Q1 2023 Sumo Logic Inc Earnings Call
[music].
Greetings and welcome to the sumo logic first quarter fiscal 2023 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 my pleasure to introduce your host Brian Liberating director of Investor Relations. Thank you, Brian you may begin.
Thank you good afternoon, and welcome to <unk> first quarter fiscal 2023 earnings conference call.
Joining me on the call today are <unk>, President and CEO , and Chuck <unk> Chief Financial Officer.
Our format today will include prepared remarks by remaining 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 performance of our business.
Expectations regarding our platform and solutions.
Our expectations regarding our go to market efforts and investments.
Future financial results and guidance.
Our strategy and market opportunity.
Potential impact of the macroeconomic environment 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 recent annual report on Form 10-K, and the risk factors that will be included in our Form 10-Q that will be filed subsequent to this call.
<unk> assumes no obligation and does not intend to update or comment on forward looking statements made on this call except as required by law.
Our discussion today will include non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.
Information regarding our non-GAAP financial results.
Including a reconciliation of our historical GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC on our Investor Relations website at Investor Hematologic Dotcom.
For certain forward looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure.
As discussed in detail in our earnings release posted on our Investor Relations website with that let me turn the call over to bromine.
Thanks, everyone for joining us today on our first quarter earnings call. We are pleased with the strong start to our fiscal year as we once again exceeded the high end of all our guided metrics.
In Q1, we delivered 25% year over year revenue growth.
27% a agra.
We also delivered strong growth across billing and customers greater than 100 gig.
We feel the sales teams have settled into the new pursuit and expansion roles with the earliest traction being with expansion teams given the shorter sales cycle.
And the markets, we serve digital transformation cloud migration and security modernization initiatives remain our highest priority.
As customers embark on their cloud journeys are leading SaaS analytics platform helps address the challenges and need for reliable and secure cloud native applications, which ultimately helps our broader desktops requirements for both observed mobility and security.
These initiatives were key drivers of the strength and contribution we saw across our customer base this quarter.
Turning to financial highlights total revenue $67 9 million came in above the high end of our guidance range, we continue to see wins across our customer base with our largest customers continuing to increase the adoption and usage of our platform.
We ended the quarter with 469 customers with more than 100, Kenny and IRR, representing a year over year increase of 25%.
As we previously stated our vision is to make the world digital experiences both reliable and secure.
Our cloud native platform uniquely helps customers do three things first ensure application reliability.
Second secure and protect against modern security threats and third gain insights into our infrastructure.
In addition to selecting sumo for our leading cloud scaled log analytics platform customers are increasingly utilizing simo due to the breadth of both our observed mobility and security suite.
More specifically our observed ability suite helps customers monitor application and cloud infrastructure.
Shoot and diagnose issues rapidly and improve solid quality release and cycle times.
In addition, our security suite helps customers with cloud infrastructure and security monitoring application workload protection.
Industry and regulatory audit and compliance.
Threat detection and investigation, and lastly, security automation and orchestration.
Now I'd like to provide some examples of how customers are using our platform as part of our key wins for the quarter.
Many of these wins highlight our tech centric companies, who are disrupting traditional industry with new thinking often pushing the limits and using new technology and complex architectures to do so we.
We are proud that sumo logic is being selected by these types of four meaning digitally disruptive organization.
The first one I'll highlight is the multimillion dollar new logo deal in the APAC region with the hyper growth online media company moving to the cloud.
So our digital services are being used by over 300 million users and they were struggling to understand when transactions Bill which was leading to launch.
Previously they were using a do it yourself open source solution, which just wasn't.
Table to ensure the reliability of their applications were capable of handling modern use cases, let alone the data volumes they require which is upwards of 25 terabytes a day.
Now our full stack Absorbability suite solution is being used to not only keep their app running but also reliable which is leading to improved customer experience and revenue retention.
Next we're able to land a new Greenfield logo that was a six figure deal for both absorbed mobility and security for a well known retail company with many physical locations across the U S.
