Q3 2022 Sumo Logic Inc Earnings Call

[music].

Greetings welcome to the sumo logic third quarter fiscal 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

I will now turn the conference over to the sumo logic team.

Thank you good afternoon, and welcome to Sumo logic third quarter fiscal 2022 earnings Conference call. Joining me on the call today are Romijn say, our president and CEO and Jennifer Mccord, Vice President of Finance and Chief Accounting Officer. Our format. Today will include prepared remarks by Robin and Jennifer.

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 and investments future financial results and guidance, our strategy and market opera.

<unk> and overall future prospects. These statements are subject to risks and uncertainties actual results may differ materially from our forward looking statements.

A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, including our risk factors filed with our most recently 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 sumo logic assumes no obligation and does not intend to update or comment on forward looking statements made on this call except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP financial metrics 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, which was furnished with our form 8-K filed today with the SEC and on our Investor Relations website at Investor Dot Sumo logic dotcom.

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 Rami.

Thanks, everyone for joining us today on our third quarter earnings call. We are pleased with the strong results. We saw this quarter, which exceeded the high end of all of our guided metrics. These results were underpinned by the improving performance that we laid out earlier this year that delivered revenue growth of 20% year over year.

Saw strength and good contribution across our enterprise and mid market segments in North America as well as in our international theaters. In addition, we continued to see strong performance and contribution across our global channel partners, namely resellers and M. S. S piece.

Overall, our performance was driven by improving customer growth and the continued adoption of our observer ability and security portfolio, which leverage many of our new features and enhancements released earlier this year.

In fact this quarter, we saw strong new business and the best expansion, we've seen in multiple quarters as our customers continued to increase usage of our platform for both existing and new use cases.

Turning to financial highlights we saw strong topline performance this quarter with total revenue of 62 million coming in above the high end of our guidance range. We ended the quarter with 438 customers with more than 100 K N E. R. This represents a year over year increase of 26%.

Additionally, our total customer count grew by more than 10% year over year.

Looking at the mix of business, we continue to see strong adoption of our full stack absorbability suite, consisting of logs metrics and traces for both new and cross sell opportunities.

In addition, as in previous quarters security momentum was strong from both new logo and cross sell opportunities, which contributed to over 50% of new business in the quarter.

This was driven by a package security analytics offerings, which targets smaller customers, who value simplicity by giving them speed and ease of use whereas our cloud Simmons soar offerings target, the larger and more sophisticated enterprise customers, who need to transform and modernize the security operations.

The market, we serve is rapidly growing being driven by digital transformation across every geography and vertical this is leading to new application in cloud infrastructure architectures and also creates exponential amounts of new machine data each year.

Due to the increase in cloud migration and application modernization as well as the rise in Iot with more connected devices. It's also creating unprecedented rise in various types of security threats, which have become increasingly harder to identify given the amounts of data and noise being created.

As such we believe that our cloud native continuous intelligence platform is the answer to many of these deaths that cops challenges.

This is applicable to organizations of all sizes, who were trying to mature and evolve their application and cloud architectures and or improve their security posture and practices.

Therefore, our platform does three things to help solve these challenges for our customers first ensure application reliability second manage and optimize multi cloud infrastructure and third secure and protect against modern security threats.

With that now I'd like to share some of our exciting wins from this quarter, where customers were able to leverage our platform to address the opportunities of cloud migration and digital transformation.

This quarter, we had our largest seven figure full stack observe ability deal with a leading Dev ops enterprise customer in North America. This customer initially started several years ago with a log analytics solution for their existing customer facing application and overtime expanded their usage and scale of sumo.

They are now using us for full stack absorbability to gain better visibility and performance, thereby ensuring the reliability of their newly modernized customer facing application.

This new application is based on the new micro services architecture and required a massive amount of new instrumentation, which require large scale metric collection and real time monitoring and troubleshooting.

This strategic cross sell replaced both of homegrown and a legacy tool as well as leverage various open source collections.

Our mid market sales team landed a high six figure deal with a fast growing software company preparing for IPO.

So most deaths tech op strategy and capabilities were selected in order to secure their mission critical infrastructure and applications and now we are monitoring their security events for over 10000, AWS accounts and providing actionable insights within our platform.

Ultimately they chose sumo because of our ease of use out of the box functionality as well as our platform's differentiated security and controls.

