broaden our security and observability platform. These investments impact our operating margins this year, but will also drive long-term growth. With that, I'll move on to our second quarter guidance. Our guidance includes both DF Labs and Censu, which have minimal impact to revenue, but will increase our operating costs, primarily in R&D. For Q2, we expect total revenue of $56.1 to $57.1 million, or a growth rate of 13% to 15% year-over-year. Revenue excluding our largest customer of 53.3 to 54.3 million. This represents a growth rate of 18 to 20% year over year. Non-GAAP operating loss of 15 to 14.5 million, or an operating loss of 27 to 25%. Non-GAAP loss per share of 14 cents on approximately 107.4 million weighted average shares outstanding. For the full fiscal year 22, Total revenue of $233 to $236 million, representing a growth rate of 15% to 16%. Revenue excluding our largest customer of $221.7 to $224.7 million, representing a growth rate of 18% to 20% year-over-year. As a reminder, we expect revenue growth to accelerate in the second half of the year. Non-GAAP operating loss of 59.6%, to 58.1 million, or an operating loss of 26 to 25%. Non-GAAP loss per share of 57 to 55 cents on approximately 107.2 million weighted average shares outstanding. In summary, our year is off to a great start with robust new business across our mid-market and international segments. We delivered strong revenue growth supported by positive momentum in our go-to-market functions as we plan to continue to invest in more platform capabilities and expand market reach. We believe we are seeing the early stages of stabilization and recovery to pre-pandemic levels of activity, and we believe we are well positioned for success. With that, Ramin and I are happy to take any of your questions.
spk06: Operator? At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Derek Wood with Cowan & Company. Please proceed with your question.
spk03: Oh, great. Thanks. It's Andrew. I'm for Derek. Congrats on a strong quarter. Sydney, net revenue retention, how are you feeling about getting that back up to over 120%? What leverage do you have to pull there, and over what timeframe should we think about this?
spk00: Yeah, as we said last quarter, we were expecting our net revenue retention to move around. It is a four-quarter average. We feel that it'll take several quarters before we start to see sustained improvement in the four-quarter average. We do anticipate to get above 120%, but it's going to be several quarters out.
spk03: Great. And then for either Ramin or Sydney, on your new hires from the second half of last year, how are they ramping to productivity versus your expectations? It sounds like pretty good, but maybe just any commentary around how that productivity ramp is going and how does that vary enterprise versus mid-market?
spk00: We had a good quarter for new business. Our new business was up over 50% year over year, and that translated into some productivity improvements, not only year over year but sequentially. So we're seeing that productivity come up in the business. We saw good performance out of our North America mid-market business as well as APAC, and enterprise just continues to remain strong.
spk03: Great. Thanks, guys.
spk06: Our next question is from Matt Hedberg with RBC Capital Markets. Please proceed with your question.
spk08: Okay, guys, thanks for taking my questions. Ramin, I wanted to start with you. You know, obviously the threat landscape with all the breaches is noticeable. You know, I'm sort of curious, you know, how do you think about that aiding pipeline? Because I have to imagine that a lot of your customers or prospects see it as really a big data problem. And with your cloud-based SIEM, I have to think that that has to be starting to show up in maybe some increase in pipeline. Could you talk about that as a driver?
spk04: Hey, Matt. Good to hear your voice. I think, like we've talked about before, there's an unfortunate thing for all of us in the security sector where we need to come together to be able to jointly address a lot of the challenges, and hence why we did the announcement in partnership with AWS to really extend our core platform and security capabilities to organizations of all sizes. And so that is a really important partnership that really leverages the back end, to your point, around big data and persistent store at a much lower rate and cost, in addition to all the innovations we've done around Cloud Sim and more. So I think those types of partnerships, the ecosystem integration that we're continuing to do is helping now to your question, drive more activity and hence more pipeline. But it's important to also point out that in the enterprise segment, those are typically a bit longer sales cycles for SIEM deals and either coexistence or replacement versus in the transactional mid-market, you'll see those a little bit faster. Does that answer your question?