Oh on strategically mandated their shift to the cloud in order to grow their online e-commerce as they strive to become more digital.
This technical valuation decision was led by both the development and security team and they selected sumo because we help them ensure the digital applications and cloud infrastructure was reliable.
Their application workloads as they modernize and migrate them to the cloud and lastly enabled our teams to more effectively manage costs given our flexible credits based licensing model.
We're also continuing to see customers expand their adoption of our platform as they recognize the benefits of using our platform for additional teams and use cases.
For example, we had a large six figure cross sell with a U S subsidiary of a fortune 500 financial services firm.
This customer started several years ago with a log analytics use case, four observer ability and have now expanded to our cloud Sim for security.
Like many companies they are struggling to attract and retain top security talent as a result, their current security team was suffering from allergic T.
They required a next generation Sim that can alleviate some of the pressure by automating the correlation in response to such threats.
This is a great representation of many such organizations that are beginning their security transformation efforts, but struggle because people process and technology challenges, which sumo is well positioned to help to address.
Additionally, our customers continue to expand their existing use cases.
As they increase their adoption of our platform.
We had a couple of million dollars upgrades with some of our largest customers that increase their commitment and more importantly, strategic business and technology partnership with us.
One of those million dollar wins came from a company that is disrupting the way people travel in APAC.
You recently had a log forging incident and selected our security analytics solution as they needed to analyze tens of additional terabytes of data per day.
Our solution quickly identified potential threats and they were unable to immediately remediate gaining the trust of the security team and ultimately ensuring our customers' confidential data remain secure.
Lastly, I like to mention that we continue to see strong traction.
With our channel partners and in particular, our MSP partners.
<unk> continue to be an important part of our strategy. We are focused on becoming the easiest spend year for them to partner.
Looking at our service providers as a whole they now provide sumo logic service to over 700 customers, which are not included in our total customer count.
Customers of all sizes are continuing to outsource the securities to third parties as the level and frequency of sophisticated attacks are increasingly coupled with the shortage of security experts MSA.
<unk> like sumo because of our scalable platform and <unk>.
Jeff any type of data and intelligently helps them create actionable security inside while also providing best in class cloud economics.
While we had many other exciting wins during the quarter. It is important to note that our cloud native platform purpose built help our customers deliver reliable and secure customer facing applications and therefore is differentiated by the fact that the unified and fully integrated SaaS platform for full stack.
Observe mobility and security.
Second it's built on a cloud native micro services architecture that delivers resilience and unparalleled scale that can handle data volumes modern digital applications generally.
Third powered by patented analytics and proprietary machine learning for any type of data, including structured semi structured and in particular unstructured, which is the majority of data output by modern application.
Additionally, our platform is one of the most audited and certified platforms for industry regulation.
And lastly, but definitely not least we enable cloud scale economics and value as our tiered data architecture supplemented by our flexible credit based licensing model allows our customers to economically analyzed the exponential growth of machine data in the cloud.
Now turning to some of the product highlights from last quarter, many of which focused on enhancements tailored to developers and open source support.
We're excited to announce the availability of our open telemetry district collector or Ot district the.
The Ot district collector is designed to simplify and democratize the collection of logs metrics and traces and metadata for modern cloud applications. We.
We are further embracing open source and establishing open telemetry as its future standard to collect all machine data breaking from the legacy model of using proprietary agents to gather critical application and infrastructure telemetry.
We also released essentially integration plan, which is now available on get out the integration catalog isn't open self service marketplace featuring over 40 turnkey integration.
Built to speed production ready infrastructure and application monitoring.
We strongly believe that open source support and interoperability remains critical to the developer community.
Lastly, we continue to advance our partnership with AWS as we announced support for the AWS for games initiatives for Amazon Web services or AWS to accelerate digital gaming experiences at scale.
With sumo logic game developers can ensure great player experiences safeguard sensitive data and accelerated game releases.
Next I wanted to walk through some of the business updates over the last quarter at.
