Q1 2022 Sumo Logic Inc Earnings Call
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Greetings and welcome to the sumo logic first quarter fiscal 2020.2 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 written.
Got it.
I'll now turn the conference over to your host Paul.
You may begin.
Thank you good afternoon, and welcome to sumo logic first quarter fiscal 'twenty 2 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. 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.
<unk> of D F labs, and sensu future financial results and guidance strategy and for all future prospects. These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements and.
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 and 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 our.
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 on our earnings.
Lease, which was furnished on our form 8-K filed today with the SEC and on our Investor Relations website at Investor Day, Sumo logic Dot 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 and our earnings release posted on our and.
Buster relations website.
With that let me turn the call over to remain.
Thanks, everyone for joining us today on our first quarter earnings call. Our Euro is off to a strong start driven by a demand from our global enterprise and our mid market customers for sumo logic continuous intelligence platform.
Our results give us confidence that we're on the early stages of stabilization and pre pandemic recovery as we continue to see signs of a return to more normal activity and demand.
What's the stabilization, we continue to increase our investments to further expand and grow our platform capabilities and both security and observer ability power bi 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 7 figure ACB deals from both enterprise and mid market customers.
Yeah.
Second we saw continued improvement and customer metrics total customers and a 100 K plus customers increased and we added the most 1 million dollar plus customers of the last 8 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 cyber security breaches and supply chain attacks continue to be and increasing concern we continue to expand our capabilities and customers as well as gain industry and analysts recognition for our visionary cloud Siem solution.
As such we continue to enhance our security offering with the closing of D. F labs to further expand our cloud Sim 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 and analysis incident response, and forensic investigations for security analysts and operations teams.
Next we extended our open source strategy and strengthen our preserve ability suite with the announcement of our intent to acquire sensor a leader and open source monitoring.
Essentially what was a great team and.
And active community and easy to use technology, which is why their product is being leveraged by over 3000 companies globally and is 1 of the top open sort of observe ability tools used and Dev ops.
More specifically by joining forces, we will help to further grow the existing large and active Oss community and accelerate monitoring is code for Dev ops organizations of all sizes.
Finally, we continue to expand our strategic partnerships and routes to market for both observe ability 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 Red hat open shift as well as support hybrid and multi cloud strategy.
Please.
We believe that Ibm's focus on open shift ties well into sumo observer ability strategy and allows us to align with IBM and 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 and order to help further transformed 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.
<unk>.
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 and our customer base. This quarters gross customer adds continued to be robust above the trailing 4 quarter average.
Customers, who generate more than 100, K and annualized recurring revenue or <unk> increased to 376 accelerating to 14% year over year growth and we had our best quarter and $1 million plus our customer ads of the last 2 years.
Okay.
Now I'd like to share a few examples of these exciting new customer wins.
This quarter, we signed a 7 figure new logo deal with a large life insurance company to replace their legacy Sim solution, where their cloud some enterprise or CSC. The legacy solution have become too cumbersome to manage.
And so to scale and lacked important capabilities critical and supporting modern cloud architecture.
Our <unk> solution, 1 because of its quick time to value scalability and feature like 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 7 figure land and the quarter was with a fortune Global 500 Enterprise software company the customer had a legacy internal solution built on open source their.
And they were planning and modernize their legacy stack to support a kubernetes based architecture, but doing so on top of their open source platform was going to take significant amount of time and resources.
Sumo provided the observer ability functionality, they needed and 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 that large enterprise customers. We have recently won and <unk> of last year, we announced a 7 figure land at a fortune 50 customer.
This quarter, we expanded that relationship by adding and 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 6 figure new logo land at and Asia based global financial Tech Company.
In addition, we had a 6 figure upgrade with a million dollar customer in that region.
We also had a compelling quarter and our mid market segment. This quarter, we signed a 6 figure expansion with an e-commerce customer that has seen a surge of business during COVID-19.
Flexibility is key to this customer as they see elevated seasonality and their shipping business and needed and observe ability solution that matches their business needs.
Our credit model was an excellent fit for this customer.
With this expansion and they are now over $1 million and a R and over 30 ex 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 and multiple ways customers are able to easily adopt existing capabilities and gain early access to new features.
Take for example, our real user monitoring of ROM for more comprehensive APM or are distributed tracing for kubernetes and micro services based applications. This past quarter, we had a large kubernetes based on observed mobility customer that move their workloads into production and increase 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 observer ability.