spk08: It does. Yeah, that's super helpful. And then, you know, Sydney, you know, the trailing 12-month growth, and I didn't say more, so CRPO growth of 39%, super impressive. You talked about improved growth in the second half, but, you know, when we're looking at the total growth this year at the midpoint, about 15.5%, you know, how should we think? Because, I mean, to me it looks like, you know, with CRPO growing as fast as it is, how should we think about that rolling into revenue as the year progresses?
spk00: Yeah, you know, our CRPO and our RPO is going to be a function of also when we're renewing contracts. We did see in the period that we had a larger early renewal, about $5 million. You'll see that in the billings growth rate reflected in the end period as well as in the CRPO. So as we think about that, you know, those lumpiness of when those larger deals can early renew will impact those growth rates.
spk08: Got it. Thanks. Nice job, Esther.
spk06: Thanks, Matt. Our next question is from Sanjit Singh with Morgan Stanley. Please proceed with your question.
spk10: Thank you for taking the questions. Ramin, I wanted to get your take on how some of these early encouraging trends are playing out across IT ops, security and observability. Is there any particular segment of the business that's sort of rebounding the quickest or is it sort of spread pretty evenly across these three different aspects of Sumo.
spk04: Sanjit, good to hear your voice. I think we see some similarities, but I think if we were to try to put some patterns on this, it comes down to the sophistication and cloud migration and our maturity for the enterprise. customers that we've been seeing. A lot of those, as a result, are starting with security and then extending into logging into more observability, and that continues to be a growing trend. We saw some good wins this past quarter that we've highlighted on the call. And then on the mid-market segment, it was the first quarter we saw some great signs in terms of not just performance, but also the attach of new products. and capabilities as part of our licensing and packaging. So we highlighted one example of a customer using distributed tracing for a large deployment and production as well as new early access beta features that we rolled out for APM. So I think generally we're seeing in the transactional business better stability and attach for observability. And then in the enterprise segment, we're seeing a little bit more of an issue with respect to security threat and landscape, and therefore starting with that, and then extending to observability and logging.
spk10: Got it. And that makes a ton of sense. And then I'm just trying to understand some of the trend lines of the business, because I think, Ramin, in your script, there was a lot of encouraging signs. And then when I try and map that to full-year guidance, I think I'm just trying to understand the construct here. So it sounds like from a new business perspective, you're seeing some really, really nice momentum for the first time in several quarters. As we think about kind of the other two pieces of the business kind of churn and then gross expansion, is that where kind of the remaining friction is in terms of seeing kind of more meaningful acceleration? So between new business churn and expansion, where do we stand on those three aspects?
spk04: Yeah, I mean, Sanjit, I think, you know, on the new ACV side of our business, we're up greater than 50% year over year, and our new logo business was up 100% year over year. So we're seeing great signs there, as well as with customers, both for $100K and million-dollar ads in the quarter. But in terms of the upgrades or the downgrades in churn, I think it's been a little bit mixed by theater and by segment. And that's been... something that we've been talking about because we had less new logo lands last year, and hence the propensity to upgrade within two to three quarters that we historically saw slowed down. But a better indicator for us is how much net new ACV and new logos we're adding and then how much that tends to upgrade in the go-forward quarters. Cindy, do you want to add anything else?
spk00: Yeah, I'd just say that when we look at our churn, we break it into downgrade and churn. And on a positive side, our actual dollar churn, its percentage of ARR, was one of the lowest that we've seen in the last 12 quarters. So we're seeing from that standpoint the actual churn out has really improved over the last four quarters.
spk10: That's a great data point. And thank you so much. And congrats on the good start to the year.
spk04: Good to hear your voice.
spk10: Good hearing you as well.
spk06: Our next question is from Camille Milserk with William Blair. Please proceed with your question.
spk07: Hey, everyone. Thank you for taking my question. Congratulations on the large number of seven-figure wins this quarter. So this is now the second consecutive quarter we're seeing strong enterprise demand. Can you provide more detail about what is driving the strength? How much is a function of the economy opening up versus improvements in the go-to-market motion? And what are some of the changes you're making to lean into this momentum and maintain or even accelerate it over next year?
