Q2 2022 Sumo Logic Inc Earnings Call
Greetings and welcome to the sumo logic second quarter fiscal 'twenty 'twenty two earnings call.
At this time all participants are in a listen only mode. A brief 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 it is now.
Now my pleasure to introduce your host Paul Thomas. Thank you Paul you may begin.
Thank you good afternoon, and welcome to <unk> second quarter fiscal 'twenty two earnings conference call I'm, Paul Thomas Sumo logic, Vice President of Investor Relations and strategic finance joining.
Joining me on the call today are bromine chair, President and CEO, and Jennifer Mccord, Vice President of Finance and Chief Accounting Officer.
Our format today will include prepared remarks by bromine, Jennifer and myself, followed by a question and answer session.
Some of our discussions and responses to your questions will contain forward looking statements, including statements related to the expected impact of the COVID-19 pandemic.
Second the performance of our business expectations regarding our platform and solutions expectations regarding our go to market efforts and investments expected benefits and impact of the acquisition of sensu future financial results and guidance, our strategy and market opportunity and overall future prospects. These statements are sub.
The risks and uncertainties actual results may differ materially from our forward looking statements.
A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission.
Our risk factors filed with our most recent quarterly report on Form 10-Q, and the risk factors that will be included in our Form 10-Q 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.
Our earnings release, which was furnished with our form 8-K filed today with the SEC and on our Investor Relations website at Investor <unk> 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 in our earnings release posted on our Investor Relations website.
With that let me turn the call over to remain.
Thanks, everyone for joining us today on our second quarter earnings call. We are pleased with the strong results. We saw this quarter. Our performance was driven by international markets supported by our channel partners, improving customer growth and continued adoption of security use cases.
We continued to expand our observer ability and security suites and received significant industry recognition for our continuous intelligence platform.
It is exciting to see how these investments that we have been making in our platform and our go to market engine are delivering results.
I'll go into more detail on each of these drivers and topics.
First we saw outstanding topline performance. This quarter total revenue of $66.0 million was up 19% year over year and above the high end of our guidance range, while the North America Theater performed well our revenue growth was led by our international theaters and supported by our channel partnerships International revenue increase.
29% year over year and represented a record high 17% of our total revenue.
Second the contribution we saw from channel partners was excellent this quarter business from our partners in EMEA and APAC theaters eat more than doubled year over year. We are pleased to see the investments we've been making in channel International go to market deliver positive results.
Next momentum in our customer base improved this quarter growth across 100, K 1 million and total customers was the highest we have seen in the past five quarters customers, who generate more than 100 K in annualized recurring revenue or <unk> increased to 410 or 24% year over year.
And customers over a million and a R grew over 30% year over year, our total customer count now exceeds 2300 customers and showed year over year growth acceleration.
Looking at the mix of business, we continued to see strong adoption of our full stack observer ability suite for both new and cross sell opportunities. In addition, we saw continued momentum from security use cases with over 50% of our new business driven by our security analytics and cloud Sim offerings.
Now I'd like to share a few examples of our exciting wins that drove this quarters performance.
I'll start off in EMEA with a six figure new logo security land at a large German retailer their prior open source security solution was difficult to manage improve unreliable with too many outages impacting customer experience. They chose symbol for our highly reliable cloud native platform that allowed them to easily aggregate.
All the security data across multiple sources. In addition, our differentiated credits model gives them visibility and flexibility to decide when and how to use our various platform features.
Continuing in EMEA. This quarter, we landed our first new sore or security orchestration automation and response customer since closing of the acquisition of D. F labs.
The six figure land was with a large telecom provider, who was challenged with overwhelming alert volumes complex use cases and sophisticated attacks are sourced solution gave the customer the orchestration and automation capabilities they needed to scale their security operations to meet these challenges.
Moving to APAC and this theater, we had a six figure new logo enterprise land with a large international financial services firm. The customer is building out a new cloud based mobile banking application platform and needed both security and observe ability functionality. This is a common use case, we have one at <unk>.
