Q2 2023 Sumo Logic Inc Earnings Call

The.

you

Ladies and gentlemen, we thank you for your patience. Please continue to stand by. The event will begin shortly. Again, we thank you for your patience. Please continue to stand by. The event will begin shortly. The event will begin shortly.

Thank you, sir. You may begin your presentation at this time.

Thank you and good afternoon and welcome to Sumo Logic's second quarter fiscal 2023 earnings conference call. Joining me on the call today are Ramin Sayre, President and CEO , and Stuart Gerson, Chief Financial Officer. Our format today will include prepared remarks by Ramin 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 performance of our business, expectations regarding our platform and solutions, expectations regarding our go-to-market efforts, our future financial results and guidance, our growth, expense, and investment strategies, our market opportunities, the potential impact of the macroeconomic environment, and our overall future prospects.

These statements are subject to risk and uncertainties. These 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 quarterly report on Form 10Q and the risk factors that will be included in our Form 10Q 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 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 8K file today with the SEC on our Investor Relations website at investor.semologic.com.

For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in our earnings release posted on our Investor Relations website. With that, let me turn the call over to Ramin.

Thanks everyone for joining us today on our second quarter earnings call.

We are pleased with the continued strength in our business as we once again exceeded our revenue guidance while also delivering more efficient growth.

In Q2, we delivered 26% year-over-year revenue growth and 25% year-over-year ARR growth.

We complemented this strong top-line growth with continued focus on managing our expenses and thereby delivering better-than-expected operating losses as the percentage of revenue in the quarter.

We will continue to focus on efficient growth as we drive towards cash flow breakeven and profitability in the future.

We remain positive on the long-term trends driving our business, which are contributing to the strengths we are seeing in our results.

We believe we are still in the early innings of a multi-year growth cycle driven by digital transformations and the

cloud migration, and security modernization.

Companies are increasingly relying on digital services to help grow and operate their businesses.

and we play a critical role in ensuring that these experiences are both reliable and secure.

Turning to financial highlights, total revenue was $74.1 million for the quarter. We continue to see healthy win rates with our customers continuing to increase their adoption and usage of our platform.

We ended the quarter with 489 customers with more than 100k in ARR, representing a year-over-year increase of 19%.

Before I turn to some customer highlights, it's important to restate that our vision is to make the world's 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 cloud infrastructure.

In addition to selecting Sumo for our leading cloud-scale log analytics platform, customers are increasingly utilizing Sumo due to the breadth of both our observability and security suites.

More specifically, our Observability Suite helps customers monitor application and cloud infrastructure.

troubleshoot and diagnose issues rapidly, and improve the quality of software release and cycle times.

In addition, our Security Suite helps customers with cloud infrastructure and security monitoring, and application workload protection.

Industry and regulatory audit and compliance.

threat detection and investigation, and lastly, security automation and orchestration.

With that, let me share some examples of how customers are using our platform with a few key wins for the quarter.

These wins were fueled by both traditional companies migrating to the cloud and needing to modernize their tools, and cloud-native companies expanding their footprint and usage of our platform.

Similar to prior quarters, I'll highlight various Greenfield and Legacy vendor displacement opportunities whereby Sumo's SAS-based analytics service was selected in order to help them more effectively compete as well as advance their security and or reliability capabilities.

On the new logo side, we had multiple wins around the globe where we displaced legacy on-prem Sims.

We continue to believe that this is a large opportunity for us.

As customers begin their cloud migration journeys, they must also modernize their security tools because their existing on-premise tools are not capable of handling the complexities of cloud workloads, including the explosion of data and the increasing magnitude and frequency of sophisticated attacks.

The first win I'll highlight was a multi-year new logo deal with a TCV of 7 figures.

with a multinational manufacturing company based in EMEA with over 40,000 employees.

They're in the midst of a large cloud migration initiative, and we're looking for a next-generation cloud center.

During the proof of concept, our cloud SIEM identified that they were subject to a cyberattack, which immediately proved our differentiated platforms capabilities while their on-premise or other solutions failed.

This is a great representation of the people, process, and technology challenges faced by many organizations as they migrate to the cloud.

Next, we saw good momentum with our emerging Fed business.

including a seven-figure new logo.