spk04: Feel good to hear your voice. So I think it's pretty consistent with what we said the last couple quarters in that, A, we're a direct selling model as a reminder. And so as you start to build out coverage and capacity and improve ramp and productivity, again, That has been what we've been focused on in terms of through the first half of this year in Q1 and Q2 to drive acceleration through the second half. So we're performing to plan as we talked about. I think from a macro perspective, we saw good indications with respect to contribution from the international theaters, particularly with APJ. And we had a strong quarter in EMEA as well. I think we also commented on the fact that in the mid market, we saw some good transactional as well as large size deals there. That was probably the best we've seen in a few quarters. I think from a use case and solution perspective, it's pretty consistent to what we're seeing. Large enterprises are more aggressively moving to the cloud and they're starting with migration efforts and therefore with the threat landscape increasing, they oftentimes are starting to prioritize the security use case and leading with that and then adding more broadly observability. And we've seen that happen in deals that we closed in Q3 and Q4 and then adding observability afterwards, right? I think the last comment I'll make is we had pretty strong channel partnership contribution, particularly around security. We announced the AWS partnership. We also announced the Red Hat Marketplace partnership But generally what we're seeing in the channel business, and a lot of that focus in the enterprise has been on security, we're up more than 100% year over year. And so those are good indications that, at least for the majority of North America, that people are prioritizing now back to the normal types of activities versus workforce productivity or other tools, and everyone was at home before last year. So we're seeing the activity, and we're seeing actually the results there.
spk07: That's some great call, Ramin. I'd like to follow up on one of the comments you made about the international business. I think you said in the prepared remarks that it's up 100% year over year. It's great to see that. I know you made some investments right before the pandemic, and great to see that they're playing out. But can you maybe just provide some more detail on what's driven the acceleration in these existing geographies? And relative to the investments you made 18 to 24 months ago, How do you think about the process to enter the new markets this year, especially places that have recently seen higher levels of infection rates? I think you called out COVID, for example.
spk04: Yeah. So I think the first part of that question we saw in APAC across a couple different countries in that theater, strong activity as well as both good concentration of transactional business as well as a few large deals. We hadn't seen that as much in the previous quarters. In particular, as you look at India, where we have a large portion of our workforce, that's been a region and country that there's been a lot of concern about that we've had in terms of our involvement in the community and the like. But we saw some good traction in Q1, despite everything going on, with new ads as well as upgrades in terms of customers. Shifting over to the EMEA theater, it tends to still be concentrated in UK, Nordic, Benelux area. Dock in southern EMEA is a little bit slower still. We're seeing good activity, but not necessarily back to pre-levels. Shifting over to North America, enterprise business continues to be strong, channel business also, and I believe that we've commented already in terms of the best quarter in terms of million-dollar ads. Over the last eight quarters, a lot of that came from North America and a couple from international.
spk07: That's great. Thanks again for taking my questions.
spk06: Our next question is from Mark Murphy with JPMorgan. Please proceed with your question.
spk09: Good afternoon. This is Matt Koss. On behalf of Mark Murphy, thank you for taking my question. Ramin, you mentioned a six-figure expansion with a mid-market customer. They needed an observability solution, and you pointed out that the credits model was an excellent fit for them. I just wanted to hear more about the Cloud Flex credits model. How has the marketplace responded to this? How much adoption have you seen? Has it been particularly instrumental or a deciding factor in new customer wins. Any color you can write would be appreciated.
spk04: Sure. Thanks for joining us. First comment on that, we've seen north of 50% of our ARR move to a credits model. And just to be clear, we're waiting for a lot of those customers as their terms, subscription terms come up or the upgrade to migrate them to that. And so we've seen good traction in the upgrades and renewals to the credit model. And I believe as we've commented the last couple quarters, roughly two-thirds if not more of the deals, new deals, new logos are on the new credit model as well. So I think the uptick in the credit-based licensing and packaging continues to be strong and is playing out like we expected. In that particular customer example, What was really happening was that they needed flexibility in terms of tiering of data and they had seasonality in their business and they needed something that matched the economic model that matched their operating model and business model. And that's an easy solution for them from a financing point of view, but also from a technology point of view. So they grew to over a million-dollar ARR, and it was 30x, I believe, expansion of where they initially landed with us. And now they're a full-stack observability customer.