At the beginning of our fiscal year, we rolled out new changes joint go to market model intended to help us focus scale and drive more efficient growth.
We're a quarter into this new model and field teams have settled into their new roles, leading to better alignment internally between teams as well as externally with customers prospects and partners.
So seeing early traction in our pipeline generation in all areas and business.
We've hired some amazing leaders across our sales organization, including our global channels and alliances Americas sales and APAC theater.
We also hired a new leader of sales strategy and operations.
Implement the rigor and discipline in our sales motion enablement and hiring to build a best in class go to market organization.
In addition to these strong leadership hires in our go to market organization led by men Doherty, our president of worldwide field Ops. We also hired Sophie Gibson, our chief Human Resources Officer, and has red car as our chief product Officer.
Sophie brings a strong track record of building talent centric organization and the operational system that allow them to scale.
<unk> brings a great domain knowledge and is deeply versed and observed mobility analytics cloud computing, SaaS Dev ops and autonomous infrastructure.
In summary.
Escalating security threats and continued focus on securing customers' digital experiences coupled with a shortage of security 19 professionals has created a durable demand for our analytics platform.
Our comprehensive solution automates and correlate security events threats and reliability issues with troubleshooting and diagnosis.
Further our tiered analytics supplemented by our flexible credits based licensing model provides customers with best in class data economics.
Netting it all out our differentiated single platform for reliability and security continues to resonate with our customers ensuring they are able to deliver the best possible experience for their end users.
I'm pleased with our strong start to the year as both revenue and they are have exceeded 25% growth and we again exceeded our guidance for the quarter.
With that it's my pleasure to now have Stuart garrison, our Chief Financial Officer, who will provide more details on our financial results in Q1, and our outlook for Q2.
Thanks from me and thanks to everyone for joining us on the call.
I would like to start with a brief summary of the financial highlights for the quarter and then go into more detail on each topic first.
First as Rami mentioned, we had a strong performance to start our fiscal 2023 with year over year revenue growth of 25% and a growth of 27%.
Our Q1 revenue and <unk> growth was driven by continued traction with our customers that spend more than 100, K here with us as these customers grew 25% 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 <unk>.
The cure of cloud applications.
As mentioned on our last call. We believe <unk> is the best leading indicator of growth in a SaaS business.
We ended the quarter with $273 3 million, representing 27% year over year growth.
This is a significant improvement from Q1 of last year, when our growth was 16%.
While we expect to continue to drive meaningful growth. This year, the acceleration of our growth in the back half of last year. It makes for a tougher comparison, but further we get into this year. Accordingly, we expect our year ending our percentage growth will be a few percentage points less than Q1 levels.
To assist with your modeling we will make the prior year quarterly IRR and dollar based net retention data available on our Investor Relations website.
Last quarter, we changed the way, we calculate dollar base net retention to a simple trailing four quarter methodology to better align this metric with our reporting and provide better visibility into current trends in our business.
Our dollar based net retention was 115% for the quarter.
As part of the sales re segmentation, we've seen the strongest early traction in the expansion teams combined with a continued improvement in customer retention.
Both of these factors have contributed to improve that retention rate quarter over quarter.
We believe overtime the realignment of our go to market team.
He will result in a relatively higher focus on new customer acquisition. As a result, we expect it will take several quarters before we start to see a sustained improvement in our dollar based net retention rate.
Turning to billings calculated billings for the trailing 12 month period was $288 7 billion up 22% year over year.
Recall that we look at calculated billings over a trailing 12 months period.
This metric can fluctuate from quarter to quarter due to the timing of renewals and billings duration for larger customers.
Moving to remaining performance obligation or RPE O. We are continuing to see our customers make larger long term commitments due to our differentiated multi use case platform and flexible licensing model.
This quarter's RPI increased 25% year over year to $349 9 million driven by the size and duration of new and expansion contracts.
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 Q1 revenue increased to $67 9 million up 25% year over year.
Q1, gross margin was 70% compared to 72% in the prior quarter.
