Q4 2022 Sumo Logic Inc Earnings Call
[music].
Hello, and welcome to the sumo logic fourth quarter and full year fiscal 2022 earnings call and webcast. 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. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Brian Liberator Director of Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to <unk> fourth quarter and full year fiscal 2022 earnings conference call.
Joining me on the call today are remains are president and CEO Len Doherty President of worldwide field operations, and Stuart Pearson Chief Financial Officer. Our format. Today will include prepared remarks by Romijn Lynn and Stuart 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 feature.
Results and guidance, our strategy and market opportunity 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 risk and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission.
Creating a 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-K that will be filed subsequent to this call.
Hematologic 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 can be.
In our earnings release, which was furnished with our form 8-K filed today with the SEC on our Investor Relations website at Investor Simo 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 on our earnings release posted on our Investor Relations website.
With that let me turn the call over to Jeremy.
Thanks, everyone for joining us today on our fourth quarter and full year earnings call. We are pleased with the strong results. We saw this quarter and fiscal year, which again exceeded the high end of all of our guided metrics, we delivered 24% growth in the fourth quarter and we execute on our plan to Reaccelerate revenue in the back half of fiscal 2022.
As a result, we finished the fiscal 2022 with 19% growth year over year, which was several points ahead of our initial guidance. Additionally.
Additionally, we saw strong annual growth across a our billings and customers greater than 100 K.
And the markets, we serve digital transformation and cloud migration initiatives remain a high priority and were key drivers of the strength and contribution we saw across our customer base this quarter.
As customers embark on their cloud journeys are leading SaaS analytics platform helps address the challenges and needs for reliable and secure cloud native applications, which ultimately helps address their broader desktops requirements for both observe ability and security.
Increasingly our customer will start with one use case, then expand to others taken advantage of our flexible credit space licensing and packaging, which allows them to evaluate new modules and features without having to negotiate a new contract or worry about surprises and billing.
Turning to financial highlights.
Revenue of 67 million came in above the high end of our original guidance range. We again saw healthy distribution across our customer base with our largest customers continuing to increase their adoption and usage of our platform.
We ended the quarter with 456 customers with more than 100, K and they are representing a year over year increase of 27%.
Ended the year with 44 customers with more than $1 million and they are representing a year over year increase of over 40%.
In addition, we ended the year with 2396 total customers.
As we highlighted digital transformation is happening across every geography and vertical and our vision is to make the world's digital experiences both reliable and secure.
This transformation, which we think is still in the early innings is driving the creation of new applications acceleration of multi cloud infrastructure and the adoption of modern architectures, which are creating exponential amounts of new machine data each year.
In fact, IDC estimates that the number of apps will grow at a CAGR of approximately 40% or 750 million apps by 2025. However, according to a recent CIO survey less than 25% of applications are currently being monitored. So this is not only are rapidly increasing the data.
Growth, but also a massive market opportunity for our unique platform.
Ultimately this means the data is growing at a faster rate than budgets. However, our differentiated cheered analytic solution lowers ingestion costs based on the type and usage of data supplemented by our flexible credit space licensing model in fact customers have continued to realize this value as the overall data growth.
Our platform has more than doubled year over year.
We believe this makes our solution stickier more valuable and allows our customers its differentiated economics and benefits as they grow and scale.
As a reminder, our cloud native platform was purpose built to ingest and analyze complex unstructured logs and other machine data in order to ensure optimal performance and investigate operational issues and security threats.
Over time, we've expanded our platform capabilities from a log analytics to a full stack absorbability solution to address a broader set of applications and cloud infrastructure requirements, we are particularly well suited for cloud native applications, which are dynamic generate both structured metrics and traces and unstructured.
Log data and run across multi cloud environments.
Additionally, the dynamic threat landscape with consistent and continuous new forms of threats such as the recent log for Jay and software to supply chain issues are originating from within and outside of an organization and are therefore, causing companies to rethink their security solutions.
As required.
It required more modern intelligence based security solutions like our cloud security offerings.
Which provides security event monitoring as well as identification investigation and orchestration for more rapid remediation.
We offer these solutions through our cloud security analytics.
Cloud Sim and cloud source solutions.