However, they also selected sumo because we were able to simplify and replace a complex homegrown open source solution as well as replace a complicated licensing model, thereby lowering our operational cost as it continued to grow in scale.

Another new logo win this quarter was a six figure land with a company who has taken steps to become more digitally focused as they continue building out the customer facing apps. They're also leveraging more micro services as such there see saw the importance of engineering and security teams working together to ensure both application and infrastructure reliability.

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Because I assume those deaths tech ops capabilities, we became the clear choice.

We're also seeing customers increasingly expand beyond a single use case as they recognize the benefits of using our desktops platform for engineering operations and security teams to address the challenges of observer ability and security.

In APAC, we had a six figure cross sell with the international financial services firm with more than 80000 employees. We initially Atlanta this customer last quarter and they're now using sooner for our new mobile banking application in a different geography.

They required a single solution for both security and observer ability, which is why they selected our security analytics and full stack absorbability capabilities.

Not only do our customers see the differentiation of sumo, but we continue to receive industry recognition for our modern cloud native platform.

In fact this quarter our cloud saw was named leader and the Giga AUM radar report for source.

In addition, sumo logic was selected by Amazon Web services as it's 2021 ISP global partner of the year at AWS re invent last week.

This recent award recognized Zuma logics performance and commitment to helping customers drive innovation as they embark on their digital transformation modern application and cloud migration initiatives.

Moving on I'd like to talk about our annual global user conference illuminate 2021 and some of the product announcements that were made at this event to extend the capabilities of our platform for both observe ability and security.

Observe ability, we announced improvements to our monitoring and troubleshooting capabilities with new alert response features new real time data source integrations as well as additional enhancements to support open source.

These enhancements include a new open source for AWS open telemetry distro, making it even easier for customers to run their workloads on AWS as well as Red hat open shift operator through the Red hat marketplace.

In addition, we announced the integration of sensor go to our platform and introduce censored go plus which further enhances the monitoring is code capabilities essentially go and allows real time insights for all data types for improved troubleshooting reliability and security.

Moving on to our security suite. This cleared the complexity continues to be a challenge with today's modern enterprise.

As such they need a cloud native solution that integrates threat detection and alert response solutions that leverage their existing tools and technologies like Edr and xdr. Therefore, it we announced that sumo logic is expanding our security vision for openness with enhancements to our cloud security analytics and monitoring solution.

Further help improve our customers' ability to address modern workload protection open xdr, which it goes out of the box xdr threat detection and response as well as expanded security insights with new and updated applications.

I'm proud of everything that sumo team has accomplished especially on the product innovation front in fact, I believe our product portfolio has never been stronger with our leading cloud log analytics cloud Sim and sore as well as the growing adoption of our differentiated full stack Absorbability suite. This underscores my confidence that we have the right technology.

Oh, Gee and strategy to capture a meaningful share this fast growing market. However, it's clear to me that we need to additional levels of operational rigor and focus to drive a reacceleration of growth in the business as a result, besides a continued focus on product innovation investments. We're also enhancing our go to market efforts to make sure that we have the <unk>.

Experience coverage and resources in place to scale our business.

In fact, I'm delighted that we recently announced Linde Dougherty as president of worldwide field operations Lynn brings with her extensive sales and go to market leadership experience with a track record of scaling operations at multiple large tech companies under her leadership, we are continuing to invest in our go to market strategy to capture the large and growing market opportunity in front of us.

Given our experience I'm confident that she will help us gain additional market share by focusing our go to market motion strengthening our global expansion and partner ecosystem and helping sumo scale for its next leg of growth.

In addition, I'm happy to announce that Stuart Gerson will be joining our executive leadership team as our new Chief Financial Officer on Monday December 13th 2021.

I'm, particularly excited because Stuart has been leading finance and operations with high growth private and public companies for more than 25 years, He's joining sumo logic from Dell fix a leader in Dev Op software, where he served as CFO previously Stuart spent eight years at CFO arc site. The first generation Sim leader.

This experience into the primary markets that sumo logic competes in security and observe ability well I'll Stuart to quickly come up to speed on the company strategy and operational plans.

In summary, it was an excellent quarter the investments we've been making in our platform improve operational rigor and our go to market evolution are yielding results I'm delighted with the addition of Linden Stuart I look forward to partnering with him as we continue to implement more operational improvements in order to scale and capture the large observer ability and security market.

