Q4 2020 Sumo Logic Inc Earnings Call

Greetings and welcome to sumo logic fourth quarter of fiscal 'twenty 'twenty One earnings conference call. At this time, all participants are in a listen only mode.

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 as a reminder, this conference is being recorded.

And now I'd like to turn the conference over to your host today, Mr. Paul Thomas Vice President of Investor Relations. Please proceed sir.

Thank you good afternoon, and welcome to sumo logic for fourth quarter and full year fiscal 'twenty, One earnings conference call I'm, Paul Thomas Sumo logic, as Vice President of Investor Relations. Joining me on the call today are Rami and Sayer, President and CEO and Sidney carry Chief Financial Officer.

Our format today will include prepared remarks by Romijn 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 relating to the expected impact of the COVID-19 pandemic performance of our business expectations regarding our platform and solutions expectations regarding our go to market efforts, the anticipated benefits and timing of our proposed acquisition.

And of D F labs 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 and.

The discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, including our risk factors and filed with our most recent quarterly report on form 10-Q, and the risk factors that will be included in our form 10-K that will be filed subsequent to this call.

<unk> 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 GAAP results information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our earnings release.

<unk>, which was furnished with our form 8-K filed today with the SEC and on our Investor Relations website at Investor Day, Sumo logic Dot com.

And 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 and our earnings release posted on our Investor Relations website.

With that let me turn the call over to running.

Thank you Paul and thanks, everyone for joining us today on our fourth quarter and full year earnings call. We had a strong finish to our year driven by demand for similar logic continuous intelligence platform, we see customers of all sizes and maturities choose our platform to enable their cloud and digital transformation.

Our multi tenant cloud architecture delivers rapid time to value scalability analytics for all data types and flexible packaging of licensing these differentiators position us well and the more than $50 billion addressable market, we see in front of us.

I'll start with the highlights of the quarter and then go into some more detail for.

We are continuing to successfully navigate a difficult environment and saw strong revenue growth driven by adoption across multiple customer segments as well as both domestic and international markets.

Second we are seeing early signs of stability and recovery and our customer base gross customer adds and the quarter were above the year ago pre pandemic levels.

Third we expanded our route to market investments and our partner ecosystem, helping drive early traction for our observe ability and security solutions launched in the second half of the year for.

Fourth we achieved fed ramp modern authorization, enabling a significant new route to market. We were one of a select few SaaS observer ability and analytics companies with this type of authorization.

Finally, we continued to expand our platform launching new integrations and capabilities for both observer ability and security security solutions.

Now I'd like to provide some more details on each of these.

We saw strong revenue performance with total revenue increasing to $54 $2 million up 22% year over year revenue growth was supported by improving momentum and our customer base.

And this quarter, we landed over 140, new customers exceeding the gross additions and the year ago quarter, putting us back above pre COVID-19 levels momentum also continued with our customers who generate more than 100, K and annualized recurring revenue or you are.

These customers increased to $3 58 up 11% year over year, and we added two customers with over $1 million and they are the quarter to finish the year with 31.

Despite the challenging macroeconomic environment, we continue to win with customers of all sizes and across multiple use cases. This quarter. We again saw more than 30 per cent of our wind land with multi use cases across Dev ops security and it teams.

Often we initially land and one of more use cases, and then expand adoption as more users teams and organizations leverage our platform and therefore increase their data ingestion and analysis.

We see the expansion process and action as daily volume ingestion scans and analysis increases and in fact, our average daily Ingests grew more than 35 per cent year over year, and we continue the scan over 800 Petabytes daily.

To put that and perspective, let me share just a few examples of the land and expand wins driving this growth and the quarter.

I'll start with the win and one of the most impacted segments of the market the hospitality and travel industry. This quarter, we signed a six figure of land with a large global hotel operator to replace their legacy Sim solution with our cloud and enterprise or C. S E.

The legacy solution had become too cumbersome to manage and way too expensive to scale.

Our <unk> solution, one because of our automatic threat hunting and of rapid reduced meantime, the remediation and cloud economics as well the scalability.

This win demonstrates that even impacted industries still need to modernize the analytics tools and automate the security processes as they migrate to the cloud.

We have also seen customers accelerate their digital transformation efforts as a result of the pandemic. This quarter, we had a six figure expansion with a large retailer the customer initially started with sumo logic platform a year ago and the business intelligence use case, they use our analytics capabilities to give them better visibility into there.

The customers Omni channel experience.

When the Covid impacted their business the shifted to a full digital experience for their customers, which significantly expanded the amount of data they needed to analyze for more comprehensive observer ability as a result, the expanded with sumo logic and we have become a core part of the digital transformation strategy.