Given the accelerated pace of cloud application modernization and security transformation. This has also created the need for application development teams and security operations teams to collectively adopt a dev ops approach.
Our platform is well suited for these initiatives and customers of all sizes and all stages of cloud maturity from cloud native startups to large enterprise organizations undergoing digital transformation.
More specifically our cloud native platform uniquely helps customers do three things first ensure application reliability second secure and protect against modern security threats.
Third gain insights into cloud infrastructure.
Now, let me turn to some key wins and highlights this quarter I'll start with several tech and financial services customers, who are often the earliest adopters of new technology, and whose architectural complexity demands a best in class analytics solution.
We are proud that sumo logic is being selected by these types of highly advanced digitally disruptive as well as digitally transforming organizations.
The first one I'll highlight is our new logo deal with a fast growing crypto wallet company for both observe ability and secured the data was growing faster than their budget and their previous tool couldn't provide a single platform, let alone the right licensing and pricing model or our why.
They needed a partner to make it economical to collect analyze and retain all of their data in a single platform without having to compromise on which dataset they could afford to collect.
With our flexible data cheering capabilities, 80% of their ingest isn't are infrequent tier drastically reducing their cost per gigabyte, which allow them to ingest and analyze 10 times the data and get value from additional use cases that were cost prohibitive with their prior vendor.
Next we were able to land a new logo a six figure deal with our security analytics solution with a leading retail company that is becoming more digital.
We were selected because of our solution allowed them to more easily collect and store data.
It's easier to administer offered quick time to value with a variety of out of the box integrations and lastly, our proprietary analytics and insights made it easier to identify and investigate AD hoc security issues.
We're also continuing to see customers expand their initial use case as they recognize the benefits of using our platform for engineering operations and security teams to address the challenges of observer ability and security as well as the desk SEC ops initiatives.
For example, we had a large six figure cross sell with a fortune 500 financial services firm in North America.
This customer started several years ago with a log analytics use case for monitoring troubleshooting and then expanded to security analytics and are now also using sumo for full stack observe ability. This was a critical decision a solution for them as they needed to gain better visibility into availability and performance of their top 100.
We're facing applications.
Given our strong foundation for log analytics and seamless upgrade to our full stack observer ability solution. This was an easy technology and business value decision for them.
Yeah.
In APAC, we had another strong quarter and a six figure cross sell with a highly sophisticated global bank, that's migrating to the cloud as a part of their application monetization strategy.
This has also required them to modernize their security analytics and posture.
Similar to the last example, we initially and they ended this customer with a logging and monitoring and troubleshooting use case and they chose <unk> because we provide a single comprehensive solution for both security and observe ability, allowing them to ensure that their cloud applications are not just reliable but also secure.
For the last when I like to talk about the benefits. We are seeing on our channel investments. This quarter, we had a multi year multimillion dollar expansion with one of our M. S. S. Pease, who provides managed detection and response or M. D. R to its customers as attacks are becoming more sophisticated and as the shortage of security experts.
To grow more companies are using an outside M D R, which expands our ability to sell to additional customers.
This M. S. S. P selected sumo because our platform delivers security scalability, and a rapid time to value such as allowing them to onboard customers within hours.
Since we initially landed them they have increased their spend by more than five acts and have over 450 customers that are not included in our total customer count.
In summary, the demand environment and opportunity for sumo remains strong and growing as our customers and prospects continue their cloud migration and digital transformation journeys we.
We delivered on our commitment to expand our portfolio for observer ability and security as well as drive further adoption of our leading SaaS analytics platform.
Together these resulted in accelerated revenue.
<unk> and large customer growth exceeding our guidance and metrics I'm proud of everything that our team has accomplished this year and the drive for continuing our execution and growth.
More specifically, while the go to market investments are yielding some early results. We are continuing to further optimize these investments and efforts.
With that I'd now like to turn it over to Lynn Doherty, our president of worldwide field operations. So that she can share some of her perspective as well as provide more context on some of the go to market enhancements already underway.
Thanks, Ronny I've now completed my first quarter at CMO.
Excited about the future I can't just sumo logic because of the opportunity to help accelerate our growth and income.
They need to place in a compelling and necessary market with a differentiated product that customers truly loved.