Our data consumption has continued to grow more than 50% year over year, which is consistent with our strategy of encouraging customers to ingest more data onto our platform.
I want to remind everyone that we do not have a consumption license model.
Customers can take advantage of our flexible credit licensing model, which includes data tiers to capture and store data as they see fit for their business.
As they consume more data they utilize more credits however, the benefit of revenue trails, the near term impact on cost of sales.
We've also released a lot of new functionality over the last few quarters, including metrics and traces which has created a full stack of durability offering for our unified analytics platform.
New features Ngos take time to optimize and in the near term create some downward pressure on our gross margins.
We believe all of the additional functionality and data tiers as a unique differentiator that will allow us to continue to drive our growth 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 $32 1 million or 47% of revenue, which was slightly better than the year ago period.
Given the opportunities ahead, we plan to continue investing in our go to market team focusing on enablement and productivity to drive more efficient growth in the future.
In the near term, we expect a moderate increase in sales and marketing expense as a percentage of revenue in FY 'twenty three.
Research and development expense was $19 4 million or 29% of revenue the same as it was in the year ago period.
While we continue to invest in our differentiated platform or ability of security, we do expect a slight improvement in R&D as a percentage of revenue this year.
G&A expense was $11 5 million or 17% of revenue the same as it was in the year ago period.
In FY 'twenty three.
We will continue to make investments required to operating as a public company, while focusing on building the foundation for more operating leverage in the future.
Our Q1 operating margin was negative, 23%, which was several points better than the high end of our guidance range driven partially by revenue outperformance in the quarter and carefully managing our costs.
Net loss in the quarter was negative $15 3 million or negative <unk> 13 per diluted share based on approximately $114 3 million weighted average diluted shares outstanding.
This was several cents ahead of the high end of our guidance.
Turning to our balance sheet and cash flow.
We are well capitalized as we ended the period with $358 9 billion in cash and marketable securities.
Free cash flow in the quarter was negative $2 million or a negative 3% of revenue.
We do not expect improvements in free cash flow to be linear as there can be variability from quarter to quarter based on collections and timing of payments.
We recommend looking at free cash flow and free cash flow margin on an annual basis.
We believe that free cash flow is a leading indicator of leverage and profitability and as we continue to focus on driving more efficient growth, we expect to deliver a meaningful improvement in free cash flow margin from last fiscal year.
Turning to guidance as a reminder, we believe that it is more relevant to measure the growth of our business on a full year basis, given potential volatility from quarter to quarter.
We are marginally increasing the midpoint of our annual revenue guidance based on our strong start to the year, while remaining cognizant of the number of changes we've made in our go to market team.
We continue to evaluate our expense structure to identify opportunities to drive more efficient growth.
And accordingly are decreasing our prior annual operating loss guidance.
For the full fiscal year 2023.
We expect total revenue of $289 million to $292 million, representing 19% to 21% year over year growth.
non-GAAP operating margin of negative, 25% to negative, 24% and non-GAAP loss per share of negative <unk> 64 to.
So negative <unk> 62.
On approximately $116 5 million weighted average shares outstanding.
For the second quarter, we expect total revenue of $71 million to $72 million, representing 21% to 22% year over year growth.
non-GAAP operating margin of negative 24% to negative, 23% and non-GAAP loss per share of negative 15 cents on approximately $116 million weighted average shares outstanding.
In summary, we are pleased with the strong start to this fiscal year, our unified platform for reliability and security continues to resonate with our customers and we believe we are well positioned for the large market opportunity driven by digital transformation cloud migration security modernization.
With that I mean, and I are happy to take any of your questions operator.
Thank you we will now be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Yeah.
Okay.
Yeah.
Yeah.
Okay.
Thank you. Our first question comes from Camille meal Zurich with William Blair. Please proceed with your question.
Thank you and congrats on the solid quarter.
You are clearly seeing acceleration of the business and we've seen pockets of weakness in the broader tech industry.