Our easy to use solution comes with auto instrumentation, and collection and auto telemetry as well as out of the box prebuilt, dashboards, and alerting, which enable developers and site reliability engineers to quickly and easily gain and to and infrastructure to application observer ability and more importantly reliability.
As I mentioned earlier, we made a strategic decision to further accelerate and expand our observe ability portfolio by signing a definitive agreement to acquire sensor, which will further extend our open source strategy and strengthen our observer ability suite.
<unk> is a leader and open source and a provider of monitoring as a code solution more.
More specifically combining sensor with our existing sumo logic observe ability suite will provide customers with and affordable extensible and scalable end to end solution for infrastructure and application monitoring and management.
This acquisition, which is expected to close and the second quarter of fiscal 'twenty..2 also reinforces <unk> commitment to open source to drive deeper engagement with the developer and Dev ops community.
In addition, this quarter, we continued to organically build out on our key differentiators customers recognize us for ease of use and we enhance that ability this quarter with the announcement of sumo organizations Dysfunctionality and makes sumo the first Dev ops and security multi tenant solution that.
Managed service providers and large enterprise customers to monitor and manage multiple operational and security intelligence deployments across multiple customer <unk> Department accounts.
Yeah.
We continued to expand and enhance our security intelligence solutions with the closing of the <unk> Labs acquisition and we also expanded our cloud Sim solution availability to Australia and will further expand into Japan and India later this summer.
Finally, we made some exciting partnership announcements, which further helped 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 observe ability solutions for companies run.
And on the Red hat open shift the platform.
As part of the integration, we extended our existing kubernetes solution to support Red Hat's open shift operating model, making it easier to deploy and manage data from customers open shift kubernetes clusters, and helping red hat extend its open shift 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 or 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 Sox summit, taking place on June.
Eighth and ninth 'twenty 'twenty 1.
The event is a free virtual education event for security and it professionals looking to better understand how to modernize the security operations and.
And the latest and 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 given us more confidence that we are seeing continued stability and recovery to pre pandemic activity levels.
Therefore, looking more broadly the secular tailwind 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 will continue to invest to drive growth acceleration and 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 and Q1 and our outlook for FY 'twenty 2.
Thanks, <unk> 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 'twenty 2.
I'd like to start with a brief summary of the financial highlights for the quarter first we saw robust new business and the quarter, including mid market and international segment net.
Next our operational execution delivered strong topline revenue growth and finally, we continue to see excellent performance and contribution from investments and our channel business.
As we mean highlighted earlier, we are pleased with our performance this quarter.
Well and some additional color to the drivers of the performance first we saw robust demand and our platform as new business increase and more than 50% year over year and new logo business more than doubled over the same period on North America and mid market business had its best quarter and the last 4 quarters.
Our international business overall grew over 100% year over year, driven by outstanding performance and our Asia Pacific region.
The strength and our business reflects improvements we are seeing and our go to market function.
This quarter, we saw a substantial increase in both the number of transactions and new logo average deal size.
This translated into a reacceleration of growth and a greater than 100, K customers and our best 1 million plus customer adds and the last 8 quarters.
The channel partners again had an excellent quarter and 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 growth by more than 3 X year over year.
Moving to a 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 continued to see slower expansion and our installed base due to budget pressures that this quarter. There were also 2 renewal transactions that had large downgrades due to M&A consolidation.
And each case, 1 CMO customer acquired another sumo customer and the 2 contracts were consolidated.
Despite the consolidation both of these customers continued to be significant uses of CMO with <unk> of over $1 million each.
Well, we see improving strength across our total customer base, we do expect to continue to see volatility and our net retention rate.
Looking across our customer base, we're seeing customers continue to make larger and longer commitments to our platform.
This quarter, our remaining performance obligations or our P. O increased 62% year over year, driven by the size and the duration of new and expansion contracts.
Our average land agreement is now approximately 2 years double the length from a year ago period. In addition, our current RPI 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 renewals and billings duration of large customers.
Therefore, we believe a 12 month measurement period best reflects the fundamentals of our business.
Yeah.
Now I'll review the income statement and 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 and 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.
And we call that we break out our largest customer because of variability and seasonality that differs from the rest of our business.
And Q1, we saw a robust gross margin of 75% up from 73% and 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 and a year ago period the.
And 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 administrative expense was $9.2 million or 17% of revenue compared to 16% of revenue and the year ago period. G&A expense includes increased costs associated with operating as a public company.
