Sumo Logic Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
December 5, 2021

There are 12 speakers on the call.

Operator

Greetings. Welcome to the Sumo Logic Third Quarter Fiscal 2022 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to the Sumo Logic team.

Speaker 1

Thank you. Good afternoon, and welcome to Sumo Logic's 3rd Quarter Fiscal 2022 Earnings Conference Call. Joining me on the call today are Ramin Sayar, President and CEO and Jennifer McCord, Vice President of Finance and Chief Accounting Officer. Our format today will include prepared remarks by Ramin and Jennifer, followed by a question and answer session. Some of our discussions and responses to your questions will contain forward looking statements, including statements relating to the expected impact of the COVID-nineteen pandemic, the expected performance of our business, expectations regarding our platform and solutions, Expectations regarding our go to market efforts and investments, future financial results and guidance, our strategy and market opportunity and overall future prospects.

Speaker 1

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 Quarterly report on Form 10 Q and the risk factors that will be included in our Form 10 Q that will be filed subsequent to this call. Sumo Logic assumes no obligation and does not intend to update or comment on forward looking statements made on this call, except as required by law. Our discussion today will include non GAAP financial measures.

Speaker 1

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 ks filed today with the SEC and on our Investor Relations website at investor. Sumologic.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.

Speaker 2

Thanks everyone for joining us today on our Q3 earnings call. We are pleased with the strong results we saw this quarter, which exceeded the high end of all of our guided metrics. These results were underpinned by the improving performance We laid out earlier this year that delivered revenue growth of 20% year over year. We saw strength and good contribution across our enterprise and the mid market segments in North America, as well as in our international theaters. In addition, we continue to see strong performance and contribution across our global channel partners, namely resellers and MSSPs.

Speaker 2

Overall, our performance was driven by improving customer growth and the continued adoption of our observability and security portfolio, which leverage many of our new features and enhancements released earlier this year. In fact, this quarter we saw strong new business and the best expansion we've seen in multiple quarters as our customers continue to increase Usage of our platform for both existing and new use cases. Turning to financial highlights, we saw strong top line performance this quarter with total revenue of $2,000,000 coming in above the high end of our guidance range. We ended the quarter with 4 38 customers with more than 100 ks in ARR. This represents a year over year increase of 26%.

Speaker 2

Additionally, our total customer count grew by more than 10% year over year. Looking at the mix of business, we continue to see strong adoption of our full stack observability suite consisting of logs, metrics and traces for both new and cross sell opportunities. In addition, as in previous quarters, security momentum was strong from both new logo and cross sell opportunities, which contributed to over 50% of new business in the quarter. This was driven by our packaged security analytics offerings, which targets smaller customers who value simplicity by giving them speed and ease of use. Whereas our Cloud SIEM and SOAR offerings target the larger and more sophisticated enterprise customers who need to transform and modernize the security operations.

Speaker 2

The market we serve is rapidly growing, being driven by digital transformation across every geography and vertical. This is leading to new application and cloud infrastructure architectures and also creates exponential amounts of new machine data each year. Due to the increase in cloud migration and application modernization, as well as the rise in IoT with more connected devices, It's also creating an unprecedented rise in various types of security threats, which have become increasingly harder to identify given the amounts of data and noise being created. As such, we believe that our cloud native continuous intelligence platform is the answer to many of these DevSecOps challenges. This is applicable to organizations of all sizes who are trying to mature and evolve their application and cloud architectures and or improve the security posture and practices.

Speaker 2

Therefore, our platform does 3 things to help solve these challenges for our customers. 1st, ensure application reliability 2nd, manage and optimize multi cloud infrastructure and third, Secure and protect against modern security threats. With that, now I'd like to share some of our exciting wins from this quarter, customers were able to leverage our platform to address the opportunities of cloud migration and digital transformation. This quarter, started several years ago with a log analytics solution for their existing customer facing application and over time expanded their usage and scale of Sumo. They are now using us for full stack observability to gain better visibility and performance, thereby ensuring the reliability of their newly modernized customer facing application.

Speaker 2

This new application is based on a new microservices architecture and required a massive amount of new instrumentation, which required large scale metric collection and real time monitoring and troubleshooting. This strategic cross sell replaced both the homegrown and a legacy tool as well as leverage various open source collections. Our mid market sales team landed a high 6 figure deal with a fast growing software company preparing for IPO. Sumo's DevSecOps strategy and capabilities were selected in order to Secure their mission critical infrastructure and applications. Now we are monitoring their security events for over 10,000 AWS accounts and providing actionable insights within our platform.