This customer was moving to the cloud and looking to replace its legacy SIM as it was leading to continued failed audits and compliance issues.

Their prior tool had resource constraints when being shared between the security and operations teams.

Our SIEM was selected because of out-of-the-box capabilities and integrations for ease of use and quick time to value. Also, our ability to automate the correlation and response to incoming threats helps alleviate practitioner fatigue and supplement potential labor gaps.

This makes Sumo an easy decision for those moving to the cloud and modernizing their security tools.

We're also seeing customers continue to expand their adoption of our platform as they recognize the benefits of using Sumo for additional teams and use cases.

For example, our mid-market team had a six-figure cross-sell with a tech-focused telecommunications company.

As they are shifting more of their workloads to the cloud, their CISO recognizes the benefits of having a single platform for both application reliability and security, and therefore expanded their initial security analytics use case to now include logs, metrics, and traces for full-stack observability for their mission-critical applications.

In addition to the technical benefits.

This customer also valued our highly differentiated flexible credit space licensing model, which allows them to cost-effectively manage their use of SUMO across both security and observability.

Shifting to our international theaters, we had another strong corridor in APAC, including a six-figure cross-sell with a highly sophisticated global bank that has created a new virtual offering in order to improve their user experience for their customers.

We initially landed with a monitoring and troubleshooting use case, then expanded to CloudSim, and most recently,

They expanded their usage for observability by 10x.

With Sumo, they are now able to gain valuable insights via dashboards, alerts, and monitoring for each component of the customer journey within their new banking app, thereby allowing them to ensure their apps are both reliable, secure, and of course, compliant.

While this win is a great example of how our uniquely differentiated platform enables a cross-sell opportunity into another use case and organization, we also have a tremendous opportunity with customers to expand their existing use cases as they increase their adoption of our platform. The United Statesaccording to electronic technology problems for world users operation The United Statesilarious billion dollar corporationUp to 15 million users AFTER Washington, D.C.,

One of those upgrades was a seven-figure transaction from a company that is disrupting enterprise data management.

They recently put a new customer-facing application into production.

They're using Sumo for both observability and security use cases by monitoring their service levels to ensure both application reliability and user experience in order to protect their revenue generating apps.

They are also using our platform to manage audit and compliance requirements, while ensuring their customers' confidential data remains secure.

Lastly, they further extended their commitment to using Sumo because their data can vary between 3TB and 10TB a day, and our flexible credit-based licensing model was a perfect fit for the variability in their business.

These wins highlight our large market opportunity as well as underscore that our differentiated platform provides our incredible benefit for e cavalry joining the

A unified and fully integrated SaaS solution for full stack observability and security.

Resilience and unparalleled scale that can handle data volumes that modern digital applications generate.

Patented analytics and proprietary machine learning for all types of data, namely unstructured logs, which is typically the largest dataset output by modern applications.

cloud-scale economics and value supported by our tiered data architecture and flexible credit-based licensing model.

And lastly, additionally, our service is one of the most audited and certified platforms for industry security and compliance regulations.

Now, turning to some of the product highlights from last quarter.

We are pleased to be recognized in the Gartner Magic Quadrant for ATM and observability as a challenger.

Observability isn't new for us. It's been core to our platform since day one based on our best-in-class log management troubleshooting and analytics foundation.

The addition of over the last couple years of metrics, traces, real user and service level monitoring allows us to provide a full stack observability solution and we are excited to receive this industry recognition.

We continue to believe that logs are foundational to observability as they are essential to diagnose and troubleshoot issues and ultimately provide a faster time to resolution.

We like to also recognize that we are one of only a handful of vendors that are now in the Magic Quadrant for both APM and observability as well as SIM.

or S-I-E-N.

This further validates our strategy of providing a unified platform for ensuring application reliability and security.

Our security solutions receive multiple individual awards in the quarter, which include achieving AWS security competency for our Cloud SIM and SOAR, and Cyber Defense Magazine best solution for cloud security monitoring and best product security orchestration, automation, and response.

These accolades further acknowledge our leadership in modern cloud security analytics.