As adoption of sumo logic and spans we also look the cross sell into other departments with new use cases. This quarter, we had a six figure of cross sell into the security use case with a large health insurance provider.

While we initially landed with the Dev ops team of little over a year ago with and AWS observe the ability use case. The security team was also leveraging sumo this quarter they decided to upgrade the legacy Sim and chose our cloud some enterprise what differentiate US here was our ease of use with comprehensive out of the box of analytics and automated threat detection.

Section Bubbling up only the events that matter, therefore significantly reducing investigation time and meantime, the resolution for the security practitioners.

Our land and expand sales motion can start with very small transactions as well for example of self service and expand over time to become a significant customer.

This quarter, we had and expansion win with the financial service technology provider, who started of thousand dollar a R. R.

They're standardizing on our platform and growing their usage as demand for their digital service group. They are now over 500, K and air.

The digital transformation of financial service industries, both in the U S and internationally continues to provide substantial market opportunity for us.

This quarter and the U K, we had a six figure of land with the bank. He was using sumo logic to secure their mobile banking platform the.

The bank has the legacy on Prem security tool, but it cannot meet the needs of modern cloud platform there of building there.

And they picked sumo logic because of our leading cloud Sim solution powered by cloud based analytics, our modern multi tenant architecture and our of course, our dynamic scale.

We continue to see customers adopt new observe the ability capabilities should be launched in Q2. As an example, this quarter of health care technology customer signed a seven figure expansion with US that included the adoption of our distributed tracing capabilities. In addition to a significant expansion of operational and <unk>.

Security use case capacity, leveraging our enterprise suite and cloud for.

Licensing of our credit based licensing.

Now shifting to our ecosystem strategy, we continued to expand our reach with ecosystem partnerships to drive awareness and adoption of our observer ability and security solutions.

In addition to the integrations, where their cloud Sim solution and the AWS network firewall, we updated and broadened our third party integrations for both the observed the ability and security the.

This quarter, we also expanded our software development optimization solution previously announced with Atlassian and others to also include sauce labs.

Sumo logic enables customers to leverage their test data from soft labs continuous testing cloud the automatically derive actionable insights that help improve the released velocity quality reliability and also security of applications across debt seconds.

We continue to invest and expanding our routes to market. This quarter, we achieved significant milestone and the fed ramp moderate authorization, which further differentiates the security of our platform and opens up significant new public sector opportunities for us and the government agencies.

We're proud of our team and the hard work it took to achieve this important milestone.

Now I'd like to move on to innovation.

This past year was a massive year for innovation that sumo, we broaden the sumo logic observe the ability suite with new additions, including our AWS observer ability solution, which included our new distributed tracing and open source monitoring capabilities.

Following on that this quarter, we announced the launch of service maps, providing a holistic view of micro services and the interdependencies, allowing faster root cause troubleshooting for Dev ops and site reliability engineers.

In addition to service maps, we enhanced our root cause of explorer capabilities by including a wide array of applications, such as Amazon cloud watch and kubernetes for logs metrics and tracing tool.

To allow engineers to quickly identify the root cause of the surface degradations.

This was also a transformational year and security for US we integrated the <unk> acquisition into our cloud native Sim platform, helping us further when six of the significant new business as customers look to secure larger cloud and digital environments, while also improving the automation and intelligence.

Of the security operations center or suck.

To accelerate the viral adoption of our new absorb the ability and security features this quarter. We added two new free certifications and sumo logic training program observer ability and clouds and these were launched at AWS re invent and add to our multi level of certification program.

That provides users with the knowledge skills and more importantly, competencies to maximize investments and the sumo logic platform.

Total certification now exceeded 25000, increasing 50% year over year and the most recent quarter.

Building on the success of our cloud thin and we are excited to announce that weird and entered into a definitive agreement to acquire D. F labs, a leading provider of security orchestration automation response for soar capabilities.

D F labs will further enhance our cloud Sim solution by automating the remediation of threats identified by our Sim.

We believe adding sort of our capabilities will create a great opportunity for us to take further advantage of the momentum we have with our cloud Sim.

And also provide a great opportunity for our ecosystem of partners.

The transaction is subject to customary closing conditions, including certain government and poodle approvals and we anticipate the transaction will close and the second quarter of FY 'twenty two.

In addition to the investments we are making and our platform, we continue to invest and our go to market functions.

This year, we plan to expand our reach through increased direct sales and growing our ecosystem of partners, including Isc's distributors and resellers M. S piece and M. S. S P's.