Speaker 2

Ultimately, they chose Sumo because of our ease of use, out of the box functionality, as well as our platform's differentiated security and controls. However, they also selected Sumo because we were able to simplify and replace A complex homegrown open source solution as well as replace a complicated licensing model, thereby lowering Their operational costs as they continue to grow and scale. Another new logo win this quarter was a 6 figure land with a company who's taking steps As they continue building out their customer facing apps, they're also leveraging more microservices. As such, their CISO saw the importance of engineering and security teams working together to ensure both application and infrastructure reliability as well as security. Because of Sumo's DevSecOps capabilities, we became the clear choice.

Speaker 2

We're also seeing customers increasingly expand beyond a single use case as they recognize the benefits of using our DevSecOps platform for engineering, operations and security teams to address the challenges of observability and security. In APAC, we had a 6 figure cross sell with an international financial services firm with more than 80,000 employees. We initially landed this customer last quarter and they're now using Sumo for a new mobile banking application in a different geography. They required a single solution for both security and observability, which is why they selected our security analytics and full stack observability capabilities. Not only do our customers see the differentiation of Sumo, but we continue to receive industry recognition for our modern cloud native platform.

Speaker 2

In fact, this quarter our cloud SOAR was named leader in the Gigaohm Radar Report for SOARs. In addition, Sumo Logic was selected by Amazon Web Services as its 2021 ISV Global Partner of the Year at AWS re:Invent last week. This recent award recognized Sumo Logic's performance and commitment to helping customers drive innovation as they embark on their digital transformation, Modern application and cloud migration initiatives. Moving on, I'd like to talk about our annual global user conference, Luminate 2021 and some of the product announcements that were made at this event to extend the capabilities of our platform for both observability and security. For observability, we announced improvements to our monitoring and troubleshooting capabilities with new alert response features, new real time data source and integrations, as well as additional enhancements to support open source.

Speaker 2

These enhancements include a new open source for AWS OpenTelemetry Distro, making it even easier for customers to run their workloads on AWS as well as Red Hat OpenShift operator through the Red Hat marketplace. In addition, we announced the integration of Senzu Go! To our platform and introduced Senzu Go! Plus which further enhances the monitoring as code capabilities Asensu Go and allows real time insights for all data types for improved troubleshooting, reliability and security. Moving on to our security suite, it is clear that complexity continues to be a challenge with today's modern enterprise.

Speaker 2

As such, they need a cloud native solution that integrates detection and alert response solutions that leverage their existing tools and technologies like EDR and XDR. Therefore, we announced that Sumo Logic is expanding our security vision for openness with enhancements to our cloud security analytics and monitoring solution. These further help improve our customers' ability to address modern workload protection, open XDR, which includes out of the box XDR threat detection and response, as well as expanded security insights with new and updated applications. I'm proud of everything that Sumo team has accomplished, especially on the product innovation front. In fact, I believe our product portfolio has never been stronger with our leading cloud log analytics, cloud SIEM and SOAR as well as the growing adoption of our differentiated full stack observability suite.

Speaker 2

This underscores my confidence that we have the right technology and strategy to capture meaningful share this fast growing market. However, it's clear to me that we need additional levels of operational rigor and focus to drive a reacceleration of growth in the business. As a result, besides the continued focus on product innovation investments, we're also enhancing our go to market efforts to make sure that we have the appropriate experience, coverage and resources in place to scale our business. In fact, I'm delighted that we recently announced Lynn Doherty as President of Worldwide Field Operations. Lynn brings with her extensive sales and go to market leadership experience with a track record of scaling operations at multiple large tech companies.

Speaker 2

Under her leadership, we are continuing to invest in our go to market strategy to capture the large and growing market opportunity in front of us. Given her experience, I'm confident that she will help us gain additional market share by focusing our go to market motion, strengthening our global expansion and partner ecosystem and helping Sumo scale for its next leg of growth. In addition, I'm happy to announce that Stuart Gerson will be joining our executive leadership team as our new Chief Financial Officer on Monday, December 13, 2021. I'm particularly excited because Stuart has been leading finance and operations with high growth private and public companies for more than 25 years. He is joining Sumo Logic from Delphix, a leader in DevOps Software, where he served as CFO.

Speaker 2

Previously, Stuart spent 8 years as CFO of ArcSight, the 1st generation SIEM leader. This experience in 2 of the primary markets that Sumo Logic competes in, Security and observability will allow Stewart to quickly come up to speed on the company's strategy and operational plans. In summary, it was an excellent quarter. The investments we have been making in our platform, improved operational rigor and our go to market evolution are yielding results. I'm delighted with the addition of Lynn and Stewart and I look forward to partnering with them as we continue to implement more operational improvements in order to scale and capture the large observability and security market opportunity.

Speaker 2

With that, it is my pleasure to now have Jennifer McCord, Our VP of Finance and Chief Accounting Officer provide more details on our financial results in Q3 and our outlook for Q4.