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With that it's my pleasure to now have Jennifer Mccourt, our VP of finance and Chief Accounting Officer provide more details on our financial results in Q3, and our outlook for Q4.

Thanks from me and thanks, everyone for joining us on the call. Please.

Please excuse my voice today I watched it over the weekend and it hasn't quite come back.

Turning to the results for the quarter I'd like to start with a brief summary of the financial highlights for the quarter and then go into more detail on each topic.

First as we mentioned we saw robust performance in the quarter with year over year revenue growth of over 20%.

We saw strong new business and the best expansion, we've seen in multiple quarters, driven by continued adoption of new capabilities and multiple use cases for our differentiated platform.

This adoption and strength, we're seeing across enterprise mid market International and channel.

Next we saw strong customer activity across billings are P O and logo counts.

Finally, we saw improving margin performance, including acquisitions and planned investments made in the quarter.

We continue to have strong customer growth as our total customer count grew over 10% year over year, which was the fastest growth we've seen in the last seven quarters, we continue to see opportunities across various industries and customer sizes.

We ended this quarter with 438 customers with more than 100, K in annualized recurring revenue or a R.

It was a year over year increase of 26% and outpaced revenue growth. It's the fastest growth we've seen in the last six quarters.

As expected our dollar based net retention remained a few percentage points below our hunter and 10% this quarter.

As a reminder, our dollar based net retention is a four quarter average. However, we saw an improvement in the in quarter retention with noticeable strength across our total customer base, while we do expect modest variability in this metric over the medium to long term, we expect an increase in dollar based net retention.

Turning to billings calculated billings for the trailing 12 months period totaled $263 $1 million up 30% year over year as our customer base continues to leverage the capabilities of our platform.

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 there.

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 due to our differentiated multi use case platform and flexible licensing model. This.

This quarter's RPM increased 25% year over year, driven by the size and duration of new and expansion contracts due to the continued opportunities around cloud migration application modernization and security transformation.

Our average land continues to be approximately two years in length.

In addition, current RPI increased 39% year over year as the investments in our portfolio expansion continue to drive early upgrades and renewal.

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 measures is included in our earnings release and posted on our website.

We delivered compelling performance in the third quarter total revenue increased to $62 million up 20% year over year.

Third quarter revenue, excluding our largest customer was $57 4 million up 19% year over year recall that we break out our largest customer because of variability and seasonality that has historically different from the rest of our business.

However, more recently their activity has become more aligned with our overall business, making the segmentation less relevant.

Moving on to gross margins in the third quarter, we saw 73% gross margin compared to 77% in a year ago period.

The year over year decline was driven by a faster ramp and new features that have not been fully optimized on our cloud based platform.

However, we can see the benefits of that optimization in the current quarters margin, which improved compared to the prior quarters gross margin of 72%.

As we continue to evolve our platform and provide new capabilities and products. There can be some variation in gross margin based on the timing of these releases and adoption by our customers.

Moving on to operating expenses sales and marketing expense was $29 5 million or 48% of revenue compared to 43% of revenue in the year ago period.

Given our significant platform enhancements and large market opportunity for both greenfield and existing customers. We are continuing to invest in go to market coverage capacity and new market expansion going forward.

Research and development expense was $18 6 million or 30% of revenue compared to 25% of revenue in the year ago period the.

The increase as a percent of revenue was driven by our continued focus on product innovation investments, including our acquisition of D. F Labs. Since then too as the majority of their employees are in R&D functions.

General and administrative expense was $11 3 million or 18% of revenue compared to 14% of revenue in a year ago period.

G&A expense includes increased cost associated with operating as a public company.

In total our operating margin was negative 22% or 2% point above the high end of our guidance range driven by revenue outperformance in the quarter.

We continue to be pleased with the margin outperformance. After our continued investments in platform enhancements acquisitions and go to market capabilities.

Net loss in the quarter was $13 3 million or 12 cents per diluted share based on approximately $110 4 million weighted average diluted shares outstanding.

Turning to our balance sheet and cash flow. We ended the period with 362 $1 million in cash and marketable securities free.

Free cash flow in the quarter.

It was negative $13 $2 million or a negative 21% of revenue compared to negative 36% in the year ago period.