We intend to enter and grow into new markets like federal and expand our international presence with distribution partners.

And we expect to leverage our expanded partnership with AWS, which includes enhanced go to market and strategic collaboration programs across deal registration marketplace target verticals and other geographies.

In summary, we're pleased with the strong performance, we demonstrated this quarter and this year.

The secular tailwind of the clouded option and digital transformation continue to drive demand for our differentiated Dev ops analytics platform.

Putting our expectations for the year and context, we believe the overall demand and market dynamics remain generally similar to the second half of last year, while we see encouraging signs and our customer base COVID-19. The headwinds continued impact of the overall spending environment and create elongated sales cycles. However.

And the opportunity from cloud migration application modernization and security transformation are growing and we are well positioned to benefit.

Customers across industries continue to choose sumo logic as a core part of their digital platform.

We plan to increase our investments and fiscal year 'twenty two to enhance our ability to capture more of this opportunity and we anticipate the increase and investment we made over the second half of last year will drive improved growth and the second half of fiscal year 'twenty two.

With that I would now like to have Sydney Kerry <unk>, our chief Financial Officer provide more details of our strong financial results and Q4 and our outlook for fiscal year 'twenty two.

Thanks for me and thanks, everyone for joining the call today I will provide a brief overview of our fourth quarter financial results and discuss our outlook for fiscal year 'twenty two.

Like to start with a brief summary of the financial highlights for the quarter and year first customer and channel and metrics continue to improve this quarter with wins across market segments and geographies next our operational execution delivered strong topline revenue growth and lastly, we demonstrated efficiency with continued improvement and our margin.

We are pleased with the continued momentum we are seeing and our customer base, where our enterprise customers make up over 60 per cent of our total air are.

And you mean highlighted earlier, our gross customer adds in Q4 were up year over year, and fact gross customer additions for the strongest we've seen in the past four quarters and we are back to pre COVID-19 levels. We saw this both in the Midmarket and enterprise segments.

This quarter, our customers over 100, K and air are increased to 358.

7% year over year and customers over 1 million and a R. R increased to 31 up 24% year over year.

We ended the year with 2164 customers, while the total customer count is up only slightly from a year ago that total does not include over foreign of customers, who are managed service providers. Our MSP all sorts of lever scheme of logic to those MSP and customers have more than doubled year over year.

In addition to MSP or channel overall wrapped up and excellent year growing more than 100% and fiscal year 'twenty. One we continue to expand our partner ecosystem as well and exited the year with over 300 partners globally.

And lastly, besides the strong finish to the year, both and mid market and internationally with the mid market, having the best performance of the last four quarters and EMEA posted and the best performance of the last eight quarters.

While we continue to operate and an uncertain environment. We are encouraged by the momentum, we're seeing and our customer base as we exit the year.

Moving to our dollar based net retention as we discussed last quarter, we did see a decline in the quarter a few percentage points below 120%. This is the first time and 11 quarters it dropped below 120%.

This was primarily driven by the combination of pandemic related impacts of slower than historical expansion and the install base and higher than expected downgrades and Sharon driven by two large impact of customers.

And we do expect headwinds to persist and continue to drive volatility and our net retention, causing it to decrease in the coming quarters. At the same time, we are seeing encouraging signs as mentioned earlier that we believe will drive longer term improvement and our performance.

Now I'll provide more details on our fourth quarter and full year financial performance we.

And we delivered a strong performance and the fourth quarter total revenue increased to $54.2 million up 20% year over year of course.

The quarter of revenue, excluding our largest customer was $50 8 million up 27% and year over year recall that we break out our largest customer because of the variability and seasonality that day for setting the rest of our business.

For the full year fiscal year 'twenty, one total revenue was $202 6 million up 31% year over year.

Calculated billings for the trailing 12 month period till the $227 million up 24% year over year recall that we look at calculated billings over the trailing 12 month period as this metric can fluctuate from quarter to quarter due to the timing of renewals and billings of duration for large customers and therefore, we believe the 12 months.

Measurement period, that's reflects the fundamentals of our business.

Our remaining performance obligations or our P. O increased 41 per cent year over year, driven by the size and duration of new and expansion contracts. We are pleased to see customers, making larger and longer term commitments to our platform. In addition, current RPI also increased 24% year over year.

Now I'll review the income statement and more detail as a reminder, and unless otherwise noted all metrics of our non-GAAP a reconciliation of GAAP to non-GAAP financials is included in our earnings release and posted on our website.

First we again saw significant year over year improvement and our operating margin profile of this quarter, we called out in Q3, we were ramping our hiring back after pausing hiring and the prior quarter.