In total the strong performance and revenue and the improvements we saw on gross margin sales and marketing and R&D drove significant improvements and our operating performance. Our operating loss was $10.8 million or an operating loss of 20% improving from an operating loss of 35% and the year ago period.
Net loss and 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 and cash and equivalents and marketable securities free cash flow and the quarter was negative $3 million or a negative 5% of revenue compared to negative 25% in the year ago period.
Before moving onto guidance I'll share some perspective on our current environment.
This quarter's performance gives us confidence that we are in the early stages of stabilization and pre pandemic recovery. However, there's still uncertainty and some of the markets and geographies we serve.
The tailwind of digital transformation is growing but in some cases offset by near term budget constraints. We expect this mix of headwinds and tailwind to continue through the remainder of this year, because I think volatility and our dollar based net retention.
That said, we are confident and the investments we 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 this year as our capacity becomes productive.
We have already seen productivity improvements this quarter, and giving us confidence going forward.
We will continue to invest this year and our go to market and innovation engine to extend our routes to market and brought in our security and observer ability platform and these investments impact our operating margins. This year, but will also drive long term growth.
With that I'll move onto our second quarter guidance.
Our guidance includes both D S labs, and sensor, which had minimal impact to revenue that will increase our operating costs primarily in R&D.
For Q2, we expect total revenue and 56.1, and $257.1 million or a growth rate of 13% to 15% year over year.
Revenue, excluding our largest customer at $53.3 to $54.3 million. This represents a growth rate of 18% to 20% year over year non.
Non-GAAP operating loss of 15 to $14.5 million on 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 'twenty to total revenue of $233 million to $236 million, representing a growth rate of 15% to 16%.
Revenue, excluding our largest customer of 221, 7 to $2.24.7 million, representing a growth rate of 18% 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 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 and our go to market functions as we plan to continue to invest and more platform capabilities and expand market reach we believe we are seeing the early stages of stabilization and recovery.
And <unk> to pre pandemic levels of activity and we believe we are well positioned for success with that I mean, and I are happy to take any of your questions operator.
Yeah.
At this time and we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.
Confirmation tone will indicate your line is and the question queue. You may price starting to if you would like to remove your question from the queue, who participants using speaker equipment and may be necessary to pick up your handset before Christmas turkeys.
1 moment, please while we pull for questions.
And my first question is from Derrick Wood with Cowen and company. Please proceed with your question.
Oh, great. Thanks, it's Andrew on for Derrick Congrats on the strong quarter.
Sydney net Rev retention and how are you feeling about getting that back up to over 120% what leverage do you have to pull there and and.
And what timeframe should we be thinking about this.
Yeah, and you know as we said last quarter, we were expecting our net revenue retention too and it'll move around it is a 4 quarter average and we feel that it will take several quarters before we start to see sustained improvement in the 4 quarter average.
We do anticipate to get above 120%, but it's going to be several quarters out.
Great and then for either remain or Sydney on on your new hires from 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.
And how does that vary enterprise versus mid market.
And we had a good quarter for new business and 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 that productivity come up and the business. We saw a good performance out of our north.
America, and mid market business as well as APAC and enterprise just continues to remain strong.
Great. Thanks, guys.
Our next question is from Matt Hedberg with RBC capital markets. Please proceed with your question.
Oh, Hey, guys. Thanks for taking my questions from me and I wanted to start with you and obviously the threat landscape with all the breaches is noticeable.
And I'm sort of curious how do you think about that eating 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 base Sim.
I have to think that that has to be starting to show up and some maybe some increase and pipeline.
Could you talk about that as a driver.
Okay.
Hey, Matt and good to hear your voice.
And like we've talked about before there is the unfortunate thing for all of us and the security sector, where we need to come together to be able to jointly address and a lot of the challenges and hence why we did the announcement and partnership with AWS to really extend our core platform and security capabilities too.
2.
Organizations of all sizes, and so that is really important partnership that really leverages. The backend to your point around big data and persistent store at a much lower rate and cost and 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 and the enterprise segment and those will typically at a bit longer sales cycles for Sim deals.
And either a coexistence of replacement versus and the transactional mid market youll see those little bit faster.
And does that answer your question it.
It does yeah, that's super helpful and then.
Sidney.
And the trailing 12 months growth and and and even I Didnt say more so CRP and growth of 39% Super impressive.
You talked about improved growth and the second half, but you know when we're looking at the total growth this year at the midpoint about 15, 5%.
And how should we think I mean to me it looks like the CRP overlaying as fast as it is how should we think about that rolling into revenue as the year progresses.