Many financial services firms are cloud native multi tenant architecture and credit based licensing are a perfect fit for security and observe ability in these situations, giving them the ultimate flexibility for value and scale as they rapidly expand our services.
Pivoting to the North American theater in the U S. We had a similar use case win with a mid market Fintech company.
The customer is also launching a modern banking applications and needs a comprehensive security and observe ability solution helped defend against fraud secure critical and sensitive data and enable engineering and infrastructure teams to develop and run a reliable service soon.
Zuma, one because of our differentiated platform fulfills all of these needs with our audit capabilities PCI compliance full stack observed build functionality and our flexible credit licensing model.
These last two examples where just a few of the more than 30% of our wins. This quarter that were multi use case, when we land with a single use case, we can cross sell into others. This quarter, we cross sold full stack observer ability into a seven figure cloud Sim when we landed in Q1 the cut.
<unk> is a large insurance provider and they needed full stack observer ability for both IC operations and compliance use cases, where they required more affordable and reliable data retention needs.
In this particular case, one of their audit and compliance standards require them to retain data for three years.
These types of enterprise requirements are an excellent fit for our credit based packaging and licensing which allows customers like them to choose tiered tiered data analytics that easily accommodate multi your storage requirements. In addition to the various product capabilities.
Moving to our channel and partner business. We also had positive momentum with our service providers. This quarter. We had two of our largest M D ours or managed detection and response customers expand with sumo logic. These.
These M. D. R has continued to choose sumo because we help them grow their business and expand our service offerings with our innovative <unk> platform.
Looking at our service providers as a whole there are sumo logic business more than doubled and they now provide similar logic as a service to well over 550 customers, which are not included in our total customer count.
We also see opportunities begin to emerge in spaces like Iot This quarter, we had a six figure expansion at a customer in this growing market opportunity. We landed this customer earlier this year and they have since grown their usage over tenex they pick sooner because of its ease of use and ability to rapidly scale.
Their needs grow.
Okay.
Moving from customers to an industry perspective, this quarter, we gained significant industry recognition for our continuous intelligence platform. We won several awards. The most important was being named a visionary in the Gartner 2021 magic quadrant for Sim.
This was the first time, we've been included in the Gartner MQ and we're extremely proud of achieving this important milestone.
In addition, we won several other awards for our leading desktops capabilities, it's great to see all of our hard work recognized by not only our customers, but industry analysts alike.
As we continue to invest in our platform expansion, we recently announced the launch of sumo logic cloud Soar as mentioned these new capabilities help sock teams navigate the evolving and sophisticated threat landscape by leveraging best in class Soar solution to orchestrate responses for security.
Through automation, thus, eliminating manual tasks and reducing response time for both analyst and operations teams in order to collectively overcome critical security challenges faster.
Now turning to observe ability, we announced real user monitoring of ROM and span analytics, which are designed to help Dev ops and site reliability engineers identify and resolve customer impacting issues faster.
Real user monitoring enables enterprises to collect and monitor performance data from end user devices to get deeper view into end user experiences sumo logic rum data is based on open telemetry standards and is seamlessly integrated with the backend APM data, providing dev ops and site reliability engineers full end to end viz.
Ability into performance issues in order to improve application reliability.
Additionally span analytics enables powerful analytics with distributed transactions, which are key building blocks of modern distributed applications.
Span analytics empowers users to perform sophisticated analysis of transaction steps called spans through a guided an automated experience that empowers even the novice user to answer complex questions.
Through our span analytics, the powerful sumo logic unstructured search analytics are combined with ATM capabilities dramatically, improving our observe ability capabilities and ultimately customer outcomes.
Continuing our commitment to open source and observe ability we closed our acquisition of sensor a leader in open source monitoring Sundar has been committed to open source since our founding in 2010, and we're doubling down on that commitment with sensor with this acquisition our customers have an affordable and scalable end to end solution for <unk>.
Infrastructure monitoring it also dramatically expands the breadth of sources, our customers can collect data from as well as differentiated powerful monitoring is code capability that enables developers to configure and manage their monitoring needs throughout the CIC D pipeline.