Additionally, we've increased the depth of our offerings by announcing Threat Labs, a

Threat Research and Security Detection Unit. This new unit was created to help customers modernize security operations and achieve greater cyber resilience by delivering a continuous stream of deep detection content, rapid response guidance, and actionable best practices.

For observability, we also announced a new simplified experience to deliver Kubernetes monitoring and troubleshooting in just a few clicks.

This enhanced solution streamlines the collection process and ensures faster time to value for Kubernetes observability and is very important as developers are at the heart of getting digital experiences into service.

And now, we are making it easier for them to ensure the reliability of those services as onboarding Kubernetes data into Sumo Logic has never been faster, smarter, or more secure.

While there were many other important enhancements we are very proud of, we will have more product updates to share at our annual global user conference, Illuminate, which will be virtual and running from September 13th to 14th. And I encourage you all to attend.

I'm extremely proud of the differentiated and highly recognized solutions that we have to offer in a single platform and I feel that our platform has never been stronger.

Now I'd like to quickly give an update on where we are on our Go To Market team.

Lynn Doherty, our president of World Wide Field Operations, has now been on board for three quarters.

Lynn has reshaped much of her leadership team.

recruiting leaders that understand the rigor and discipline required to scale a global sales organization.

She implemented the realignment of our sales teams into expansion and pursuit teams at the beginning of this fiscal year to drive more focus and continues to drive the changes needed to enable future scale and growth.

Overall, we are pleased with the progress so far while recognizing that change management takes time and that not all theaters or segments will progress at the same pace.

In summary,

While the broader challenges in the macroeconomic environment create a higher level of uncertainty,

We believe the need to deliver reliable and secure digital experiences for mission-critical applications will continue to be a top priority for our customers and the broader market.

I'm very proud of our continued progress and results so far this year.

Our executive leadership team and product portfolio have never been stronger, and we continue to deliver strong results on both top and bottom line.

While we are well capitalized, we remain committed to more efficient growth as we continue to focus on managing our expenses and driving towards eventual cash flow breakeven and profitability.

With that, I'll turn it over to Stuart Gerson, our Chief Financial Officer, who will provide more details on our financial results in Q2 and our outlook for Q3 and our fiscal year.

Thanks, Ramin, and thanks, everyone, for joining us on the call.

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 Ramin mentioned, we've continued to deliver strong results with year-over-year revenue growth of 26% and ARR growth of 25%, while also delivering a material reduction in our operating losses as a percentage of revenue.

Customers that generate more than 100k per year in ARR continue to be foundational to our top-line growth. In Q2, the number of 100k ARR customers grew 19% year over year.

Second, we have continued our commitment to more efficient growth.

Our Q2 operating margin was negative 17%, which was significantly better than the midpoint of our guidance of negative 23.5%.

These strong results were driven by revenue up performance in the quarter and lower expenses.

We are carefully scrutinizing our hiring and expense plans across all aspects of the business as we focus on driving operational efficiencies.

As mentioned on our last call, we believe ARR is the best leading indicator of growth in a SAS business.

We ended the quarter with ARR of $286.2 million, representing 25% year-over-year growth.

While we expect to continue to drive meaningful ARR growth this year, I want to remind everyone that the acceleration of our growth in the back half of last year makes for a tougher comparison the further we get into this year.

As expected, our dollar-based net retention was consistent at 115% for the second quarter in a row.

This remains a significant improvement from the prior year as we improve both our expansion and retention rates.

We don't expect any meaningful changes to our net retention rate for the remainder of this fiscal year.

Turning to Billings, calculated Billings for the trailing 12-month period was 309.4 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 our renewals and billings duration for larger customers.

Moving to remaining performance obligation or RPO, we are continuing to see our customers make larger commitments due to our differentiated multi-use case platform and flexible licensing model.

This quarter's RPO increased 23% year-over-year to $340.4 million, driven by the size and duration of new and expansion contracts.

While RPO was sequentially down from Q1, this is a function of the timing of renewals with the prior quarter being positively impacted by some larger early renewals.

This is similar to the dynamic we had last year at this time.

Now, I'll review the income statement in more detail. As a reminder and 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 Q2 revenue increased to $74.1 million, up 26% year-over-year.