Now turning to guidance for the full fiscal year 'twenty, two we're increasing our full year guidance to reflect Q3 reported results. We remain optimistic about our future as we continue to evolve and improve our go to market capabilities under new leadership.

We expect total revenue of $238 eight to $239 8 million, representing a growth rate of 18% year over year.

Revenue, excluding our largest customer of $222 eight to $223 8 million, representing a growth rate of 19% year over year.

Non-GAAP operating loss of 53 to.

<unk> to $52 5 million or an operating loss of 22%.

And non-GAAP loss per share of 51 to 50 cents on approximately $108 5 million weighted average shares outstanding.

For Q4, we expect total revenue of 63.7 to $64 7 million or a growth rate of 18% to 20% year over year.

Revenue, excluding our largest customer of 59.5 to 65 million. This represents a growth rate of 17% to 19% year over here.

Non-GAAP operating loss of $15 nine to $15 4 million or an operating loss of 25% to 24%.

And non-GAAP loss per share of 17 cents on approximately 112 million weighted average shares outstanding.

In summary, it was a strong quarter as we saw a 20% revenue growth year over year customer activity is continuing to improve with compelling growth in logo counts billings in our P. O. We delivered revenue and margin outperformance, while continuing to make investments in our platform and go to market capabilities.

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.

We remain excited about the opportunity for continued durable growth as evidenced by our differentiated continuous intelligence platform, which has helped our customers ensure application reliability manage and optimize multi cloud infrastructure and secure and protect against modern security threats.

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

At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Yeah.

Our first question is from Matt Hedberg with RBC capital markets. Please proceed with your question.

Great. Thank you this is actually not foreign to us and that.

First off just congratulations to simo as well as Stuart on the higher and then maybe for the question switching to another higher if we could focus on that.

It was great to see the North American issues from last quarter with the elongated sales cycles and some of the Codeshare. It seems that they really got cleaned up first is that kind of what you saw from the quarter and then any changes you'd feel that she might make early on maybe from a just from her past experience on any change to go to market or the strategic out.

Look.

Great. Thanks, Pat this is rami.

First of all we're also delighted to have Stuart and Lynn join us.

In particular with respect to the question around last quarter, we had a few quite a few deals that we are technically won and the commercials were.

Little bit delayed we did not see that trend in the Q3 time period and we saw strong performance in Q3, driven by North America and rebound so to speak if you Wanna referred to with some of those transactions that we talked about but more importantly, we saw strong contribution from our mid market business Cross sells and.

<unk> sells because of the portfolio investments, we've been making and overall contributed to a strong quarter.

Second part of your question in terms of the changes. This has been an evolution for us as we've been you know continuing to enhance and refine and simplify our go to market focus and addition of lane and now Stewart will help bring in the operational rigor discipline and scale experience. So that we can continue to invest for the future quarters of durable growth.

Yeah, that's super helpful. And then maybe as my second question.

Well I mean, it was great to see another strong quarter for security I know digital transformation. That's been a driver for you I mean, there's always these conversations about digital transformation and security transformation chicken and the egg which comes first but it seems like it really sets the stage for faster growth from Dev ops I was kind of like an overall philosophy of people.

Trying to make changes on both sides at one that needs to become more collaborative.

Are you seeing your customer base I mean, obviously youre seeing traction in security, but it's also people starting to understand kind of the strength of a unified platform more as they're going through these transformations.

Yeah. Good question.

Sometimes it's hard to delineate whether digital transformation or the threat and risk of security modernization is driving some of those particularly in the large enterprise right.

But I will say that these are distinct markets. These.

These are different selling motions. They include different practitioners and buyers. This is something that <unk> been doing for more than 10 years selling to these distinct separate markets.

What you're pointing out is the need and desire to have ability for security operations and Dev ops teams to be able to better collaborate with each other and sumo logic is a logical choice with a single cloud native platform that provides that today.

Perfect. Thank you.

Our next question is from Derrick Wood with Cowen and co. Please proceed with your question.

Oh, great. Thanks, it's Andrew on for Derrick Congrats on the strong quarter.

Jennifer on the net Rev. Retention are you mentioned it was a few points below one turn how are you feeling about getting that back to over 115, what levers do you have to get there and over what timeframe should we think about this.

Yeah, Hi, Andrew again, I apologize for my voice.