In addition to the multitude of platform enhancements, we continue to expand our leadership team today, we announced the appointment of Margaret Francis to our board of directors I'm, particularly excited because she brings a wealth of modern software development and product led growth expertise from leading product and engineering strategy for high growth software companies.
Across SaaS Paas data and develop our technologies her expertise will help guide sumo logic product and engineering strategy to further serve the Dev SEC ops and market opportunity.
Before wrapping up my comments I want to take a moment to invite you all to our fifth annual global user conference illuminate 2021 it will be a virtual event. So please join US on September 28, and 29th to hear from sumo community experts about how they're leveraging sumo to better navigate digital transformation and.
And specifically, how similar is helping them build run and secure the growing set of digital services.
More than half of the content will be from our customers. So this is a great virtual event to hear directly from our users on the value they receive from utilizing the sumo continuous intelligence platform you can register at sumo logic Dot com slash illuminate.
In summary, it was an excellent quarter, we saw strong financial performance driven by our international markets channel partner support improving customer momentum and both observe ability and security adoption.
We are in a strong market position our product portfolio has never been more compelling and we have received industry recognition for it.
We're expanding our reach with partners and service providers. It's good to see the investments we've been making in our continuous intelligence platform and our go to market efforts are yielding results and were excited about both the near term and long term market market opportunity in front of us.
Before moving on to the CFO section of the prepared remarks, I would like to comment on our CFO transition. We had just after the close of the quarter as previously announced we created the office of the CFO comprised of Jennifer Mccord VP of finance and Chief Accounting Officer, Raymond U V. P of F. P N E and Paul.
Thomas VP of Investor Relations and strategic finance.
On the call with me today are Jennifer and Paul Jennifer will take the financial results and Paul will finish with our guidance.
Jennifer I'd like to hand, the call over to you.
Thanks from me and thanks, everyone for joining us on the call today I'll start with a brief summary of the financial highlights for the quarter and then go into more detail on each topic.
First is remain mentioned, we saw robust performance in the quarter in our international theaters supported by our channel partners.
Next we saw strong customer activity across billings RPM and logo counts.
Finally, we saw improving margin performance, including acquisitions and planned investments made in the quarter.
Expanding on our international performance, we delivered an impressive quarter. After our encouraging Q1 results total new HCV internationally was up over 100% year over year for the second straight quarter, driven by both EMEA and APAC performance.
In total approximately 30% of our new ACB came from international which is the highest it's been in six quarters.
In addition, our international results were supported by a significant contribution from our channel partners. This quarter, our channel business saw triple digit year over year growth in both the APAC and EMEA theaters.
Yes.
Well, we had significant contributions from international and channel New business, we did see some volatility in our North America theater.
It has been a strong steady contributor to our growth over the last several quarters. This quarter's performance. However was below historical rates driven by longer sales cycles, we anticipate performance will improve in the second half of this year.
Moving onto our customer activity metrics. This quarter, we saw impressive gains in our customer base.
100, K customers increased 24% year over year, and our $1 million customers grew over 30% year over year, our total customer count increased as well to over 2300 customers and showed year over year acceleration.
Gross retention improved substantially quarter over quarter as the large M&A driven customer churn we have seen in the last two quarters eased. However, dollar based net retention as we've previously discussed did decline to a few percentage points below 110%, while we see improving strength across our total customer base.
We do expect to continue to see volatility in our dollar based net retention rate.
Over the medium to long term, we expect dollar based net retention to increase.
Turning to billings calculated billings for the trailing 12 months period totaled $251.0 million up 30% year over year.
Recall that we look at 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 for larger customers. Therefore, we believe a 12 month measurement period best reflects the fundamentals of our business.
Moving to remaining performance obligation or RPE L. We're continuing to see our new customers make larger and long term commitments to our platform. This quarter. Our P. O increased 55% year over year, driven by the size and duration of new and expansion contracts.
Average E V of new logos increased over 50% year over year and our average land agreement is approximately two years and linked in addition, current RTL also increased 31% year over year.