And Q4, we continue to hire with the focus on our go to market head count, but overall, we didn't achieve our forecast, which led to lower than expected expenses in the quarter that combined with lower discretionary spend and where the key drivers of our improved margins.

And Q4, we saw strong gross margin of 77% up from 70% and the year ago period. In addition, we also saw a full year gross margins improved to 76 per cent compared with 73% and the year ago period.

The improvements in the quarter and year 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 25 million of 46 per cent of revenue compared to 64 per cent of revenue in the year ago period head count costs as a percentage of revenue declined year over year. In addition, we continue to benefit from reduced travel expenses and lower marketing program spend as we shift from in person events to digital and online.

And Q4, we did reach our quota carrying head count objectives, and continue to hire to drive growth and fiscal year 'twenty, two and fast and Q1, we are on track to hire back at pre COVID-19 pace across the company.

Research and development expense was $14 3 million or 26 per cent of revenue compared to 34 per cent of revenue and the year ago period. The decline as a percentage of revenue was driven primarily by lower head count costs as a percentage of revenue and reduced discretionary spend.

General and administration expense was 8 million or <unk> 15 per cent of revenue compared to 16 per cent of revenue and the year ago period. G&A expense includes increased cost associated with operating as a public company.

In total the strong performance and revenue and the improvements we saw and gross margin sales and marketing and R&D cause significant improvements and our operating performance. Our operating loss was $5 7 million, an operating loss of 11% improving from an operating loss of 45 per cent and the year ago period for.

For the full year fiscal year 'twenty, one our operating loss of 15% was a 23 percentage point improvement over the prior year.

Net loss and the quarter was $6 7 million or seven cents per diluted share based on approximately 101 7 million weighted average diluted shares outstanding.

Turning to our balance sheet and cash flow, we ended the Perry with Florida, and $4 $1 million and cash and equivalents a decrease of $3 3 million from the prior period free cash flow in the quarter was negative $1.8 million of negative three per cent of revenue compared to negative <unk> 46 per cent and the year ago period.

Now I'll move onto guidance as we enter fiscal year 'twenty, two and we've not seen a significant change and the macro environment compared with the second half of last year the.

Timing and pace of the recovery is difficult to predict however, we believe the opportunity presented by cloud and digital transformation continues to grow regardless of when the recovery picks up we are investing to capture more of the opportunity and believe that as we exit COVID-19 the pace of digital transformation will accelerate.

We anticipate the investments we've made and the second half of last year, and sales and marketing and new product innovation will drive improved revenue growth and the second half of the share as our sales capacity becomes productive.

In addition, and fiscal year 'twenty, two we are increasing our investment and go to market and innovation to build more routes to market and to broaden our security and observe the ability platform.

These investments will result, and lower operating margins this year, but will also drive long term growth.

With that I'll move on to our first quarter guidance.

For Q1, we expect.

Total revenue of 53.2 to $54 2 million or a growth rate of 13% to 15% year over year.

Revenue, excluding our largest customer of 55 to 51 5 million. This represents a growth rate of 17% to 19% year over year.

Non-GAAP operating loss of 11.7 to $11 2 million and operating loss of 22% to 21%.

Non-GAAP loss per share of 12 cents on approximately.

103 million weighted average shares outstanding.

For the full fiscal year 'twenty to total revenue of $231 million to $235 million, representing a growth rate of 14% to 16%.

Revenue, excluding our largest customer of 220 to 224 million, representing a growth rate of 17% to 20% year over year.

As a reminder, we expect revenue growth to accelerate and the second half of the year.

Non-GAAP operating loss of 47.3 to $45 3 million or an operating loss of 20% to 19% non.

Non-GAAP loss per share of 50, 248 cents on approximately 104 million weighted average shares outstanding.

In summary, we executed and an uncertain environment and we're pleased with the results of the quarter and the year, we delivered strong revenue growth positive momentum and our customer base and improving margins. We plan to invest this year and more plot from capabilities and expand our go to market reach we believe we are well positioned for success.

With that remain and I are happy to take any of your questions operator.

Thank you at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and it may be necessary to pick up your <unk>.

And set before price of just Darkies, one moment as we poll for questions.

Our first question comes from Derrick Wood with Cowen and company. Please proceed.

Oh, great. Thanks, and congrats on a strong quarter, maybe of cheap harder for bromine and and shed day in and starting with Sydney.

On the billing side I know you guys talk about kind of volatility quarter to quarter, but it looks like you had a really strong.