Dollar based net retention did come in below 110, this quarter, which we expected as a reminder, it is a four quarter average, which can obscure the improvement that we are seeing.

As I mentioned in my prepared remarks, the in period retention did increase and we're encouraged with the momentum that we're seeing across our total customer base as we noted in the metrics that we gave.

Gross retention continues to improve due to the investments in our product portfolio, which we're seeing a lot of early upgrades and renewals with our customers.

This is one of the best quarters of expansion that we've had but because of the four quarter average it will take some time to normalize for you to see that.

Fair enough and remain last quarter, you talked about 25% growth in fully ramped enterprise reps.

Wanted to check how that's trending currently and how the ramp to productivity is going for new reps.

Yeah, I mean, I think we all are facing the global labor market challenges.

We're continuing to invest domestically and internationally.

In North America, we've been adding in the mid market as well as in the enterprise and also.

Getting better coverage and capacity outside of North America of theaters.

Great. Thanks, guys.

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

Thank you for taking the question and congrats on a solid quarter I wanted to talk a little bit just about overall growth trajectory of that growth. So Jeff I think you mentioned that you know that the trailing 12 month billings number came in at 30% I looked at your RP O you Curt or appeal I think was up 39% year over year by my calculations.

So you kind of square that with the revenue growth which is.

I'm, just sort of straddling 20% does that imply that that that you know as quarter sort of progressed into 'twenty 'twenty. Two that you should be seeing that acceleration in revenue to converge with the billings growth rates in Europe yogurt switches, we're seeing where do you think they're just kind of more.

More execution more coming out of the pandemic is still needs to be done to get back to those higher levels of growth.

But I can start with.

So yeah I mean as you mentioned in current Rps was up 39% you know what.

What we're seeing is customers are upgrading earlier and extending their contract duration with us rather than co terming as they're continuing to commit to a cloud platform.

So we're happy to see that both current and total RPM is growing faster than revenue.

There isn't a reason to believe that that shouldn't converge with revenue over time, but.

As you know as we've mentioned there's still some work that we have to do with the executives coming on board. So.

Understood and I also hope you start to get to scale.

Your voice I'm wrapping up you start to feel better so I'll guess I'll check my next question and that would mean.

Which I guess the other sort of.

Possibly a little on the product side beyond security is like it seems like there's the puck is moving forward with the observer ability strategy I was wondering if you could frame up I mean if.

If you look at your sort of core log analytics customers, you know for that I T ops team what percentage of that.

That oh core logging to lose customers has adopted absorbability like how much how penetrated are we on that and what do you think you can get those penetrations too with the sort of observed ability cross sell over time.

Yeah, So sanjay good to hear voice, thanks for joining us.

Well I think first and foremost it's important that we realize that the investments that we're making the product portfolio have manifested itself to not only the installed base question in penetration, but also net new business.

This past quarter, we saw strong contribution for both new logos as well as cross sells on the cross sells I highlighted one of the examples where a traditional large enterprise Dev ops customer.

And scaling and using sumo for logs and as they modernize their new platform to kubernetes and they rolled it out to production they realize their existing tools and do it yourself. It wasn't scaling so that's when they logically expanded and moved into the full stack observer ability.

Why are we highlight that wonder I bring it up is that's a pretty repeatable process that we see when customers deploy new the new micro services kubernetes architectures, and they want to scale up and scale out it's a logical extension of replacing some homegrown or point tools I just can't handle that.

So now the other part of the question I think we're in the early innings of that cross sell and we have a lot to do in the installed base to be able to penetrate with respect to the cross sell for observer ability and let alone security.

Yeah.

Understood I appreciate it thank you.

Yeah.

Our next question is from Mark Murphy with J P. Morgan. Please proceed with your question yes.

Yes. Thank you very much I'll add my congrats.

So I mean, I think you commented that 50% of bookings related to security use cases in Q3, if I heard that correctly and so I'm just wondering how you see that trending going forward, especially with Lynn are taking over field operations I believe she has had more experience in.

Security than an observer ability and monitoring in the past.

Yeah, I mean, I think this is not about necessarily lynn's leadership in a domain. This is about the larger market opportunity that we see in front of us.

And you know Stuart has experienced both an observable and security, but I think what we saw in Q3.

In terms of the contribution of security was equally balanced by strong contribution and observe ability for both new new business from new logos as well as cross sell.