Now I'll review the income statement in more detail as a reminder, unless otherwise noted all metrics are non-GAAP a reconciliation of GAAP to non-GAAP financial measures is included in our earnings release and posted on our website.
We delivered compelling performance in the second quarter total revenue increased to $66.0 million up 19% year over year second quarter revenue, excluding our largest customer was $63.0 million up 21% year over year recall that we break out our largest customer because of the variability in CS.
<unk> that differs from the rest of our business.
Moving on to gross margins in Q2, we saw a 72% gross margin compared with 75% in the prior quarter and year ago period. The decline was driven by a faster ramp in new features and continued regional expansion of our cloud native platform, we anticipate gross margin will improve.
Time, as we continue to optimize our platform.
And moving on to operating expenses.
Sales and marketing expense was $27 million or 46% of revenue consistent with a year ago period, we're continuing to invest in go to market capabilities and we plan to continue investing going forward.
Research and development expense was $22.0 million or 30% of revenue compared to 27% of revenue in the year ago period.
This increase as a percent of revenue was driven primarily by our acquisitions of D. S labs and since you as the majority of the employees are in R&D functions.
General and administrative expense was $12.0 million or 17% of revenue compared to 13% of revenue in the year ago period.
G&A expense includes.
Increased costs associated with operating as a public company.
In total our operating margin was negative 21% or four percentage points above the high end of our guidance range driven by revenue outperformance in the quarter. We are pleased with our margin outperformance after having closed multiple acquisitions continued platform expansion and invested in go to market capabilities.
Net loss in the quarter was $16.0 million or <unk> 11 per diluted share based on approximately $116.0 million weighted average diluted shares outstanding.
Now turning to our balance sheet and cash flow. We ended the period with $378.0 million in cash and cash equivalents free cash flow in the quarter was negative $11.0 million or negative 10% of revenue compared to negative 35% in the year ago period.
In summary, it was a strong quarter, we saw robust financial performance driven by international theaters and channel partner support customer activity improved significantly with compelling growth and logo counts billings in our P. L. In addition, we delivered margin out performance, while continuing to make investments in our platform and <unk>.
Go to market engine, we continue to be excited about both the near and long term potential of our platform.
I'll now hand, it over to Paul to finish with guidance.
Thanks, Jennifer turning to guidance for the full fiscal year 'twenty. Two we are increasing our guidance as we expect to see continued momentum in our platform in the second half of this fiscal year, we expect.
Total revenue of $236 eight to $246.0 million, representing a growth rate of 17% to 18% year over year.
Revenue, excluding our largest customer of 221.2 to $225.0 million, representing a growth rate of 18% to 19% year over year.
Non-GAAP operating loss of 55.5 to $59.0 million or an operating loss of 23%.
Non-GAAP loss per share of 52 to 51 cents on approximately $111.0 million weighted average shares outstanding.
For Q3, we expect total revenue of 63 to $64.0 million or a growth rate of 16% to 18% year over year.
Revenue, excluding our largest customer of $56 one to $58.0 million. This represents a growth rate of 17% to 19% year over year.
Non-GAAP operating loss of $15.5 million to $15 million or an operating loss of 26% to 24%.
Non-GAAP loss per share of <unk> 14 cents on approximately $112.0 million weighted average shares outstanding.
In summary, as remain and Jennifer mentioned, we saw continued momentum this quarter.
These results give us confidence that the investments we've been making are delivering results and we will continue to expand our efforts to capture the growing market opportunity in front of us.
With that remain Jennifer and I are happy to take any of your questions operator.
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One moment, please while we poll for questions.
Thank you. Our first question comes from Matt Hedberg with RBC capital markets. Please proceed with your question.
Oh, great. Thanks for taking my questions guys remained for US It was really good to see the overall results and then I think you talked a lot about channel and international and I think a lot of that showed up in really strong our apio growth. It sounds like though that you did highlight some north America volatility on some longer sales cycles. I'm wondering if you could talk a bit more about that was it company specific.
I guess I'm wondering what are you doing to I guess improve cycle times there in the North American theater.