And each quarter it at 36% growth maybe part of that was from from long term deferred but even stripping that out it was 30% and it doesn't look like that that's carried much through and into the revenue guidance for fiscal 'twenty. Two so could you just kind of double click on that maybe you know call of anything to call out that skewed the.

Billings and the quarter and then.

I'll wait for that for a follow up.

Sure. Thanks, Derrick so in the quarter, we had pretty consistent and billing pattern to what we had seen last fiscal year and our billings are have normalized back to.

The bulk of our contracts being annual upfront. So we didnt have anything unusual so as we look at the the billings growth and it's tracking to where we thought it would be.

Okay and then.

And.

Guidance ex large customer of ours about 20 per se.

Growth and I understand the old navigating the slowdown from fiscal 'twenty, one and needs of the student of the growth and Beth for.

Sure.

And I and I did.

Uh huh.

And for some of the key initiatives the drive that the growth acceleration I know you hit on that a little bit, but if you could just kind of call out maybe the top two or three things that you think really will move the needle on our growth acceleration and the second half.

And it.

Sure Hi, Derek.

And as part of that question got broken up and I think I got the gist of it.

So what are the drivers for the growth and the back half I mean, I think it's important to remember that we are still predominantly of direct selling model and we did slow down capacity hiring and the first half of last year and started to pick it up and the back half of this year and we're continuing to invest and that the second driver for that tends to be around the expansion.

And of our portfolio and the has lot to do with the organic innovation with respect to the observer ability announcements as well as our leading cloud and enterprise. The third piece of that growth is stability and some of the international markets as well as and our install base.

Particularly those customers and impacted industries as we look to re approach those.

Okay, and anything you could share in terms of kind of where you stand today on on sales capacity growth or where you'd like to get to by the end of the year.

Yeah. The good news there is we're actually ahead of plan on capacity hiring as we entered the quarter, we were up 20%.

Correct me, if I'm wrong, Sydney and terms of capacity entering.

Fiscal 'twenty two yeah, we were up more than 20% of fully ramped capacity and the enterprise and overall capacity was up also entering that we saw good improvement and our enterprise capacity for fully ramped reps as we enter fiscal year 'twenty two.

Right.

Right.

Great to hear okay. Thanks, guys.

Good to hear the deck.

Our next question comes from Matt Hedberg with RBC capital. Please proceed with the question.

Oh, Hey, guys. Thanks for taking my question.

You know we're now several months removed from the solar once the Sun burst hack and.

Curious you know how is your conversation with customers around that for because I have to imagine you guys are and a good spot to help folks navigate that.

And that situation, but just more broadly sort of the increased threat landscape as we enter the.

The calendar or fiscal your fiscal 'twenty two.

I think Matt nothing is much different in terms of the opportunity for security and due to that unfortunate circumstance to be blunt and I think its risen of the awareness I would say at the board level as well as across E staff and lot of our customers and so there's more converse.

Patients were having there secondly, we're seeing and enhanced need for auditing capabilities third in terms of some of the components of our spec ops and services related to our cloud seemed to help with augmentation of staff so to speak around the cloud and the enterprise offering.

But by and large I think.

What a lot of the conversations are around is how do they need to assess and look at their own environments and practices and policies and then look for incremental tool spend.

That's the that's great that's helpful and then.

Sydney. It was it was really good to see the growth and the customers I know you guys have had some from.

And churn on and kind of the more of the newness of beside of your business. I guess, you know thinking about the first half versus the second half and.

And the acceleration you're looking towards and the second half how do you think about the you know where we're at in the SMB churn do you think we're towards the end of that.

Now that we're sort of kind of like we got vaccines out there and and the economy starts to pick up a little bit of spend can be cured.

On your your thought on churn from you on the SMB side.

Yeah.

So if I look at last year of fiscal year 'twenty. One you know over 85 per cent of our churn and customers with mid market or below and the bulk of those where SMB and so I think we'll still see volatility in that base and but we were really pleased with the net the I'm sorry with the gross customer adds in Q4.

And in particular, it was both strong and the Midmarket as well as the enterprise and getting back to some pre COVID-19 levels. We also saw that our new logo average deal size was also back to pre COVID-19 levels and.

And our average deal size overall was also coming back to pre COVID-19 levels and and the enterprise segment, we saw those coming up about 20%. So we actually had some very good customer metrics and the quarter and so we feel like that's a bit of momentum as we go into the next year.

Oh, that's great I mean, it seems like Theres a lot of momentum exiting this year with a little bit of conservatism and the first half of it it seems like trends coming out of Q4 were quite strong. So that's it for me guys. Thank you.

Thank you.

Our next question comes from Sandeep Singh with Morgan Stanley. Please proceed.