spk09: Got it. Thank you. And then you also mentioned that a Q3 seven-figure deal you've closed added an international subsidiary. You're just scratching the surface of that opportunity. How do you see this going forward? How are you sort of making sure that, I don't know that this is low-hanging fruit, but how do you make sure you're capturing all those opportunities and sort of providing the value across more of an organization after you've made that initial land?
spk04: Yeah, I mean, I think for a lot of the larger Fortune and global accounts, they've already, if it's either security transformation or cloud migration, phased out or sequenced out which apps they're migrating and modernizing or which areas of security in terms of infrastructure and apps they start to modernize and migrate and so it's a matter of sequencing kind of that and sometimes it's regional and sometimes it's by technology and domain or tiers so in that particular case the customer started with corporate and then had some subsidiaries and other bus and other technology environments they need to migrate and get off of some open source and other tools and brought them on board. And I think that is a good indication of where we are in the broader landscape of the trillion-dollar technology shift that's shackled in the data center that's moving to the cloud that needs to be modernized, that needs to be secure, and needs to have an economic model and cloud licensing model that mirrors what Sumo provides.
spk02: Thank you.
spk06: Our next question is from Kinsley Green with Barenberg. Please proceed with your question.
spk05: Hi, thank you. So I'd like to check in on the federal space. So trickle in the heels of Biden's recent executive order and you achieving FedRAMP moderate in February, what incremental opportunity do you see in the Fed space and then how are you balancing partner growth and direct sales?
spk04: Hi, Kinsley. I think We haven't necessarily seen anything from legislation necessarily impact that yet. However, I can tell you the organic efforts that we've been putting in, both investments in the channel and partnership and also on the technology side, has resulted in a significant increase in pipeline and activity. And, you know, as we've talked about, you know, you have to hit the budgetary cycles, and so that's a great time for us to get the FedRAMP attestation and moderate level. And it's something that we've been preparing for. And so we're just now signing up more partners and going after more opportunities. And we see that playing out in the back half this year and into the following year as originally planned.
spk05: Okay. That's great to hear. And it's just one follow-up. Great to hear about the Red Hat Marketplace Partnership. So we'd like to check in on the competitive dynamics with IBM QRadar and if there's any changes there.
spk04: Yeah, I think this is fundamentally a different part of the business and strategy. IBM has a lot of large Fortune customers that are modernizing and migrating to any cloud as part of their initiative. And whether it's their own security tools or third-party security tools, in this particular case, it's about expanding and extending Red Hat OpenShift and providing observability as well as security to customers through that marketplace vehicle. We're already actively working with them on various accounts. We've identified more by segment and by vertical, and that's an area that we're going to continue to invest and partner going forward.
spk05: Okay. Makes perfect sense. Thank you.
spk06: Our next question is from Stefan Swartz with BTIG. Please proceed with your question.
spk02: Hey, this is Stefan on for Gray. Thanks for taking my question. I've got a billings and revenue question. It looks like you grew current billings above 30% in the quarter, up from 28% in Q4, but continue to guide revenue in the mid-teens. When should we see those metrics converge, and could you end up exiting fiscal 22 with revenue north of 20%?
spk00: Yes, when we look at our billings target, in our performance around billings, you know, we look at that on a trailing 12-month basis. We will have larger renewals that will either slip or pull in. In this particular quarter, we had a larger renewal pull in. It is a renewal that had a big expansion with it, and that pulled in from a future period. And that will make an end period compare a bit lumpy. So, again, if you look at our trailing 12-month, our growth rate is 25%.
spk02: Got it. Thank you. And then just a point of clarification is those two M&A downgrades, were those the same as the ones that you highlighted last quarter or those new ones?
spk04: Those were different ones that we talked about last quarter.
spk02: Okay. And was there any residual impact on revenue or billings growth this quarter from those prior ones?
spk00: Prior meeting Q4?
spk02: Yes.
spk00: That would have been factored into any guidance that we provided as we were exiting Q4 and entering Q1.
spk02: All right, thank you so much.
spk07: Thank you.
spk06: And we have reached the end of the question and answer session, and this also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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