As you look out over the next year or so if we do see a more severe macroeconomic downturn. How are you thinking about the decision to preserve cash versus leaning into the recent strength and maybe even coming out stronger on the other end.
How does your experience like consumer through the pandemic and informed decision.
Yeah Camilo, thanks for join Us.
Obviously, we feel like a lot of investments, we made last year in product and IP setting us up to really execute operationally on the go to market side. Many of those changes which have already transpired. So we're going to continue to measure our business on a quarter by quarter basis, and look for areas of constant investment, where we're getting return as well as efficiencies and.
We've proven that in Q1, and we will continue to do that throughout the back half of this year.
That's helpful and just quickly if I could follow up on your international business, you've delivered very strong growth over the last few over the last few quarters can you just update us on the investments Youre, making there and what are some of the next steps driving expansion.
Yeah, I mean, I think it's obvious to all of us know that the macro trends around digital transformation cloud migration security monetization is not just a regional thing it's a global thing.
And you know with all the uncertainties in the macroeconomic environment. The great news is that <unk> helps customers save a lot of money deliver a lot of value and we're seeing that in terms of our success not just in our major markets, but also a minor markets APAC for us is becoming a more of a major market, we're going to continue invest in.
Go to market around channel alliances and direct capacity.
That's good to hear thanks again.
Thank you. Our next question is from Matt Hedberg with RBC capital markets. Please proceed with your question.
Well. Thank you this is actually Matt Swanson on for Matt.
Graduations on the quarter.
So maybe picking up where you left off on that last question about the re aligned go to market strategy, and where investments will need to be made yes, that's great to hear the traction you're seeing expansions on the channel side with the MSRP is but as far as actually changes you still need the make versus waiting to kind of see the fruits of your labor where do we see.
And to that point are there still ongoing restructuring.
Yeah. So obviously the biggest structural change was the bifurcation of hunters and farmers, which took place the first week of last quarter and that transition is well underway I think ongoing its about where do we continue to invest incremental capacity versus makes.
Sure, we're hitting the right productivity metrics and new markets and in emerging markets versus established markets and balancing that investment strategically over the course of this year.
So think of it as the major change has been done and it's about where we continue to pour fuel on the fire, where we're seeing the return and where are we slow back a bit to make sure we drive the right productivity as well as growth with respect to the investments we've already made.
That's really helpful.
I I feel almost a little a little silly asking iscsi, certainly that sounds like a company that seeing any macro headwinds, but just given all the different things that are going on in the market right now.
Are you seeing anything from you know between the one in Ukraine inflation input prices supply chain, just kind of a lot of moving parts and then maybe kind of on that we talk every quarter about the differentiation of the flexible credit based model and mature data.
If there's any other additional comments on your pricing model and how it may be more resilient and macro challenges that'd be helpful as well.
Okay sure so first and foremost with respect to the demand environment. It's important to point out that we provide mission critical service for all companies that are trying to become more digital as they deliver as they need.
To deliver reliable and secure experiences and so in doing so there's always a transformation aspect of growth aspect as well as our cost and return aspect and so the good news for our platform given the second part of your question around the licensing we provide that agility that transformation.
<unk> as well as the transparency and value and cost that they don't get for many other providers.
So as we look down the pipe, we're going to continue to help make sure our customers get all their data onto our platform be able to analyze that and be able to not drive just reliability, but also security of these mission critical services that need to run their businesses.
Hi, Thank you I appreciate the time.
Thank you. Our next question comes from Derrick Wood with Cowen and company. Please proceed with your question.
Hey, guys. Thanks for taking my question and nice job on the quarter remained could you just comment on if you look at the security in the observer ability markets. The health of those two markets the trends Youre seeing where maybe there is greater demand and then just you know as you're thinking about this year the ability the ability to do.
More cross selling of the two how much focus is that and the new go to market structure.
Sure. So the trend is pretty similar to what we've seen in the last few quarters, where about 40 plus percent of our business has come from security and the remainder from observe ability. This past quarter, we saw some strong wins and expansion slash cross sell as well as new logo.