We saw improved linearity in the quarter, helping deliver some of the upside to our guidance.

Q2 gross margin was 70%, which was flat compared to 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.

Our customers can take advantage of our flexible data tiers and credit licensing model to meet their business needs.

As they consume more data, they utilize more credits. However, the benefit to revenue trails the near-term impact on cost of revenue.

Looking forward, we expect gross margins to remain in the low 70% range in the near term, as we continue to execute on this strategy in order to drive further adoption of our platform.

Longer term, we expect gross margins in the mid 70% plus range as we drive efficiencies in our hosting services.

With regards to operating expenses, we have reduced our original hiring plans and are carefully scrutinizing non-headcount-related spend as we focus on efficient growth and reducing our operating losses as a percentage of revenue.

This scrutiny is being applied across the company and the results can be seen in improved operating ratios across sales and marketing, research and development, and G&A.

As stated previously, our Q2 operating margin was negative 17%, which was significantly better than guidance.

Net loss in the quarter was 12 million or negative 10 cents per diluted share based on approximately 116.6 million weighted average diluted shares outstanding.

Turning to our balance sheet in Cash Flow.

We remain well capitalized as we end the quarter with $350.6 million in cash and marketable securities.

Free cash flow in the quarter was negative 12.4 million or negative 17 percent of revenue.

As a reminder, 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 a free cash flow margin on an annual basis.

We believe that free cash flow is the leading indicator of leverage and profitability, and we expect to continue to deliver improvements in free cash flow margin as we focus on driving more efficient growth.

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 variability from quarter to quarter.

I wanted to describe this quarter's guidance methodology in a bit more detail.

While we did not see any meaningful changes in customers' buying behavior in Q2, we are operating in a period of greater uncertainty created by the macroeconomic environment.

As a result of this uncertainty,

We are taking a more prudent outlook for the back half of this year, and in particular Q4, and are only marginally increasing our annual revenue guidance despite the strong Q2 results.

We started the year guiding annual operating margins to negative 26.5 percent.

We have delivered better than expected operating efficiencies in each of the first two quarters, and will continue to identify areas of opportunity for further improvements in the back half of the year.

For the full fiscal year 2023, we expect total revenue of $289 to $293 million, representing 19% to 21% year-over-year growth.

non-GAAP operating margin of negative 23% to negative 22%.

and non-GAAP loss per share of negative 56 cents to negative 54 cents on approximately 117.5 million weighted average shares outstanding.

For the third quarter, we expect total revenue of $73.5 to $74.5 million, representing 19 to 20% 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 119 million weighted average shares outstanding.

In summary, we are pleased with our continued strong execution on both our top and bottom line priorities.

I would also like to remind everyone that on September 20th, we are hosting our first investor day at the NASDAQ market site in New York. We welcome you to join us in person or virtually to hear more details on our go-to-market and product strategies, as well as a more meaningful perspective on our ability to drive operating leverage over time.

With that, Ramin 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 would like to ask a question, please press star 1 on your telephone keypad. A confirmation symbol indicates your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions.

Our first question comes from a line of Matt Hedberg with RBC Capital Markets. You may proceed with your question.

Hey great guys thanks for taking my questions. Congrats on a really nice quarter. Maybe for Ramin, you know in your prepared remarks you talked a little bit about Linn and the changes that she implemented but maybe just double click on that a little bit more. I know you know a little bit more of a hunter-farmer model today. You know I just wanted to get maybe a little bit better understanding of some of the changes there because it feels like there's certainly been an increase in consistency and acceleration in the business.

Sure. Matt, great to hear your voice. Well, logically, you need to sequence some of these changes as you're looking to scale up and scale out. So trade-off decisions are what new territories and existing theaters, how do we double down on new ones, how do we start to get the right profile reps for expansion versus pursuit, while also bringing in new leaders that can hit the ground running.

So we want to be cognizant of those changes and be cognizant of the spend associated with that as we're still trying to drive the execution of the coverage model as well as naturally better efficiencies for the two sales teams.

So we're proud so far, we have some more work ahead of us, but indicators are good.