I think also what we highlighted in the past is approximately third of our new business came from multi use case right out of the gates, whether that was a upgrade in renewal or brand new business. So I think that will continue to be kind of the mix that we will see going forward as we've shown and highlighted in Q3 as well as Q2.

Okay.

Okay, so remaining somewhere around 50% going forward for.

For the upcoming fiscal year, you you commented as well that you are investing in our go to market and of course, that's good to see can you approximate what.

What the quota carrying sales headcount.

Increase could look like that then it would be targeting for that for the for the next fiscal year.

Mark you got to remember she is 30 days into the job right and so doing a very good job. So far in the first 30 days understanding the business and coming up to speed, so that coupled with Stuart's starting next week. We got some work ahead of us to get prepared for that for next year. So at this point can't really approximate and I need to bring these new leaders in and get them on board and together.

<unk> develop our plans and strategy going forward I will say this is a continuation of stuff that we put in place and our commitment to reaccelerate growth and more importantly to what we've already delivered on and we feel that is a huge market for us.

Okay, well one final one a bromine if you look back on the moves that you've made to the cloud flex credits pricing model I think it was about 18 months ago.

So you've got a based on D. P M.

Allowing.

Clearly unlimited users.

Any comment on just how well you think that has resonated with the customer base is that any is there like is there a delayed reaction to that that could be helping you now or it has driven an increase in the number of active users you've got for customer.

Yeah, Great question, well I mean, we've commented before on the volume.

Volume of growth in terms of data that we're analyzing every day, which is exceeding an extra bite and I think a lot of that has to do with the continued innovation on tiered analytics new features but also because that complements the desire for a more appropriate a licensing model that mirrors the <unk>.

Economic model of analytics and cloud now to the second part of your question.

From an error or from an a or our perspective, approximately actually greater than 80% of our <unk> is on the new credits model and a lot of that contract duration, you'll see us 24 months or more when they upgrade so that gives us strong indication that they like the new features they like the new cloud flex licensed.

<unk> model with credits and allows them time to rightsize Super size and expand on different features. So we know we have the right product capabilities. The lights, the right strategy for Dev ops and the right benefit customers expect in this area.

Thank you very much.

Our next question is from Camille Milch, Eric from William Blair. Please proceed with your question.

Thanks, and congrats on the good quarter.

It's good to see the progress Youre, making the partner ecosystem can you provide more detail on how partner contributions today compare to contributions made pre COVID-19 when you, especially when you started making some of these MSP investments and as you look out longer term how do you think about the investments you can make to further leverage this channel.

Yeah.

Sure Neil good to hear your voice hope you're well.

So you know I think from an ecosystem perspective, it's important to delineate when we talk about partners. The ISP ecosystem, which we continue to make strong traction and integrations to provide customers the flexibility and choice they need to get access to the data sources. That's why we've put a lot of effort in the security mom.

Turning an observer ability efforts around open xdr as an example, or efforts we've done with the Dev ops space with Atlassian and others now on the go to market side as you look at how we sell through and with M.

MSP has continued to be a massive opportunity as they themselves need to transform a lot of cases, the tools that they've been cobbling together or tried to build it themselves where they could easily flip on sumo to address not only security, but even observer ability use cases to grow their stickiness and retention with their business right. So we continue.

You will continue to invest in that and drive that globally.

Third as it pertains to the standard two tiered distribution model with respect to distributors and Vars, that's an area, where we think we can get better coverage, particularly international and new markets and new markets being fed Latam and international So those will continue to be a focus for us going forward in Linz experienced there will be.

Helpful for us as we continue to scale out next year.

Yeah.

Now the phase III.

For Q3, it's your question more than 50% of our business approximately 10% of our business came to a channel.

Okay.

Yeah go ahead, sorry, sorry.

The last thing I'll leave you with is in recognition of that we were also awarded by AWS. The ISP Global partner of the year Award last week because of the help the help that we've been giving them and the ecosystem of Isps and vars to transform their business. So we're pretty proud of that.

Yes, it's great to see that award and in thanks for all the color or I mean, it's it's a really thorough and if I could just quickly follow up on our competition.

We've seen some of your competitors introduce features over the past year or two that help their customers actually limit the amount of data is being loaded onto their platforms help better control the cost alright at the enterprise that you're seeing are you seeing any changes in competition generally and had the conversations around pricing changed in the most in the last one.