And in my first 90 days I have seen just that.
The market for sumo logic is large and growing and we have a fantastic product to truly help customers solve problem.
We have a strong base of customers and we can drive even more adoption as well as new customer growth with our multi U K platform.
To capitalize on this market opportunity. We are building a best in class go to market organization, which will leverage our expanded product offering.
I love to ultimately drive more customer growth and accelerate rapidly.
I'm focused in three areas to accomplish that.
First is to build more operational rigor and discipline into our sales motion enablement and hiring.
We are underway on this journey with added structure discipline and metrics and our profit.
Second is to align and re segment. Our sales force you have dedicated accounting that either focus on new customer acquisition or expansion in many of them.
This is a proven model that I have experienced implementing and frankly, what they forget.
Strategic changes have already been implemented as we began our new fiscal year and I'm confident this change will yield longer term result.
It will allow us to scale and focus the organization.
We will also continue our path for international expansion as we build out our team in key areas.
Third we will increase our focus on strategic partnerships.
We had a very strong year through our channel and we were named AWS ISP partner of the year.
By leaning into AWS, we are able to accelerate transaction.
With our customers' most strategic partners and provide a global cross sell motion with AWS.
Even with this progress I still think there's more we can do in going to market together with our strategic partnerships as customers embark on our continued digital transformation and cloud migration journey.
Additionally, we plan to drive increased focus with other strategic partners, including our MSP partners and strategic bars is a bigger focus for our sales organization.
We will also leverage our partners to continue to grow our presence internationally and in new markets.
I'm looking forward to continuing this momentum through next year, and bringing more success to our team partners and investors.
With that it's my pleasure to now have skewered Griffin, our Chief Financial Officer, who will provide more details on our financial results in Q4, and our outlook for fiscal 2023.
Thanks, Lynn and thanks, everyone for joining us on the call I'm excited to be here at sumo.
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 <unk> mentioned, we saw strong performance in Q4 with year over year revenue growth of 24%.
This strong finish to the year resulted in 19% year over year revenue growth for the full fiscal year.
Our Q4 revenue growth was driven by continued traction with our customers that spend more than 100, K a year with us as these customers grew 27% year over year.
As highlighted by the customer use cases, we shared we are winning new customers in both the security and observer ability markets. While also successfully cross selling the benefits of our entire cloud analytics platform as we enable our customers to deliver reliable and secure cloud native applications.
As further evidence of the value we provide our customers. We ended the year with 44 customers with a greater than a $1 million representing more than 40% year over year growth.
Before moving onto some of the other metrics we have shared in prior quarters I'd like to introduce a new metric that we will be providing on a quarterly basis, which is a are we.
We believe <unk> is the best leading indicator of growth in our SaaS business and will provide greater transparency to investors as it reflects our current business and growth trajectory.
We ended the year with a or a 259 million representing 24% year over year growth. This is a significant acceleration from the prior year, a or our growth which was 15%.
And a similar spirit of transparency. We are also going to change the way, we calculate and report on dollar based net retention is.
Historically, we've calculated this metric using an average of each of the trailing four quarters.
Forward, we will use a simple trailing four quarter methodology to calculate dollar based net retention to better align this metric with our <unk> reporting and provide better visibility into current trends in our business for.
For clarity this means taking the E R from the cohort of customers at the beginning of the prior 12 month period.
And comparing it to their current period a R. R.
On this call I'll share both numbers.
The average of the trailing four quarters, while sequentially higher than Q3 remained below 110% as previously communicated and expected.
Using the simple trailing four quarter view, our dollar based net retention was 112%.
Taken in conjunction with our AOR growth of 24%. This means that our FY 'twenty three are our growth was driven equally by the new customers. We added in the last 12 months and by our existing customers expanding their use of our platform.
The realignment of our sales force will likely result in a relatively higher focus on new customer acquisition in FY 'twenty three and as a result, we expect our dollar based net retention to be fairly stable over the next year.
Turning to billings calculated billings for the trailing 12 month period was $272 8 million up 24% 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.
Moving to remaining performance obligations or RP O. We ended the year with $328 3 million in our P O.
Current RPI <unk> was $213 5 million.