That's great. Yeah, it seems like that in some of the wins that you highlighted. And then, Stuart, you mentioned when you were talking about guidance, you're taking a little bit more prudent view, more so Q4. I just wanted to ask about August , I guess. Are you seeing anything now, or is it more just precautionary because of the headlines that we're all reading? Just wanted to get a sense for what drove that level of conservatism.

Yes, sure, Matt. So, as we said in the prepared remarks, we actually didn't see any meaningful changes in our customers' buying behavior as we wrapped up the quarter. But at the same time, there's a lot going on from a macro perspective. And so we did want to take a more prudent view, just given the further out you look, the less you're going to see

visibility you have in an environment like this. And so that was the approach we took, but I'll reiterate we didn't see any meaningful change as we closed out the quarter.

Got it. Thanks a lot guys.

Thanks, Ben.

Our next question comes from the line of Camille Milchizek with William Blair, you may proceed with your question.

Thank you. Thank you.

It's past earnings season. Several of your competitors have called out positive weakness whether across specific products or verticals. Ramin, what do you think is unique about Sumo Logic that has made the business more resilient in recent months? And how sustainable do you think that is over the next year or so?

Well, I can't comment on them, but what I can tell you is that what we provide is pretty simple. It's a necessity for any company trying to digitally transform, move to the cloud, get more efficient with how they actually build and run what we call reliable and secure digital assets. And so it's a must-have versus a nice-to-have.

The second thing I'll say is we saw good contribution from, I would say, obviously tech savvy, leaning in, digitally transforming companies, as well as those that are still embarking on that earlier part of the journey of moving to the cloud. So we have not seen any slowdown in cloud migration. That complexity and disaster that they have on-prem is a great opportunity for us to go and help them get efficient as they move to the cloud.

That's helpful. And just a follow-up, you've announced several acquisitions over the past year, the FLABS, andWoman Genetic Institute, others Who correct me if I'm wrong or wrong still V Qinesis your main on every emerged.

Stepping back a bit, can you tell us how you think about the decision to build versus buy? And given the decline in market valuations today and your large cash balance, how do you think about potentially making a more transformative acquisition or do you think you're more likely to just make a regular cadence of tokens? Thank you.

Well, I don't know if the evaluations have adjusted enough in some of the private market to be blunt. However, our strategy has been pretty consistent. We're looking at first and foremost talent and people that we've brought in to expand and extend what we've been organically building out.

Second, we will look to continue to evaluate those as it pertains to our core markets. And that is obviously really around reliability and security. I can't comment on the future and what that holds, but we have a lot in our product portfolio to go take advantage of into our install base as well as net new customers. So we're focusing on really integrating, driving more.

usability enhancements, and simplifying the complexity for a lot of customers' other legacy tools.

That's helpful. Thanks again.

Our next question comes from the line of Benjamin Boro with JP Morgan. You may proceed with your question.

Hi, this is Chaitanya from Pendulum. So, looks like the NetNew AR edition has declined for the Core. Can you help us understand what's driving that decline?

Sure, Stuart. So, I think Ramin touched on this in the opening response, right? So we've made a number of changes to go to the market team, starting with the realignment amongst pursuit and expansion teams at the beginning of the year. And then we have been up-leveling both leadership, so sequencing the up-leveling of leadership, and then the account teams over time. And so while we've continued to add capacity to the sales team, we've also been up-leveling both leadership and expansion teams at the beginning of the year. And then we've been up-leveling both leadership and expansion teams over time. And then we've been up-leveling both leadership and expansion teams over time.

There has been a near-term impact on ramped capacity that we're working through as we make these changes.

Got it. And then can you help us understand what traction are you seeing in the international market and what is your investment strategy there?

Yes, so we continue to be.

happy with the traction we're having in international. We actually have revenue went above 20% internationally for I think the first time this quarter. And so we continue to see good growth in all those international theaters and are continue to invest there.

Thanks.

Our next question comes from the line of Derek Wood with Cowan. You may proceed with your question. Your next question comes from the line of Derek Wood with Cowan.

Great, thanks. Nice job on the quarter. Maybe I'll follow up on that line of questioning for Ramin. Just wanted to get a sense of what is working better, where you're feeling and seeing more strength when you look across enterprise versus mid-market or across security versus observability or maybe just, you know, geos. Anything you'd highlight that's really seen good growth durability and strength from you guys.