Business around observer ability a lot to do with the enhancements that we provided last year that we've spoken about now.
Now as we look forward, we've always talked about these being two distinct markets different buying centers and budgets and the fact that we have one single platform that allows those teams to kind of work better together uniquely positions us for the differentiated platform we have.
So we don't walk in and try to push both agenda is at once we tried to land and expand in either of the organizations and then look to cross sell now to the second point of your question. That's exactly why we've made these go to market efficiencies and changes around hunters and farmers to be able to go capitalize on that cross sell and expansion versus.
Is that new business hunting aspect. So we've done we will tend to see more fruits of the labor from the expansion just because of sheer focus and similarly around new logo lands and that viral selling model that we've seen in that mid market portion of our business, which contributed a strong last quarter as well.
Okay. That's that's helpful Stuart.
You guys did 27% <unk> growth in Q1 up from 24% in Q4, and I think you're saying that you want to end the year, maybe back around 24%, which.
It is quite healthy, but the revenue guidance kind of implies maybe 19% revenue growth in the second half of the year. So there seems to be kind of a disconnect between those two measures. Those two growth rates can you just kind of help us bridge the difference between the two.
Sure Derrick I think the way and I think what we said on the call was in the way you need to think about this is really looking at our growth on annual basis.
Excuse me.
So we are guiding if thinking about the midpoint of our revenue guidance, we're guiding to 20% growth in FY 'twenty, three which is an acceleration over FY 'twenty two.
But just to your point I think we started to reaccelerate the business.
<unk> of last year, and so the first half of the year for us as a slightly easier compare when.
When you look at the acceleration through the last half of last year. So I think that's the dynamic that you're referencing.
Does that help.
Okay.
Got it thanks.
Thank you. Our next question is from Mark Murphy with Jpmorgan. Please proceed with your question.
Hey, guys. This is already on for all Mark Mercury. Thanks for taking my question and congrats on the quarter first off I'm kind of thinking on the security side or the event has kind of gone around Ukraine, and the general continued concern about ransomware attacks.
Stayed active others are putting greater emphasis and providing some tailwind on the security side.
Yeah, I mean, I think the supply chain attacks and ransomware has always been top of mind for a lot of companies that are moving to the cloud and transforming their operational organizational needs I think for us what we've seen uniquely is the ability for us to have the security side.
<unk> of our.
Whether that be new or existing helped championing us in to the lines of business and Dev teams and vice versa. Because we're one of the only platform that provides reliable and secure analytics and so I think we're well positioned there I don't necessarily think that that's necessarily given us some tailwind.
Yet.
I think we will see probably how that plays out throughout this year, we're continuing to execute on these distinct markets and working through the channel partners are such and the security side and more of a direct sale on observe ability side.
Yeah.
Got it. Thank you and then just kind of a double clicking on the on the go.
Go to market sales motion in Hunter Gatherer, and we're already seeing some progress there, particularly on the expansion side did you guys. Just talk about what is driving that kind of more specifically in terms of what levers are being pulled for that and then two are there kind of other benefits.
We're probably going to be seen a little bit farther down the line maybe towards the end of the year.
Sure I mean, I think first and foremost we are committed to driving efficient and profitable growth and at this size and scale. Typically you started earlier to bifurcate your sales teams into hunters and farmers and it allows focus allows simplicity and allows a lot more value to the channel.
There's and prospects and customers and so it's obvious that those are in expansion roles or farming roles, who have installed base set of accounts. It makes it a little bit easier for them to go in and drive a cross sell and align with.
Within and across the organizations that are hunting for new logos and so we are accordingly split up the organization to drive the commitment to that fishing growth, but also drive the right profile of reps in each one of those segments and to drive the velocity engine as well as the cross sell engine.
Yeah.
Got it thank you.
Thank you our next.
Question will come from Sanjay <unk> with her with Morgan Stanley . Please proceed with your question.