We believe our P. O provides perspective on the strengths of committed customer contracts as opposed to being an indicator of future revenue growth.
With our P O and C. R. P O can be positively impacted by early renewals and or contract extensions.
While this is an indicator of the value our customers get from our platform and confidence in the company. It is not the best proxy for future year over year revenue growth for this reason, we will continue to disclose our P. O on a go forward basis, but will no longer be disclosing C. R. P O.
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.
As previously stated total Q4 revenue increased to $67 million up 24% year over year.
Excluding our largest customer Q4 revenue was $62 4 million up 23% year over year.
As we've previously signaled this is the last quarter that we plan to break out our largest customer because their activity has become more aligned with our overall business, making this break out less relevant.
Fourth quarter gross margin was 72% compared to 77% in the year ago period.
Our annual gross margin was 73%.
Our data consumption has more than doubled in the last year. This reflects our strategy of encouraging customers to ingest more data onto our platform.
As data continues to grow faster than budgets customers can take advantage of our tiered data architecture to capture the data required by their business the <unk>.
Crypto Company example remains shared earlier is a perfect example of this.
While this strategy creates some downward pressure on our gross margins. We believe it is a unique differentiator that will allow us to upsell and cross sell more value added features in the future.
Looking forward, we expect gross margins to remain in the low 70% range as we continue to execute on this strategy in order to drive further adoption of our platform.
Moving on to operating expenses.
Sales and marketing expense was $31 2 million or 46% of revenue the same as it was in the year ago period.
Given the opportunities ahead, we are continuing to invest in go to market coverage capacity and new market expansion and expect to increase sales and marketing expense as a percentage of revenue in FY 'twenty three.
Research and development expense was $17 8 million or 27% of revenue compared to 26% of revenue in the year ago period.
The security and observed ability markets are large and growing markets. So we will continue to invest in our platform to take advantage of the growth opportunity in front of us.
G&A expense was $10 4 million or 16% of revenue compared to 15% of revenue in the year ago period.
In FY 'twenty three we will continue to make investments required to operate as a public company.
Our Q4 operating margin was negative, 17%, which was better than the high end of our guidance range driven by revenue outperformance in the quarter.
Our annual operating margin was negative 20%.
Net loss in the quarter was $14 2 million or negative <unk> 13 cents per diluted share based on approximately $112 3 million weighted average diluted shares outstanding.
Turning to our balance sheet and cash flow.
We ended the period with $356 5 million in cash and marketable securities free.
Free cash flow in the quarter was negative $11 2 million or negative 17% of revenue for the full year free cash flow was negative 14% of revenue a significant improvement from the prior year, we expect.
To continue to drive modest improvements in free cash flow as a percentage of revenue in FY 'twenty three.
Turning to guidance, we believe that is more relevant to judge the growth of our business on a full year basis, given potential volatility in quarterly growth rates. In addition, our guidance takes into consideration. The recent salesforce changes Lynn described earlier.
For the full fiscal year 2023, we expect total revenue of 288 million to $292 million, representing 19% to 21% year over year growth.
non-GAAP operating margin of negative 27% to negative 26% and <unk>.
non-GAAP loss per share of negative <unk> 68 cents to <unk> 66 cents on approximately $116 5 million weighted average shares outstanding.
For the first quarter, we expect total revenue of 65.5 to $66 5 billion, representing 21% to 23% year over year growth.
non-GAAP operating margin of negative 28% to negative, 27% and non-GAAP loss per share of negative 17 cents on approximately 114 million weighted average shares outstanding.
In summary, we finished the fiscal year strong and delivered on our goal of re accelerating revenue in the second half of the year.
This execution gives us the confidence to increase our investments in both sales and marketing to drive growth and the engineering to extend our platform functionality and technology integrations.
We're in the early innings of digital transformation and cloud migration and believe our cloud analytics platform is uniquely positioned to enable companies to deliver reliable and secure cloud applications.
With that remain Lynne and I are happy to take any of your questions.
Operator.
Thank you will now be conducting a question and answer session if you'd like to be placed in the question queue. 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 he'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.
SAR one one moment. Please will you pull for questions. Our first question today is coming from Derrick Wood from Cowen and company. Your line is now live.