Derek, good to hear your voice and thank you for joining us. Honestly, I think we had a strong contribution from both observability and security as I look at either new business or cross-sell and up-sell. I would comment that there is quite a bit of pent-up demand with customers on their security challenges and as they're moving to the cloud and how they could...

more efficiently deliver on the needs of the business, not just in security. And so we saw a good example of that is one of the highlights of the customer wins where we landed in security and expanded into observability and vice versa. So I think the platform approach that we've been talking about for a while, building out both these suites has put us in a very strong position.

As we look at more of the international versus domestic, and Stuart commented on percentage contribution this past quarter, the MEEA theater and the APAC theater was pretty good for us, and in both cases, some strong contribution for security, so not just domestically.

Great, nice to hear. Stuart, real quick for you. Last quarter you had said you thought ARR growth would exit the year a few points below the 27% in Q1. Are you updating that? Any new guideposts to give us for expectations on ARR?

Yeah, actually, Derek, I'm not updating that. I mean, I think it goes back to the approach we took on revenue guidance and taking a little more prudent stance given the uncertainty created by the macro. So, decide not to update that comter.

Got it. Okay. All right. Thanks, guys.

Our next question comes from the line of Gray Powell with DTIG. You may proceed with your question. The line of Gray Powell is a question from the line of Gray Powell with DTIG.

Okay great, thanks for taking the questions and congratulations on the solid results.

So yeah, a couple on my side. Maybe it's high level. In a given year, how much growth is coming from new versus existing customers? And then within your business, which of those two categories do you feel like would be more resilient in a recession?

Yes, so the easy way to think about that, Gray, is, and I will focus on ARR, right, because that was one of the things we did at the beginning of this year in terms of the way we talk about ARR and our net retention rates.

And so, both of those obviously we always look at on a trailing 12-month basis. And so, the net retention rate was 115%. And if you look at the overall ARR growth of 25%, that kind of shows you that 15% is coming from the install base and 10% is coming from new customers.

All right, that was pretty easy. Okay, so then maybe just another question. You know, Stuart, in one of our conversations a couple months ago, you mentioned that you run smaller businesses, or businesses that are smaller than Simulogic at higher margins. So can you just kind of talk about what you see as some of the levers that you can pull to drive improved operating efficiencies? And is there any low-hanging fruit that you see ahead of you?

Yeah, I think, listen, I've been on board eight months now, right? And so, we continue to look across the business for efficiencies. There's also the dynamic that I just want to remind you and everyone else on the call around where we were re-accelerating growth last year, but had to re-accelerate the spend ahead of that, and so had a strong run rate of expenses coming into this fiscal year. But as I said on the call, we are actually looking across all areas of the business.

where it's working more strongly than other areas which perhaps need some more work. So it'll be an ongoing effort.

It'll be you know multiple multiple year effort of continuing to drive efficiencies over time but no no low-hanging fruit that I would call out.

Understood. Okay, thank you very much.

Our next question comes from the line of Sanjit Singh with Morgan Stanley . You may proceed with your question.

For taking the questions, congrats on not just this course results, but kind of a string of very consistent executions. So congrats to the team. My question was around the security opportunity. I was wondering if you'd talk about historically how has the company's relationship been with the SOC team in terms of that being a key buying persona. How is that – what did that look like a year ago? You obviously made a lot of investments to bolster the security portfolio.

alarms or false positives. And so we've been focused for quite some time on reducing that burden and time to identify and more importantly resolve let alone automate issues.

So we've been selling to the SOC effectively for quite some time. The acquisitions that we made over the last couple of years have just made that job easier for them as we've integrated those technologies into our SIEM and our log analytics product and then took it even one step further to drive it towards orchestration automation response with the SOAR acquisition.

So I think we're well positioned, but it doesn't mean that you only sell to the SOC. The CISO is heavily involved, the analysts and threat hunters are also involved because they collectively need to do the job better together and then can go uniformly back into IT or the DevOps team, the site reliability folks to partner with them to make the upstream challenges more effective for them downstream.