Hey, Matt good to hear voice, thanks for joining us.
I think generally in Q2, we saw a slightly elongated sales cycles, particularly with approval processes I don't know if it was because there was pent up demand and vacations and the like but we saw some deals slipped in the enterprise segment in particular.
Good thing there is we've closed several 100 K plus deals that had slipped already in the first part of August So I'm not sure how much that is kind of the seasonality of where we're at.
We did see positive momentum entering the second half overall as it pertains to fully ramped reps in terms of pipeline and other signals that were giving us the continued confidence to continue to invest though.
Yeah, no that makes a ton of sense and then I guess from a guidance perspective really as a follow up I guess for Paul Jennifer.
I think you grew total revenue about 19% and you're guiding for like a deceleration I think about 17% in Q21% in Q4.
Can you talk about some of the underlying assumptions there and what it looks to me like there's maybe a bit more outperformance from your larger customer.
Than our prior assumption, so I guess I'm wondering what sort of drove that I assume maybe the balance of the business maybe caution on some sales cycles, but just kind of curious of the components of guidance.
Yeah, Matt This is Blake I'll start on the guidance and then Jennifer can comment on the on a large customer but in Q2, we saw a strong performance like you hired the ninth 19% you know nearly 20% total top line growth, which is a significant improvement from Q1. So if we go back to the IPO story remember that we talked about investments that we're making at that time, we're going to drive.
Growth and improved growth in second half of this year and we feel like we're delivering on that expectation. So we're going to continue to invest in the future. We're raising the full fiscal years. So not just because of Q2, but you are seeing some benefit of that in the second half as well. So we think momentum is improving across the business and we're in a strong position to deliver on it.
That improved performance in the second half.
And then regarding the large customer we actually did see recently that they extended and expanded their contract with us.
The expansion was actually from additional use cases that they added you know over time, we've been able to get better visit visibility into their needs and the utilization of the platform.
And so our expectations for their performance is going up.
That's that's really good to hear thanks for the color guys and best of luck.
Thank you. Our next question comes from Derrick Wood with Cowen. Please proceed with your question.
Oh, Thanks for taking my questions I guess first remain I mean, you guys released a lot of new product over the last couple of quarters.
Store more things than Absorbability, how how are you folding these new products into the go to market engine.
Are you doing more sales segmentation or is it really about bringing training AE aes on all the products and what's that ramp time look like and what do you think it could start to be more meaningful to the top line.
Hey, there good to hear your voice and thanks for joining us Youre right. The innovation engine continues to be strong.
Organically as well as Inorganically as you mentioned.
I guess theres, a multifaceted answer to that question. Some of it has to do with how we make it easier for our end users to take advantage of new features pretty seamlessly and that has lot to do with the credit based licensing and the packaging that we've talked to you about before.
Another part of it is out of the gates, we tend to push more than one use case to cross sell and we mentioned that this was another strong quarter were greater than 30% of our new business land was multi use case.
So that naturally leads itself to further adoption and then third is a big effort underway to really train and enable the entire go to market organization to be able to go back into the installed base and do the cross sell upsell campaigns with all the new capabilities.
Fourth thing I'll say is we do have a specialist organization on cyber.
They kind of help with the larger more complicated deals on.
On the security side.
Less relevant on the Dev op side of our business because that's more of a direct practitioner bottom up sale. So that's what I mean by a multifaceted answer to your question, but very intuitive one thank you.
Great. Thanks, maybe a financial question for Jennifer.
Jennifer Paul but just on a good job on the on the on the operating cash flow side.
One area, that's come under a bit more pressure. The last couple of quarters has been gross margins and just wanted to drill into this is this from acquisitions is this from product mix and where do you see kind of gross margins level and often here.
Yeah sure. So for gross margins there can be variability in it as we release new features or if we expand into new regions.
Typically we do see some impact on gross margins in.
In Q2 in particular, we actually had faster adoption of some new security features which did put pressure on margin. However, as we've mentioned before we're continuously optimizing the platform. We've demonstrated in the past that we can deliver on that optimization in the prior quarter as we've got really strong gross margins. So we do expect those to go back up.