Thank you for taking the questions and congrats and a really good Q4 I guess the first question some of the acquisition.

This morning on the on the sort of space and I guess the question remain would be if we think about observer ability and the ability to instrument and the help them diagnose the performance of modern apps, plus cloud based and plus the war.

Total without this acquisition and what sort of brings to the table and then ultimately do we need to get to the end point to have sort of the unified security offering across all of the elements of apps to two and point.

Yeah.

Any sense you could this either here and voice again.

I think if we look at some of the trends across both observe of ability as well as security and the need for automation and analytics.

And the same and the interesting aspect about this particular acquisition for us and we've looked at dozens of stores out there and the automation tools is that is not only applicable to the security use case, but much more broadly.

So that's rationale one I think the second point of that in terms of where do we need to continue to invest to be honest with you. We don't need to go all the way to the endpoint.

And there's a reality and a lot of enterprise customers, where they have more than one and point tool more than one network firewall service more than one X Y Z and so we need to be continuing to provide the bridge from the old to the new and we've been doing that for quite some time over a decade and fact, so our strategy remains the same.

In terms of why now why soar, we believe strongly that that's not a separate market category. It's an extension of the cloud native Sim and frankly, we're the only cloud native stem on the market now with an integrated soar capability to bring the market. So I think competitively and differentiator and differentiated offering is really important here now.

Now with that said, we still support choice and we'll still integrate with some of our partners that have their own soar tools and the like but we will definitely be integrating that very quickly after close of the acquisition.

Very interesting and very interesting and well see how that for investors.

Over the next couple of quarters and my follow up question was more for Sidney and I and I understand the guidance I guess my question is around kind of the pace of change.

In terms of the the growth rates and the business. So if I look at prior to the Union just completed on the X customer excellence customer basis, you grew about 42% when COVID-19 hit the business growth rates took a step down for the past three quarters of sustained revenue growth at sort of the high Twenty's and then guidance calls for another.

The incremental leg down for the 17 to 20 per cent range. So simply I guess the question is around why is it why was the weakness so quick to be reflected in the financials and then when we talk about some of these green shoots and you've seen and your business why is that going to take that much longer for that to get rolled out.

And in the overall credit trends.

Yeah.

Yeah.

Yes, so and you know again as a reminder, we are at capacity driven model and so that the freezing of hiring really and the first half of fiscal year 'twenty. One is impacting our go to market and the growth rate.

And we also saw some larger churn in Q4, we had two large not true, but downgrades were the two large larger customers that downgraded one was and the travel and hospitality space and the other one was and M&A consolidation, that's definitely impacting our growth rates as we look into the the next fiscal year and.

And we're seeing a bit slower expansions and our install base and we believe that as we start to see a bit more normalization of cutting out of Covid that those will also begin to bounce.

Bounced back to a better rates that we'd seen in the past.

Understood and best of luck and fiscal year of trying to.

[laughter].

Our next question comes from Bhavan, Suri with William Blair. Please proceed.

Yeah.

Hi, everyone. This is the mill on for Bob and congrats on the solid on for the year.

Quick question on competition and several companies and forgotten.

Began to ramp of new security solutions over the next year and have you seen a change and the competitive environment.

Hey, there.

No I don't think we've seen any change in either of the security or the observe of ability segments of the market that we serve you know I think there is still quite of bit of noise given some of the issues with other vendors and the hack that happened but to be Super blunt, we believe that our cloud native architecture, our long history and secure.

Alrighty and the ability to deal with all types of the data is what's driving a lot of success for our cloud some enterprise that coupled with obviously the acquisition of the source continues to set us apart.

And that's great to hear and just as a follow up.

The customer conversations changed over the past year since you changed your pricing model or are customers using sumo logic products differently than they did a one and a half the two years ago.

Yeah, Great question and Q4, we saw the strongest quarter in terms of.

Contribution from the new packaging and licensing and hence the credit based licensing.

We still have a good portion of the installed base at the lower and that's and that transition as well as the mid to enterprise segments and as they come up for renewal all of those conversations naturally happen.

0.2, if you look at the the gist of those conversations it's really about value and transparency and so they can really understand the usage. They can understand the consumption of our usage of credits and by use case as well as departments are of different teams and so they can either allocate that.

Out of our plan for what they need to spend so a lot of those conversations are helping them become more proactive versus reactive and getting a surprise shock and build like they do with other vendors and the space.

That's great. Thanks for me.

Our next question comes from Mark Murphy with J P. Morgan. Please proceed.

Yeah, Hi, this pendulum sitting on behalf of Mark Thanks for taking our questions and congrats on the quarter I'm.