Oh, great. Thanks, and congrats to the team on a nice strong finish to the year.
A couple of our go to market strategy questions for you guys.
First it sounds like what with the re segmentation and sales there's going to be a bit more focus on going after new customer generation.
And correct me, if I'm wrong, but if.
If that's the case can you just talk about how you guys are thinking of investing in mid market versus enterprise.
Maybe get a sense of.
How your sales rep capacity grew in the year and what you're looking to do for capacity growth in the next year.
Yeah really good set of questions. So let me start with the rigs re segmentation realignment is really moving us here a CMO to a proven SaaS sales model and so it does give us focus on both bringing in new logos as well as <unk>.
Focus on renewals and expansion of customers and so we're getting focus and clarity in our account manager's role, which is really important and again it aligns with our primary initiative that is accelerating growth and diversifying our business both with go to market.
<unk> and international expansion and you know the Midmarket and enterprise investments.
We continue to evaluate that every quarter every year to say, where do we see the growth and the investment opportunity and so that's something we'll continue to look at and make the right trade offs, so that we optimize and accelerate growth.
You know you you also asked about the capacity and you know it's a tight labor market. We continue to hire we've made a lot of investments in both making sure. We have the best recruiting effort out there the best competitive compensation and say that we are retaining the talent, we have and it can attract.
New talent and then we've also got a focus around enablement. So how do we bring into people that we have to make them. The best out there. So that's some of the summary of what we're doing and go to market.
Yeah, that's thanks.
That's helpful color and you did say on the flip side of that with the segmentation will be certainly the focus on renewals and cross sell and what I mean, I think I remember you, saying, it's that one time about maybe 30% of your business is multi use or multi product.
You've invested quite a bit to expand the portfolio and the technology and the platform.
What are what can we expect in terms of trying to cross sell other products you know target different personas ops dabbs.
SEC, browse and and and and you know kind of maybe what what kind of ASP uplift you typically see if you have success in that kind of cross selling.
Sure.
Well I guess, it's not new to sumo to sell to two primary buying centers, one being developers and platform engineering type teams on one hand.
And then on the secondhand more of the sea, so and sock teams.
So that effort has been something we've been focused on but I guess to your broader question. There's a massive opportunity for us to go back into our installed base.
And be able to sell full stack observe ability, let alone security analytics Sem and sore.
So there is now a great opportunity for us to take advantage of the realignment on coverage.
Particularly with the Hunter versus farmer model to be able to go back into installed base drive up sell cross sell let alone drive new logo transactions.
Great good.
Good luck great. Thanks.
Thanks Derek.
Thank you next question is coming from Matt Hedberg from RBC capital markets. Your line is now live.
Great guys. Thanks for taking my questions. Congrats on the acceleration of what looks like a further acceleration in fiscal 'twenty three.
I didn't follow up question for you on the call with me you gave some great examples of both new customer wins and expansions and reason why sumo won those deals, but given you're still newer to the company you are having a lot of conversations with both new and existing customers is there is there one or two things to you that stands out to why sumo as differentiator.
It versus peers in what is obviously a competitive market.
Yeah.
Yeah, absolutely and you're right I'm, having lots of conversations with our team and with customers and I I mean I came here because we have a differentiated product in a growth market and customers love us and so that's a great place to be when you're leading go to market I think it gets to the question of why are we winning it's our customers that want a single.
Platform and that continues to be a trend that customers moved to a single platform for reliability and security are also customers, who won't scale and want a cloud native platform and so I think we do that better than anybody and then lastly is probably around the economics and that is you know we keep talking about.
<unk> growing faster than budgets and so the way, we do licensing and peering if our product is a real differentiator. It allows customers to get access to the data that they need but do it in a cost effective way.
That's that's great. Thank you for that and then and then Stuart for you first of all welcome to the company look forward to working with you again.
And also thanks for the new era of disclosure as well as the reworked our dollar based net revenue retention I guess looking at a R. R.
There you're not guiding to ear are obviously more of a revenue guide, but is there anything that we should think about from a quarterly seasonality perspective, an error or for fiscal 'twenty three that we should be aware of given this is a new metric for you guys.
Sure Matt.