Hi, Thank you for taking the questions and really nice really nice Q1, you mean.
I was wondering if you could talk a little bit about the opportunity in observed ability. We had a really nice way anywhere where you were replacing sort of homegrown DIY solution anyway to sort of frame in your view how much DIY is out there.
That'll has to move to a more commercial out of the box solution and how much of an opportunity that represents for sumo versus maybe displacing an existing commercial solution.
So I think you share the same sentiment I do around that answer which is the market is predominantly greenfield still right. If you look at the number of workloads that have been migrated to the cloud those that are being monitored end to end right. Let alone. The workloads that are still shackled and stuck in the data center or not yet.
Built in migrated gives a huge opportunity for all of the observe ability vendors, including sumo to go take advantage of that what we see oftentimes is in the early development of new micro services based architecture Architected apps, there's very much a do it yourself and a set of tools used to initially build and release that in the moment you start to see.
Scale and want reliability, let alone security you start to shift to add in commercial products to supplement a lot of open source and that is exactly what happened in that win simulated that we've seen in the last two quarters in fact.
So the second part of your question in terms of the broader opportunity, we feel that we're well positioned particularly because of the portfolio enhancements that we made last year and into Q1 centered on our commitment to open source open telemetry to really reduce the cost for our customers and the value for customers long gone are the days of charge.
Too much money for proprietary agents that collect memory disk CPU latency those should be basic metrics and as such open telemetry brings logs metrics traces metadata together to make it easier to collect that information and ultimately the value gets placed and the analytics side of the platform to be able to provide those insights.
So that <unk> provides.
Yes.
It makes it makes total sense and then Stuart I wanted to make sure I understand on some of your comments around free cash flow. It sounds like we're going to have a an improvement at least in free cash flow margin any line of sight of the win.
We expect the business to get to that sustainably positive free cash flow position I know the go to market organization is still in transition and has a couple of phases left to it but any sort of mile post that we should expect in terms of getting to the other side of a free cash flow positive journey.
Sure Sanjay.
We haven't established a timeframe for that yet, but obviously as I indicated we're going to make a meaningful improvement this year.
Going from the roughly negative 14% of revenue free cash flow margin last year. This year and so we will continue to progress that remunerated.
For me and reiterated we're very focused on driving efficient growth.
It will get as we start nearing towards breakeven will give you more clarity, but we haven't established a specific timeframe at this point.
Understood. Thank you very much.
Yeah.
Thank you. Our next question is from Gray Powell with BTG. Please proceed with your question.
Hi, This is Janet thing answer great Paolo. Thank you so much for taking the question. So I was wondering if you could talk about linearity in the quarter.
Do you see any changes in customer buying patterns and is there any color you might be able together on how may is tracking so far.
I won't talk about may and tracking forward, but I will give you some color on obviously Q1.
We started pretty strong and a month, one and two month too.
I think as we look at our segments now and each region. We're looking at effectively what our pipe on our coverage and then what our linearity is and making sure we're making the right tradeoffs investments to continue to accelerate that.
Got it thank you so much.
Yeah.
Okay.
Thank you there are no further questions at this time I'd like to turn the floor back over to remain there for any closing comments.
Thank you operator.
We are continuing to deliver on our commitment to accelerating revenue and have started off the year with a strong performance exceeding again the high end of our guidance, we delivered 25% revenue growth and 27% AOR growth in the first quarter. Additionally.
Additionally, as we've already mentioned, we're committed to driving meaningful growth, while showing improvements in both operating margin and free cash flow for the full year.
Our cloud native platform. We believe is very uniquely positioned to help customers reliably and securely manage their mission critical applications.
As such we are steadfast in our belief that we have a differentiated product that resonates with our customers and believe that we're still in the very early innings of digital transformation cloud migration, obviously security modernization initiatives.
I'm very pleased with the operational and organizational changes that are already underway and the large and growing market opportunity ahead of us.
With that thank you for joining us today on our first earnings call and we look forward to speaking with you soon.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
[music].