On the topic of pricing remain of could.

Could you update us if if you know what portion of your customer base is and the credit based pricing as of today have you seen any kind of an average uptick and air are as they have moved over.

And the new pricing.

Yeah, we're not disclosing the percentage of the installed base that's on the new model, but I can say.

North of 84% and 80% of deals last quarter were all credit based licensing. So there's indication of strong adoption for both net new as well as upgrades and renewals.

Understood, Okay, and and on the on the competition from obviously you have seen splunk kind of shore up their own cloud observed with the multi suite all the two acquisitions could you maybe highlight of.

What differentiates <unk> suites versus a splunk cloud opposite of ability or others, and and if you've seen any kind of material change and win rates.

Yeah.

Yeah, I mean, the first and foremost we.

We have been organically building that out and integrating it to the core analytics back and of our platform for multiple years. We started back in 2015 with the first unified logs and metrics solution on the from on the market period. Then we added more of not just the basic monitoring but.

Extending into the application and kubernetes environments, and then extended that with observe ability of lineup last fall and September with distributed tracing as well as AWS Absorbability C D and and much more so I think youre seeing of continued.

Our focus and innovation and delivery organically from us there and so as the results are not left of kind of have different licensing models different back and different usage different UI of different xyz.

So that's generally across the market, where a lot of customers. Unfortunately has to deal with today now with all of that said, where we see majority of practitioners still decide and how they buy is still very much and best of breed environment out there.

Irrespective of vendors trying to build out the entire suite, claiming they're doing X y Z or extending to security monitoring and claiming more of the practitioners are smarter than that and the evaluate technologies and they know what they're getting and we are of good opportunity to continue the not only attached or install base the new modules.

And as well as net new logo lands that we talked about earlier in terms of Q4 and go for it.

Understood. Thank you.

Our next question comes from Rob Owens with Piper Sandler Presell seat.

Great. Thank you guys for taking my question.

I'm curious as you look at net retention rate and in fact, it fell below one and 'twenty two.

For you there Gabriel and sort of how we should be thinking about that and as we transition throughout the fiscal 'twenty two.

Yeah, you know as we did guide last quarter that net retention would fall below 120% and we did see that happen and it did drop by a few percentage points and it was really driven by slower than expansion and our installed base and and that's due to some contraction and budget due to the pandemic. We also.

And I had some churn I spoke about the two large downgrades and that happened in the period that did also have a bit of impact on it and and then travel and hospitality in general was a whereas the headwind for us and in fiscal year 'twenty, one and so I think we're going to see it bounce around a little bit as we enter into fiscal year 'twenty two and quarterly.

The quarter, but we should see improvements and the Covid impacted industries and our mid market segment, and we expect over time for that to come back at the 120 per cent.

And then second as we look at billings on an annual basis for fiscal of two should that piece of it.

Revenue growth ex large customer and can you put some parameters around that has been taken out of us.

Yeah, I mean again, we think the best metric for billings is looking at and on a trailing 12 month basis, and we should see her.

Right, Yeah on the annual basis, and we see that that should track more closely to our revenue growth rate.

Alright, Thank you very much.

Our next question comes from Gray Powell with B T. I G. Please proceed.

Great. Thanks, a lot and congratulations on the Q4 numbers.

So so yeah, just maybe a couple of follow ups to some prior questions and I know you've kind of talked out of some at a high level, but is it possible to roughly estimate of just sort of like a ballpark number in terms of of how much COVID-19 impacted billings growth and fiscal 'twenty. One and then just can you talk about how you feel about your visibility today.

Relative to three to six months ago, and and just you know how and how you see.

How long you think it takes the customer spending patterns to return fully to pre pandemic levels. Thanks.

Yeah, I'm not sure we can really talk about the exact impact of billings I think what Sydney was highlighting earlier around <unk>.

Some elongated sales cycles lower than normal historical expansion right.

And as well as some of those impacted industries and customers that you would expect naturally to get more upgrades and cross sells and those had obviously and impact that we've talked about and then do you Wanna, Yeah, and I'd just like to add you know we had in prior quarters and fiscal year 'twenty. One we saw a big shift of.

The customers wanting payment terms customers want and quarterly customers not wanting to use of the annual upfront and we were trying to align and help our customers to say, we're working through this difficult time and allow for some of that as we've gotten into Q3 and Q4, we've actually seen our billing patterns returned more back to pre COVID-19, where the bulk of them are annual.

Upfront and so from that standpoint, you know again, if we look at our our annual billings growth and U S.