<unk>.
Great. Thank you.
Yeah.
Thank you. Our next question comes from some jet Singh with Morgan Stanley. Please proceed with your question.
Thank you for taking the questions.
I wanted to.
Touch on some of the comments you made in the script around the cross sale efficiency in the quarter, particularly with respect to the security cross sale and the observed ability Clarksville.
Sales execution standpoint.
Have a good understanding of how these deals are sort of enabled meaning how much sort of extra calories or how hard is it to drive that cross sell motion or is it sort of natural as security and observed ability start to converge from but from a capability standpoint, and also from an organizational standpoint is that just making easier to do that cross sell.
Right.
Good to hear your voice too.
I think there's a few different things that are driving this and it kind of depends on the segment of the market and the enterprise versus the mid enterprise versus mid market Theres some variances there.
Generally I would say I don't agree with the thesis or premise that these markets are consolidated converging. They are different buying centers, there are different needs and different data types, but what we do see however is the acceleration of workload migration and therefore workload protection needs from a security point of view, helping the.
Observe ability efforts and secondly, a strong pickup in the migration from legacy Sim to cloud Native Sim.
And that's what's kind of helping us land. The initial deal and then use the CSO and the security operations teams and the threat owners and analysts to help champion us into other parts of central I T or lines of business to get them to adopt more sumo features and capabilities.
Very thoughtful answer to it and it makes it makes a ton of sense I wanted to come back to Jennifer Jennifer's comments on the dollar based net expansion rate kicking below I think it was 110% this quarter. So it looks like it's been down ticking for last couple of quarters I think.
Primary aspect here is the.
Some of the churn from the larger customers you saw last quarter in terms of this sort of bottoming out and then hopefully heading back north of 115% again is it just a function of that.
The churn impact he is going to have to come out of the number four quarters from now or.
Is there is there incremental churn that you're sort of seeing in the business.
That way on the on the on the dollar based net expansion rate.
This is Paul I'll take that one.
As you highlighted we did see a decline as we expected and I talked about before and to your point. The good news is theres no large M&A driven events to talk about this quarter like we've had to address in the past so that means our gross retention is actually improving so it is actually back to near historical levels. So the last piece that we're really waiting for is expansion.
And I think that's the one that's difficult to predict the timing of how fast that's going to come back, but if you look at our logo churn is at a multiyear low right now new customer activity has improved and we've got more product to sell so we do think it's just a matter of time for these.
Customers to start expanding with us, but it's just hard to predict the timing and then as you mentioned theres the four quarter element on top of that of the averaging of the number.
It makes little sense. Thank you Paul.
Our next question comes from Rob Owens with Piper Sandler. Please proceed with your question.
Good afternoon. Thanks for taking my question just one for me was wondering if you could drill down on the international strength Youre seeing in particular is this new channel just development of those markets because it's been a couple of quarters of strength. Thanks.
Rob good to hear your voice.
So a couple of things on the international theater for US we had strong contribution from channel in EMEA and APAC, but also through our M. S. P. M. S S P's and Vars help.
Helping our business there.
We saw that combined that would be over 100% growth year over year.
International revenue was up 29% and bookings was up greater than 100% and is a record quarter in terms of the mix on the bookings side for international.
But this is exactly what we were investing in.
Frankly, Europe plus ago before we hit Covid and you know kind of pulled off a little bit, but now been re accelerating that investment. So we can drive.
Obviously, a P J Japan.
EMEA theaters as part of our bookings diversification plan now.
Now secondly, I'll say that.
One driver to that has been around security and in international particularly in EMEA, but.
But we saw a strong contribution from multi use case, there as well and then in a P. J, we've seen a lot of observer ability opportunities and answered a lot of security opportunities, coupled with the Korea and little bit in India.
Great. Thank you.
Thank you. Our next question comes from Brent Thill with Jefferies. Please proceed with your question.