Nice to be talking to you again, and so you know I think we really focus on they are from an annual perspective, and so that's the way I would encourage you to think about it.
You know we've had seasonality in the business. If you just look at historic revenue trends.
So which is why were pointing to kind of a sort of an annual number and no we will not be guiding to this I.
I think I think to your point you know a R. R for a SaaS business gives the best visibility around what's happening in the business today.
Which is why we chose to do that and obviously you know meaningful reacceleration from 15% a year ago to 24% in the last year.
Thanks, guys.
Yeah.
Thank you next question is coming from Camille Zurich from William Blair. Your line is now live.
Hi, congrats on the strong into the year and thanks for taking my question.
So its just starting maybe on the.
Research investment side, you announced a number of new product and feature enhancements over the last year can you provide more color on how you balance R&D spend across the product portfolio today and looking out over the next few years, where where do you see the most opportunity to add functionality to drive further differentiation.
Okay.
So I mean, I think first and foremost we look at it from an individual market opportunity as it pertains to security versus logging versus observer ability and.
And what where we're penetrating our installed base and what's required to continue to evolve our capabilities secondly, as a percentage of revenue naturally right and then third from kind of a margin and cost and how the how the service needs to be rolled out and deployed in various regions for the various use cases.
Mrs.
Now in summary, I think the best way to answer. Your question is we have a very balanced scorecard, so to speak across observer ability and security and the contribution of both but the newer features irrespective of its on tearing or observed ability or security take a little bit more time, as we deploy and enhance and skills scale to service.
And so that also is factoring in from a margin point of view.
Now meta point here is I think we have a very competitive full stack observer ability solution on the market available today. Similarly, we have a very competitive security analytics, let alone cloud Sim and now cloud SOR opportunity to go after as well for both existing customers as well.
As Sundar, San and security analytics customers, let alone non sue most security customers with just sore. So it gives us a lot of ways to look at landing and expanding with direct versus indirect meaning like channel partners Msp's would that portion of our business.
Yeah.
Okay. That's helpful and if I could just follow up last year or early in the year you saw some customers downgrade in verticals that were hit particularly hard by the pandemic given the macroeconomic changes over the past year are there any industries, where you've seen a noticeable change in demand or realm.
To your broader business, whether positive or negative and more generally how customer conversations changed in recent quarters.
Thank you.
Sure I mean, I think first and foremost where we win is with digitally native customers and secondly, where customers are digitally transforming or trying to versus being left behind.
So that naturally means strong tech and from a vertical perspective strong tech financial services media gaming.
E tail retail tend to be those who are digitally transforming faster than some of the other verticals and that's where we're seeing better traction in both the mid market as well as the enterprise and also globally that we saw last quarter and eight P. J as an example.
That's helpful. Congrats again.
Thank you next question today is coming from Sun Heat Singh from Morgan Stanley . Your line is now live.
Hi, it's Matt Wilson unprecedented it saying thank you for taking our questions and congrats on a strong quarter to finish the year I'd like to kind of hear your thoughts on kind of like the elevated threat landscape with log for Jay and some of the other.
Geopolitical events ongoing can you kind of talk about like how customer conversations have.
Uh huh.
<unk> or if they haven't changed and kind of how are customers coming to sumo logic to kind of help.
Alleviate some of the security threats out there they are seeing.
Sure.
So unfortunately, there's far fewer people trying to protect versus attack and when you have bad actors Bad nations, let alone accidents that happened within the firewalls in the organizations.
It just makes the threat landscape, even more challenging coupled with the fact that as workloads get migrated and move to the cloud.
The architecture of these applications are very distributed and so it exposes a lot of API access keys and way more than what traditional security operations teams are used to doing so as a result modern organizations are having to adopt the Dev ops approach means collaborate across the value chain to be able to fight these reactive.
Issues, let alone proactively.
Now in terms of customer conversations it's pretty clear.
One is how do I compare.
Two centers around what else do I need to be thinking about versus what I'm already doing from a tooling and technology and three how do I need to be thinking about organizational alignment and processes internally as I want to digitally transform moves to the cloud. So those those tend to be the three buckets that we talked to customers a lot about and all.