Or two quarters and we're really quickly can you maybe update us on how win rates have been trending.

Well I'll say welcome to the game sumo has been doing this for since our existence. We've always provided the flexibility around average utilization of usage with respect to ingest and that's when we moved to the credit based model. That's why we introduced tiered licensing and more changes so.

I think that's been.

Our core focus and strategy for us for a long time.

In the new credit based model customers can see real time their ability to real time their usage and their ability to optimize it versus be billed in arrears and shocked. So unfortunately with a lot of other vendors who were putting some things in to throttle. The ingest, it's because too often times customers are still surprised and they get that bill.

That shock afterwards.

So what we have seen in the marketplace as customers want transparency they want choice they want flexibility and that's what sumo has always provided so we underscore our benefit for customers and I think that's been something that we will continue to see going forward.

As it pertains to more broadly speaking in the marketplace nothing in terms of competitive dynamics have changed last quarter versus previous quarters.

That's good to hear and I get to see the traction with the new pricing model. Congrats again, thanks for taking my question.

Our next question is from Blair Abernethy with Rosenblatt Securities. Please proceed with your question.

Thanks, very much and nice quarter guys.

Well I mean, just two quick things I Wonder if you could just give us an update on our SLC.

Since you'd go in particular Oh plus.

It's really early but just wondering if you had any early customer feedbacks.

Sure.

I think it's important to put some context around that.

For quite some time soon though has been committed to.

Open source the open source community and the ability for customers to be able to leverage a lot of other open source collection and data pipeline efforts and that's what sense, who had been doing for quite some time.

The addition of censored go plus as a result that we announced during our.

Conference last quarter was really the ability to connect the backend so to speak that provides that ingestion analysis dashboard and alerting and troubleshooting with the collection of the data pipeline that they had been building.

So that's the second 0.3rd point in terms of early feedback in terms of their existing customers or net new opportunities. It's still only a very short time since we closed the acquisition and released the integration, but it's been very positive to reinforce their strategy and commitment to the ecosystem.

Being part of sumo and secondly, the product vision of how those two come together with sensory go plus.

Yes.

Okay, great. Thank you and just a quick follow up on the on the go to market side in terms of your new customer lands well what did you see in the quarter in terms of.

The customer the average deal sizes for some of these new customers.

You know what I think most still mostly greenfield or will you know what what sort of what can you characterize what the new customers are coming in as.

Well as I mentioned before we saw strong multi use case from our customers in the quarter.

Really when you see about 50% of the new business come from security Youre going to have a higher asps from security versus the transaction lands on observe ability right. However, we had we saw some very strong performance and Upsells and cross sells as I highlighted with one of our customers in the enterprise segment.

Moving to full stack observe ability. So that also drove the ASP of the observe ability business up last quarter, but I still think that you know this is still very much a best of breed market Greenfield opportunities prevail and we have a great market opportunity to go capture with improvements that we've released and brought to market. This year.

Great. Thank you.

Our last question is from Gray Powell with B T. I G. Please proceed with your question.

Alright, great. Thanks for working me in Yeah, a lot of my questions have been asked and answered, but I did have one left.

So I actually be curious like what are the bigger themes that we often hear about and our work on the security space is on managed detection and response and just mainly because you know your your typical company, particularly in the mid market. They just don't have the head count they need on the security side. So can you maybe just kind of talk about how you play into that theme in and what kind of exposure you have to.

N D our providers.

Great. So I mean, I think if anything the MTR providers or a partner for US a lot of the E. R. M. D. Our providers are becoming M. S. P's in M. S S p's and they need to evolve their offering that's been a strong go to market for us. The second response to that is as customers want to move from an element manager of endpoint.

Right.

And get a broader holistic view of their infrastructure to cloud to compliance.

That's why we did that integration to security analytics offering that as a stepping stone to the cloud Sim <unk> opportunities and offerings that we have in our portfolio. So it's not only an expansion opportunity for the partners, but also directly for customers. So.

So I think it's a great time to standardize on how the endpoints firewall network and more is collected and that's what we've been trying to do and help the ecosystem evolves.

Okay, great. Thank you very much.

We have reached the end of the question and answer session. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Yeah.

Yes.

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