Yeah, you know our R. R. C. R. P O and R. P. O 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 and the billings growth rate reflected and the in period as well as and the C. R. P O. So as we.
Think about that those lumpiness of windows those larger deals can early renew will impact those those growth rates.
Got it thanks nice job is.
Thanks, Matt.
Our next question is from Sandeep Singh with Morgan Stanley. Please and we'll see what's your question.
Thank you for taking the questions I wanted to get your take on how some of these early encouraging trends are playing out across it ops security and observe ability is there any particular segment of the business that sort of rebounding the quickest or is it sort of spread pretty evenly across.
Ross.
These are these new debt and aspects of CML.
Sanjay and 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 mature cloud migration and our maturity for the enterprise.
Customers that we've been seeing a lot of those as a result, our starting with security and then extending into logging or logging into more observe ability 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, where 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 1 example of 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 and the transactional business.
Better stability and attach for observe ability and then and the enterprise segment, we're seeing a little bit more of an issue with respect as a security threat and landscape and therefore, starting with that and then extending to observe ability and logging.
Got it and.
The Thomas and then and then I'm just trying to understand from.
The trend lines and the business because I think roaming and your script. There was a lot of encouraging signs and then when I try and match 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 Youre seeing on.
And some really really nice momentum for the first time and several quarters.
As we think about that kind of the other 2 pieces of the business kind of churn and then gross expansion is that we're kind of the remaining friction is in terms of them.
I'm seeing kind of more meaningful acceleration and so between new business churn and expansion, where do we stand on those 3 aspects.
Yeah, I mean, since you and I think.
On.
On the new HCV side of our business were upgraded and 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 100, K and million dollar adds and the quarter.
But in terms of the cross sell sorry, the upgrades or the downgrades and churn I think there's been a little bit mixed by theater and by segment and.
And that's been.
Something that we've been talking about and it because we had less new logo lands last year and hence the propensity to upgrade within 2 to 3 quarters that we historically saw slowdown, but a better indicator for us is how much net new HCV and new logos were adding and then how much that tend to upgrade and the go forward quarters, Cindy do you want to add anything else.
Yeah, I'd, just say that that when we look at.
Our churn we break it into downgrade and churn and on a positive side, our actual dollar churn as a percentage of <unk> was 1 of the lowest that we've seen and the last 12 quarters. So we're seeing from that standpoint, the actual churn out has really improved over the last 4 quarters.
And that's a great data point and thank you so much and congrats on the on the good start to the year.
Good to hear your voice.
Continuing as well.
Okay.
Our next question is from.
Music with William Blair. Please proceed with your question.
Hi, everyone. Thank you for taking my question.
Congratulations on the large number 7 figure wins this quarter. So this is now the second consecutive quarter. We were 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.
And to lean into this momentum and maintain or even accelerated over next year.
Yeah.
Okay. Good to hear your voice, so I think it's pretty consistent with what we've said the last couple of quarters and that a we are a direct selling model as a reminder, and so as you start to build out coverage and capacity and improve ramp and productivity.
That has been what we've been focused on in terms of through the first half of this year and.
With respect to contribution from the international theaters, particularly with a P. J and we had a strong quarter and 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 sized 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 from 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 observer ability and we've seen that happen and deals that we closed in Q3 and Q4, and then adding observer ability 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 on the enterprise has been on security were up more than 100% year over year.
And so that those are good indications that.
<unk> from Madora majority of and 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.
That's some great color on marine.
I'd like to follow up on 1 of the comments you made about the international business I mean, I think you said in the prepared remarks that it's up 100% year over year.
It's great to see that.
And 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 and 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.
Yeah. So I think the first part of that question, we saw in APAC across a couple of different countries and that theater strong activity as well as.
Both good concentration of transactional business as well as a few large deals.
We haven't seen that as much in the previous quarters.
And in particular as you look at India, where we have a large portion of our work force.
And that's been a region and country that theres been a lot of concern about that we've had in terms of our involvement and the community and the like but we saw some good traction and that and Q1, despite everything going on with either with new ads as well as upgrades in terms of customers.
Shifting over to the EMEA theater it sense it tends to still be concentrated in U.
U K Nordics Benelux area dock and southern EMEA was 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.
I believe that we've commented on already in terms of the best quarter in terms of million dollar adds over the last 8 quarters a lot of that came from North America and couple from international.
That's great and thanks again for taking my questions.
Okay.
Our next question is from Mark Murphy with J P. Morgan. Please proceed with your question.