So our channel partners now one of the aspects that's really important here because of the shortage of labor in security and particularly this is a great opportunity for sumo to really leverage our M. S. P. E. R. M D. Our partners to bring them to complement our superior technology from a SaaS perspective to compliment.
Where our customers are either because of maturity or secondarily because of resources.
Okay.
Thank you.
Thank you. Our next question is coming from Gray Powell from BTG. Your line is now live.
Great. Thanks for thanks for taking the questions yeah, So maybe focusing back on the sales and marketing side. So.
So it sounds like Youre at best a little bit more aggressively there in fiscal 'twenty three and at least what we expected is there much in the way of incremental revenue from those investments are baked into the current guidance and then how should we think of the timing of those investments paying off is it more of a fiscal 'twenty four.
Thing or just how should we think about that sort of layering through into the growth rate.
Yeah, So great. It's Stuart I'll answer that question so.
If you if you just think about what we've.
<unk> done in the last 12 months right. So we started the year, telling that we would reaccelerate growth in the back half of the year I think we've demonstrated that if you look at the E. R. R were now disclosing pretty significant reacceleration of that growth and that comes with investment. So we've been investing this year in sales and marketing.
And then as Lynn's come on board and some of the changes there we're continuing to invest so it's adding capacity, it's the enablement and that will obviously help with the guidance. The revenue guidance. We gave this year, but also will flow into FY 'twenty four as well.
Okay.
That's helpful and then just.
Follow up would be with the realignment and recertification. She should we think about linearity.
On revenue or billings or anything like that differently this year versus last.
I don't believe so.
Alright, Thank you very much.
Thank you next question today is coming from Benjamin from Piper Sandler Your line is now live.
Yeah.
Hey, Ben Schmidt on for Rob Owens here. Thanks for taking my question first one for Lynn I guess.
So sort of building off the last question.
Should we expect any like ramp time here as these teams changed their focus and.
I know you've only you mentioned that this change was made at the beginning of the fiscal year. So you've only got a little bit more than a month here, but has there been any initial traction you can talk about.
Okay.
Ah yes.
Yes, so I think the question around ramp time that I'm not sure. If you mean with new employees. There are with people who are changing jobs, but I think it's probably a similar answer I mean, that's as we bring in new employees and they have to ramp that's a big focus of US is around enablement and how quickly can we get them effective and how how do we spoke.
On sales efficiency as part of our go to market organization I, you know I think naturally there's some changes in customer coverage and and people doing different roles as we get more focused roles, but that's that's all been baked into the.
The guidance that Stuart on bromine has talked about so I think that we're in good shape on that I think that you know its been its been on us to make sure that we have.
At taking really good care of our customers through that has really been my focus of how do we take care of customers as we transition resources and make sure that.
We provide a real a premium experience for that.
I think that answers the question I think he had a second question.
You had a second question.
The second was just related to that.
Initial traction or feedback Oh any protraction.
Yeah.
I would say generally it's gone incredibly smoothly and and so for what is a big change to move to a hunter farmer model to get us really focused and it's been an incredibly smooth change. It I know that sounds like a big change for us it's really an evolution of what's really already been put in play.
And already started in this is that next level of that evolution to get us really focused on that Israel. So I think it's gone incredibly smoothly and and I'm excited to see the results start to pay off.
Great. Thanks, Lynn and second one for either remain or Stuart.
Understood.
The high level.
Discussion around or around gross margin for the year here going into fiscal 'twenty three it sounded like low 70, percents, so should we be thinking about that as well.
Lower than our initial models that we've had over the last year or so and.
If lower what's changing in.
And the assumption that that is driving that lowered expectation.
Well, we commented last quarter on this and particularly as we expand our regions as we bring new capabilities to market organically, let alone inorganically through some of the acquisitions, you'll see a temporary hit on the gross margin.
The second thing we commented on this quarter was the volume of data growth because of enhancements, we've made to our platform to be able to.
Ingest persistent analyzed two times more than two X volume of data.
So we've been signaling that's kind of the intention to be able to drive more adoption stickiness and then ultimately cross sell with additional features and use cases.
So you should expect the margins being those low seventeens as part of our conscious strategy to deliver value as well as economic benefit as well as further revenue acceleration.
Okay, great. Thanks for me.