Yeah, very interesting. It's going to be interesting how that continues to evolve as we go into calendar 23. Stuart, I really appreciate all the context you gave on the guide. As I looked at, as I sort of assess all the signals that we've gotten from earnings season thus far, it seemed to be that the companies that have really large deal sizes, big ticket items, maybe have really, really large renewal, 7 figure, 9 figure, those are the ones that things have been...

struggling more than others. And taking that into consideration, as you think about trying to maintain deal momentum and deal velocity, how do you guys sort of manage trying to get the large deal over the line versus continuing to have a blocking, tackling transactional business quarter after quarter?

Yeah, listen, I think you got to start with customer value, right? And really focusing on delivering customer value. And that just makes the job that much easier, right? And so obviously, we have through our platform good insights to how customers are leveraging our capabilities, how they're getting value. And so we leverage that knowledge significantly to make sure that we are in touch at the right time, working with them, making sure they are optimizing value. We've talked about things like our data tiers, right? How do they...

they're getting value from that. And I think that's, I'll end with that as well. I think that's what you gotta focus on as a company when you think about servicing your customers.

The last thing I'll add, maybe Sanjit, to that, that's exactly why we bifurcated our sales force so we can get efficient there.

so that you can put enough attention to your top X by ARR, by criticality, and not just from an account executive, but a support, and PS, and TAM. And then you also have folks focusing on new pursuits, so you're not splitting, dividing, and conquering. So that will take a few quarters to play out, but that's how we're potentially going after your question around how do you drive big deals, customer value, and growth.

Thanks, Total Sons. Congrats, Swimming. Thank you. Good to hear your voice.

Our last question comes to the line of Blair Abernethy with Rosenblatt. You may proceed with your question. Thank you.

Thank you. Nice quarter guys. Just two questions, one for you Stuart. Could you just give us a sense of as you enter the second half here, what's your book of renewals is looking like the size of the renewals versus say the second half of last year? And what's sort of trending in terms of the term length that you are seeing for most of the contracts that are coming up?

Yeah, so we don't – Blair, thanks for the question, but share sort of the size of renewals. I mean, I think that's – it's an ever-growing book of business, but you have to be careful from quarter to quarter. As we talked about as you look at some of our metrics, right, the timing of renewals can fluctuate from quarter to quarter, so you could have early renewals that impact the size in the following quarter. So we don't really talk about it on a sort of quarter to quarter or even a half year to – sort of half year to half year basis. So we talk about it on a sort of quarter to quarter basis.

As a respect to contract duration, whether we look at new business expansions renewals, it's been really relatively consistent over the last several quarters. We haven't really seen any change there.

Okay, great. Thanks. And I mean, just, you know, Lynn has done a great job in the last year with stabilizing and driving the business on the sale that go to market side. What are you thinking of? What is she looking at in terms of what's next to not only sort of take us from where we are today but maybe see some acceleration of growth?

Well, so she completed her third quarter, and I think the plan is pretty clear. You know, where can we put resources to make sure that we're delivering the most value so that allows us to go broader and deeper in our existing accounts, as well as obviously add new opportunities to the customer base.

Second thing is how do we drive more effective relationships in the field with partners and doubling down with them? And those are both on the ISV side, SI VAR side, and obviously MSSPs.

And then the third is, how do you continue to top grade, bring more talent in, drive execution and rigor? And so those three are constant things of focus for us and conversations we have.

That's great. Thank you. Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Rameen.

Thank you, operator. So, you know, just kind of summarizing on the prepared remarks and some of the questions and some of the other notes we've seen during the last few days and weeks, you know, I think we'll first start off by acknowledging why there may be some uncertainty in this macroeconomic environment and conditions. We believe that we're in a strong position as we provide a mission-critical service that we believe all customers of all sizes and maturities need for both reliability and security.

On a personal note, I'm pretty proud of the strong execution with even more focus on efficient growth as we've demonstrated throughout this year and committed to the rest of the fiscal year. And lastly, I'm super excited by the fact that our executive leadership team and our product portfolio has never been stronger.

So with that, I want to thank all of our employees for their hard work and dedication, as well thank you for joining us today on our second quarter earnings call. We hope to see you all at our investor day on September 20th, either in person or virtually.

Thank you and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.

You