And trailing 12 months, that's really where you should look at because we won't get fluctuations quarter to quarter. If we had the big renewal slipped from the period that can also cause issues with our in period billing.

And our calculated billings number so I'm just really encourage you to look at the the annual billing.

Got it. Thank you that's helpful. And then just a follow up yeah, just just anything on the contract duration side or macro factors and or anything from like.

The comparative perspective that could impact the headline billings growth and 2021 that we should that we should be thinking about.

Well, we had a strong year for our P O up 41% and.

And we did see a larger and longer term commitments and the enterprise segment of our business and we did see our average duration of contracts you know kind of approach that 24 months and so we did see some good strength there.

Understood Alright, thank you very much.

Our next question comes from Kingsley Crane with Bamberg. Please proceed.

And congrats on the quarter I just wanted to talk a little of the adult the self service model. If you think about it customer and it starts with one carrier our gross of 500 K. What have you noticed in terms of the cadence of up sell of the types of products.

And they're adapting to sort of grow that quickly and.

At the time for them.

I think the.

So I think this has been something that we've been investing and.

Over the back half of last fiscal year, because fundamentally a lot of the marketing activities that were done prior to going into the year were changed everything and move to digital and the type of campaigns on the changed as the results we've been putting a little bit more focus and emphasis on the end to end experience from lead to trial.

The conversion and you'll see that continue to be investment for us.

But in this particular case.

Whether it's a self service or a direct initiated opportunity we require a customer to create and account and they go in and set up and account and sumo and the experience of what it is to get data in and the and grow from there. So I think that sales motion, we're trying to make it as frictionless.

As possible one we're trying to help automate the end and so we can reduce the cycle times too and we're investing more and product capabilities as well as marketing on our growth initiatives going forward.

Yes, that's true, but it's an excellent addition.

Addition to the go to market. So just another one would be on the and I thought the mention of the MSP customers was was important and so I guess just to clarify you know what most of these new customers.

The entirely net new with some of these have converted from.

Sort of being and existing sumo customer and then how would the spend profile of these type of customers compared to maybe the average.

Well the grew significantly year over year. So those are new.

We typically and we have never counted those and our install base as you know that's why we've called that out.

I think the other important thing here is a lot of the cases for the managed service providers managed detection and response.

Type of solutions, there and a transition from the existing offering to the new sumo offering. So they already have something that's organically built or of third party couple of and cobbled together and they are in the midst of that transition so you're seeing the opportunity for them to more quickly shift their installed base.

To the sumo platform and that's what we're trying to enable them by adding a lot more product capabilities as well as commercial agreements and support that yeah, and I'd just like to add we've been making investments and our channel and we've seen those investments are definitely payoffs and fiscal year 'twenty, one with the channel contribution doubling year over.

Here, we talked about the MSP is giving us the new route to market and a lot of cases, we would not be touching those customers and then really having a focus as we you know we're adding channel partners last year, we have over 300 channel partners and we were really folks internationally and how we brought in and out the reach as well.

Yeah, No I think the.

Traction there was really clearance and Brussels and that's it for me. Thanks.

Our next question comes from Blair Abernethy with Rosenblatt. Please proceed.

Thanks, very much and nice quarter, guys just wanted to dig in a little bit more on the fed ramp of authorization and the moderate authorization can you just give us a sense of sort of how you know how youre attacking letter.

And what's sort of stage youre at now there and and you know.

When you can start to see some good.

Traction in terms of building the pipeline and in the sub market.

A lot of good question I think it's really important to point out that we're one of the few SaaS companies to the field to achieve this moderate authorization of.

There's been a lot of investment and.

And theres different ways that you can go down and fed ramp and terms of agency sponsorship you start to do of RAR followed by either.

Going to.

The.

Alternative paths, but we actually been working on this for more than a couple of years in terms of.

The channel partners as well as more important and product capabilities.

And the opportunity to your question of that opens up as a result is really to go target not just federal state and local government, but also higher Ed.

And so we've been now ramping the channel and ramping direct sales capacity to be able to go attack that opportunity. It's important to note that the federal budget cycles are a little bit different so the timing of this will spread across that throughout our fiscal year.

And as we continue to ramp our partners and our direct sales capacity there.

Great. Thank you very much.

At this time I would like to turn the call back over to management for closing comments.

With that we want to thank everyone in attendance and more importantly to the sumo employees, our customers and our partners for their strong will their dedication and hard work the be able to achieve the great results and Q4 and.

In fiscal 'twenty, one and we're excited about the opportunity in fiscal 'twenty, two and we look forward to connecting with you guys again soon.

Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time and have a great day.