Thank you. Your next question is coming from Brent Thill from Jefferies. Your line is now live.
Hey, guys. This is bill on for Brent. Thanks for taking our question just wondering if you could give us an update on how you're thinking about the international theaters and and maybe just double click on that how how you're organizing we're realigning your sales channels to tackle this market in a bigger way. Thanks.
Yeah International markets continued to be a place that I think we can see a real growth opportunity and so our strategy. There is really to continue to double down on places that we have already invested double down on the investments, where we're seeing success as well as move into some new strategic Mark.
So that's the place that I believe we can see a real growth opportunity and continues to be an important part of our plan and partners in those international markets always play an important role, whether that's strategic relationships or whether that's M. S S p's or traditional vars or distribution channels.
And so that will continue to be a focus for us is actually a place that we're investing this year is to make sure that we have those channels to accelerate the route to market.
Both internationally and in the Americas. So are the channels pieces is a focus across the world not just in international markets as it was to enable us to move faster and leverage their existing relationships and leverage are the news that a lot of customers are making into M. S. S. P. A M D R.
Vendors and to make sure that we are partnered with strategic ones to accelerate our go to market.
Only thing I'll add to that is international.
International contribution for us from a bookings perspective grew 100% for Q4 and fiscal 'twenty, two but we feel that we're still pretty underpenetrated as it look as we look at our international theaters, particularly contribution from tier two countries and some of those and as well as more capacity and coverage in tier one countries.
Across a P J, Japan, India and more we have a great opportunity in Latam and fed says, we look holistically, we're deploying a conscious choice of how we incrementally add capacity versus incrementally.
Pushed partner and channels to drive footprint.
Great. Thanks.
Thank you. Our next question today is coming from Blair Abernethy from Rosenblatt Securities. Your line is now live.
Thank you and nice quarter.
Ending the year here.
Just wanted to drill in a little bit more on the E. M. S. S piece.
I was just wondering if you know how how big it sounds like some of the English teacher are doing really well for you and I'm just trying to understand you know how how big of a opportunities. This channel for you and how can it drive.
You know growth rates comparable to the overall company growth rate or a faster just just trying to get a sense on that on that market.
Sure well I think first and foremost.
<unk> space in general around service providers Msp's M. S. N E. R. M D. R is dramatically changing.
For a few reasons one.
The technology has evolved considerably from traditional point tools to more SaaS analytics tools that.
The msp's can be able to deliver pretty seamlessly.
Secondly.
A lot of cases, the MSP or becoming Vars. In addition, so their business models are transforming.
Third they can't continue to build and integrate and homegrown technology. So the ability to use a SaaS platform like sumo that not only addresses the modern secure needs, but allows them to even enhance and shift left to Dev ops is a huge differentiator for us and for them. So I think that could be even a.
A larger proportion of contribution for us.
Particularly because we've made investments in not only in technology to simplify but also investments on the compensation side for our reps, let alone the reps from MSP.
Both on the var side as well as their own delivery side to make sure. There's no friction, but more importantly, there was margin and value to the ultimate customer.
That's great. Thank you and then just.
Shifting over to the federal government markets.
Anything to update us.
In that market segment.
Well, we did get fed ramp moderate certification last year, and we're continuing to push more there with partners as well as Len has been building out the direct coverage team. There we feel that we're way early in the innings there with some of the legislative requirements around logging some of the opportunities to.
Listed we have substantially grown the list of customers.
Our enterprise that require fed ramp, let alone government and public sector customers and partners. So that's something that we're investing in quite more this year in FY 'twenty three to be able to.
Drive not only the seasonality and budget, but also into the next fiscal year.
Great. Thanks very much.
Thank you, we reshape of our question and answer session and ladies and gentlemen that does conclude today's teleconference I'd like to turn the floor back.
To management for any further closing comments.
Thank you very much thanks, everyone for joining our fourth quarter and fiscal 'twenty Two conference call. We're happy with the results for last year, we feel that we're very well positioned with the investments we've made in our product and our portfolio, let alone our go to market evolution.
And we believe that we're on the right side of technology as we continue to go after the massive market opportunity for digital transformation and cloud migration underpinning that with a single platform.
We appreciate your support and we look forward talking to you soon.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.