They remain on the new customer adds you know good good number. It's he had to go back in the model awhile, but to find that that strength can you just walk through what where you're seeing that new not new news.
New logo strength.
Hey, Brian good to hear your voice.
I think it's across the board to be honest with you.
Seen it across multiple theaters and more importantly of multiple.
Segments, both SMB and mid market, which was more a run rate transactional business, which was really strong this past quarter.
As was the productivity there in terms of ramp and contribution and then also on the enterprise segment for us generally overall as well.
I think the other aspect of it is that we saw great contribution from the various marketplaces, and therefore channels associated with that reducing some of the friction and deal timing aspects.
That's a big effort that we've been investing in with AWS now with the Red hat IBM marketplace announcement or more to really reduce that time to decide to procure effectively.
And just real quickly on your hiring.
Hiring plans I think last year, we ended at 130 in sales.
Can you give a sense of.
Kind of what you're expecting to do this year and you know it.
Keep in mind in terms of.
How you're building out your own internal all your own internal and external appeals.
Sure. We all know that the labor market is very tight right now and that's globally speaking not even just domestic.
And in particular in domestic it's pretty competitive market for enterprise reps in North America.
However in Q2, we had north of Miami off top my head, 25% year over year growth in fully ramped enterprise reps and similarly in the mid market ramps.
Productivity I believe correct me, if I'm wrong, Paul was back to historical levels that we haven't seen in a while.
And so it's important to know that the ramp that's happening both in the mid market as well as enterprise as well as globally is faster than our revenue growth, which is exactly why it gives us more confidence to continue to invest.
Great. Thank you.
Thank you.
Our next question comes from both on theory with William Blair. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Hmm.
Let's start off maybe with the current <unk>.
And trailing 12 month billings those are really solid like 30% growth I guess and maybe this will remain apologize just help us walk through given that growth.
How that flows into revenue and sort of when do we start seeing that because again I understand there's some longer term contracts as we need to look at the current numbers, how does that flow into revenue to sort of drive similar sort of growth in revenue because those two metrics certainly look really healthy.
I guess I can start with that so far you know billings and exit current RP O. You know that can be impacted by the timing of renewals and we actually see that every quarter. I think we mentioned even last quarter, we had a large one which can impact that lumpiness as you look sequentially.
So we you know we expect that where we're happy that it's continuing to grow faster than revenue and we would continue to see if you look at it on a trailing 12 months basis that it would.
Over the long the long duration would align.
Yeah, Yeah. So I guess at some point, we should see that revenue growth start to head towards the again over a 12 to 18 month period towards that current IPO billings growth I was just making sure at least my mental math.
Similar to what you guys would expect too.
Yes.
Great. Okay, and then for you, let's talk a little bit on the mid market here.
It's done while you made some investments both in sales, but sales motion to reduce friction to make that process as frictionless and it sounds like you're making good progress I guess unloved signs if you break apart how much of the improvements were from improving macro versus specifics of the changes you're making.
What inning are we in that process of sort of removing friction, especially for that mid market type sales motion.
Wow.
I'm not sure I can delineate how much is improved macro versus our enablement and focus on that I think it's a combination honestly are the two we do see some verticals and some aspects of SMB globally is still volatile to be honest with you. So.
So I don't want to take one data point in North America and apply that everywhere.
However, I can tell you that there is a multitude of focused areas for us on that transactional business. One is really with respect to.
Our product led growth or <unk> motion, that's a separate business unit for us and that's a separate product focus in separate go to market.
Second is around how we enable different types of partners to supplement and support us that's an area, where we're now leveraging some MSP and M. S. S. P's in M. D ours in that segment that were historically typically focus on the enterprise side right.
That helped us with security and then also we can land and expand with observer ability.
And then the third is just focused sales plays.
And training and enablement on everywhere from the STR to the Aes and CFS folks in that segment of our business.
Gotcha Gotcha helpful. Thanks, guys I appreciate you taking my questions.
Good to hear your voice.
Thank you. Our next question is from Mark Murphy with Jpmorgan. Please proceed with your question.