Hi, Good afternoon. This is Matt Coss on behalf of Mark Mercury and thank you for taking my question.
And you mentioned.
6 figure expansion with a mid market customer they.
And they needed on a durability solution and you pointed out that the credits model.
It was an excellent fit for them I just wanted to hear more about the.
Flex credits model.
How has the marketplace responded to this how much adoption have you seen has.
Has it and particularly instrumental aboard.
A deciding factor in new customer wins any color you can provide would be appreciated.
Sure. Thanks for joining us first comment on that we've seen north of 50% of our move to a credits model and just to be clear we are waiting for a lot of those customers as their terms sufficient terms come up or the upgrade to migrate them to that.
And so we've seen good traction in the.
The upgrades and renewals to the credit model and believe as we've commented on last couple of quarters.
Roughly 2 thirds, if not more of the deals.
New deals new logos are on the new credit model as well.
I think the uptick and the credit based licensing and packaging continues to be strong and is playing out like we expected and that particular customer example.
It was really happening was that they needed flexibility in terms of tearing of data and.
And he 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 and point of view, but also from a technology point of view. So they grew to over a million dollar IRR and was 30 X I believe expansion of where they initially.
Landed with us and now they're a full stack observer ability customer.
Got it thank you and then.
You also announced or you also mentioned that Q3 <unk>.
And figure deal you'd closed added and international subsidiary.
Scratching the surface of that opportunity.
How do you see this going forward how are you sort of may.
Making sure that you know I don't know that this is low hanging fruit, but how do you make sure you're capturing all of those opportunities and sort of providing the.
Value across more of an organization. After you made that initial land.
Yes, 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 its regional and sometimes it's by technology and domain or tiers, so and that particular case.
Customer started with corporate and then had some subsidiaries and other be use and other technology environments, they need and 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 and the broader landscape with a trillion dollar technology shift that's shackled and the datacenter 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 license.
And model that mirrors, what sumo provides.
Thank you.
Okay.
Yes.
Our next question is from Kimberly Green with Baird. Please proceed with your question.
Hi, Thank you so I'd like to check in on the federal space, So, they're killing fields of white and recent executive order and you're achieving federate moderate and February what.
And what incremental opportunities you see and the first piece and then how are your balance and partner growth and direct sales.
Hi, Kimberly.
Think.
We haven't necessarily seen anything from legislation and necessarily impact that yet. However, I can tell you the organic efforts that we've been putting in both investments and the channel and partnership and also on the technology side has resulted in a significant increase.
And pipeline and activity and you know as we've talked about that you have.
To hit the budgetary cycles, and so that's a great time for us to get the fed ramp.
<unk> station and 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 of this year and into the following year as originally planned.
Okay, that's great to hear and there's just 1 follow up great to hear about the red hat and marketplace partnership so we'd like to check and on the competitive dynamics with IBM to radar and if there's any changes there.
Yeah, I think this is fundamentally a different part of the business and strategy.
IBM.
It has a lot of large.
Fortune customers that are modernizing and migrating to any cloud as part of their initiatives and whether it's their own security tools or third party security tools.
And on this particular case, it's about expanding and extending red hat open shift and providing observe ability as well as security to customers through that marketplace vehicle.
We are 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.
Okay. It makes perfect sense. Thank you.
And our next question is from Stefan Schwartz with BTG.
Proceed with your question.
Hey, this is Stefan on for Greg Thanks for taking my question.
I've got a billings and revenue question. It looks like you grew crimp billings are above 30% and the quarter up from 28% and Q4.
We continue to guide revenue and the mid teens when should we see those metrics converge and could you end up exiting fiscal 'twenty, 2 with rather and you north of 20%.
And so when we look at our billings our target.
And our performance around billings and we look at look at that on a trailing 12 month basis.
And we will have larger renewals that will either slip or pull in and this particular quarter, we had a larger renewal pull and it is a renewal that had the big expansion with it and that pulled in from future periods and that will make and in period compare.
Net lumpy. So again, if you look at our trailing 12 months our growth rate is 25%.
Got it. Thank you and then just a point of clarification is there.
As to M&A downgrades were those the same as the ones that you highlighted last quarter are those new ones.
Those are different ones that we talked about last quarter.
Okay and was there any residual impact.
And on revenue or billings growth this quarter from those prior ones.
Prior meeting in Q4.
Yes.
Well that would have been factored into any guidance that we provided as we were exiting Q4 and entering Q1.
Alright, thank you so much.
Thank you.
Okay.
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.
Okay.
Okay.
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