Hi, Good afternoon. This is Matt Coss on behalf of Mark Murphy, just a question on the slipped deals into longer approval cycles.
Was it only longer approval cycles or was there something else there.
It happened with these and then when in the quarter or did you begin to see the possibility that they wouldn't close and then are you also still seeing some of those longer approval cycles.
Well, we're in the middle of Q3, and I won't comment on that since we're talking about a rear facing as a result.
But I can tell you that.
I think a lot of what we saw in Q2, the lumpiness so to speak in the back half of the quarter or what was honestly some aspects of what we anticipated given people's pent up demand and desire to get away.
Employees included but most importantly in terms of our customers and prospects and partners.
I can tell you that some of the slipped deals that were already in procurements in the legal and all of that come through already in the first part of Q3 like I commented before.
But that's kind of the gist of how we see it I don't think it's a broader issue with sumo or the market I think it was just.
Isolated issue here in the U S. North America Enterprise and I think you may be asking this is Paul underneath that about just you know is there any change in the competitive dynamic that contributed to that and the answer is no. There's no change to the win rate no change to our late stage performance.
It was predominantly just the cycle of closing and we have since closed many of those deals.
Okay. Thank you very much.
Thank you. Our next question comes from Kingsley Crane with Bahrenburg. Please proceed with your question.
Hi, Thanks.
Great revenue number also the revenue from your large customer if they can increase.
Pretty significantly after declining for a few quarters in a row. So I'm wondering.
How have the conversations with our customer progress are they adopting newer features like not to use or is it more of a data volume increase that's driving that strength.
Can you is it good to hear your voice and thank you for joining us as Jennifer commented earlier that large customer.
Extended and expanded our contract with them and that was driven by the existing use case as well as an expansion use case from additional needs across other parts of the business.
One was an organic one was an inorganic aspect of that.
But most importantly, I think we feel now that we have much better visibility into their needs and their utilization and therefore, we can have stronger confidence and expectations for the for their performance and that's going up through the back half of this year and into next year.
Okay. Thanks for me that's Super helpful. And then one more so you know I think we've had gross margins moved down slightly over the past few quarters. We've also been investing a lot.
Different partnerships and ex Red hat marketplace as well as the MSP channel.
I'm wondering as we continue to recover in the back half of the year, how do we expect gross margins will progress relative to revenue growth.
Hey, Craig This is Paul I'll comment on that so we talked about the step down in this quarter being related to product mix.
Faster adoption of newer security features we've got a lot of new features coming online in the back half of the year. So I think right now it would be appropriate to think of them kind of in the same range as they were this quarter with the expectation that we would be optimizing the platform and continuing to show upward progress overtime.
Okay. Thanks, that's very helpful. Thanks, Bob.
Thank you there are no further questions I would like to turn the floor back over to management for any closing comments.
Great. Thank you. This is rami and thanks, everyone again for joining us today on our second quarter earnings call.
In summary, it was another excellent quarter as we saw strong financial performance that was driven by our international theaters and supported of course by our channel partnerships.
Generally improving momentum in our customer base and lastly, strong adoption of both the security and observer ability products and use cases like we've talked about.
In addition, I'm excited and very proud that we received strong industry recognition well deserved from Gartner for our differentiated cloud Sim offering.
Additional to that we launched significant new APM capabilities like ROM a reuse of monitoring span analytics also drive application reliability.
Further how we double down with respect our open source observer ability strategy with the sensor acquisition that delivers unique monitoring is code capabilities and last the introduction of our new cloud source solution that was based off the D. S Labs acquisition.
All in all and as such we believe that we're in a very strong market position.
Our product portfolio has never been more compelling and we are continuing our focused investments to expand our routes to market and our reach with partners and service providers globally.
We're pleased with those investments and we will continue to drive our continuous intelligence platform and our go to market efforts that are yielding results and we remain excited about both the near term as well as the long term market opportunity in front of us.
So with that I want to thank you again for joining us today, and we look forward to connecting with you all at our global user conference illuminate 2021 on September 57th.
Thank you operator.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful evening.
Okay.