Speaker 3

Thanks, Ramin, and thanks, everyone, for joining us on the call. Please excuse my voice today. I lost it over the weekend, and it hasn't quite come back. Turning to the results of the quarter, I'd like to start with a brief summary of the financial highlights for the quarter and then go into more detail on each topic. First, as Ramin mentioned, we saw robust performance in the quarter with year over year revenue growth of over 20%.

Speaker 3

We saw strong new business and the best expansion we've seen in multiple quarters, driven by continued adoption of new capabilities and multiple use cases for our differentiated platform. This adoption and strength was seen across enterprise, mid market, international and channel. Next, we saw strong customer activity across billings, RPO and logo counts. And finally, we saw improving margin performance, including acquisitions and planned investments made in the quarter. We continue to have strong customer growth as our total customer count grew over 10% year over year, which was the fastest growth we've seen in the last 7 quarters.

Speaker 3

We continue to see opportunities across various industries and customer sizes. We ended this quarter with 4 38 customers With more than $100,000 in annualized recurring revenue or ARR, this was a year over year increase of 26% and outpaced revenue growth. It's the fastest growth we've seen in the last six quarters. As expected, our dollar based net retention remained a few percentage points below 110% As a reminder, our dollar based net retention is a 4 quarter average. However, we saw an improvement in the in quarter retention For the medium to long term, we expect an increase in dollar based net retention.

Speaker 3

Turning to billings. Calculated billings for the trailing 12 month period totaled $263,100,000 up 30% year over year as our customer base continues to leverage the capabilities of our platform. Recall that we look at calculated billings over a trailing 12 month period as this metric can fluctuate from quarter to quarter due to the timing of our renewals and billings duration for larger customers. Therefore, we believe a 12 month measurement period best reflects the fundamentals of our business. Moving to Remaining Performance Obligation or RPO.

Speaker 3

We're continuing to see our new customers make larger and long term commitments due to our differentiated multi use case platform and flexible licensing model. This quarter's RPO increased 25% year over year, driven by the size and duration of new and expansion contracts due to the continued opportunities around cloud migration, application modernization and security transformation. Our average land continues to be approximately 2 years in length. In addition, current RPO increased 39% year over year as the investments in our portfolio expansion continue to drive early upgrades and renewal. Now I'll review the income statement in more detail.

Speaker 3

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. We delivered compelling performance in the Q3. Total revenue increased to $62,000,000 up 20% year over year. 3rd quarter revenue excluding our largest customer was $57,400,000 up 19% year over year.

Speaker 3

Recall that we break out our largest customer because of variability and seasonality that has historically differed from the rest of our business. However, more recently, their activity has become more aligned with our overall business, making this segmentation less relevant. Moving on to gross margins. In the Q3, we saw 73% gross margin compared to 77% in the year ago period. The year over year decline was driven by a faster ramp in new features that have not been fully optimized on our cloud based platform.

Speaker 3

However, we can see the benefits of that optimization in the current quarter's margin, which improved compared to the prior quarter's gross margin of 72%. As we continue to evolve our platform and provide new capabilities and products, there can be some variation in gross margin based on the timing of these releases in adoption by our customers. Moving on to operating expenses. Sales and marketing expense was $29,500,000 or 48 revenue compared to 43% of revenue in the year ago period. Given our significant platform enhancements In large market opportunity for both greenfield and existing customers, we are continuing to invest in go to market coverage, capacity and new market expansion going forward.

Speaker 3

Research and development expense was $18,600,000 or 30 percent of revenue compared to 25 percent of revenue in the year ago period. The increase as a percent of revenue was driven by our continued focus on product innovation investments, including our acquisition of DFLabs and Sensu as the majority of their employees are in R and D functions. General and administrative expense was $11,300,000 or 18 percent of revenue compared to 14% of revenue in the year ago period. G and A expense includes increased costs associated with operating as a public company. In total, our operating margin was negative 22% or 2% points above the high end of our guidance range, driven by revenue outperformance in the quarter.

Speaker 3

We continue to be pleased with the margin outperformance after our continued investments in platform enhancements, acquisitions and go to market capabilities. Net loss in the quarter was $13,300,000 or $0.12 per diluted share based on approximately 100 and 10,400,000 weighted average diluted shares outstanding. Turning to our balance sheet and cash flow. We ended the period with $362,100,000 of revenue compared to negative 36% in the year ago period. Now turning to guidance.

Speaker 3

For the full fiscal year 2022, we're increasing our full year guidance to reflect Q3 reported results. We remain optimistic about our future as we continue to evolve and improve We expect total revenue of $238,800,000 to $239,800,000 representing a growth rate of 18% year over year. Revenue excluding our largest customer of $222,800,000 to $223,800,000 representing a growth rate of 19% year over year. Non GAAP operating loss of $53,000,000 to $52,500,000 or an operating loss of 22 percent And non GAAP loss per share of $0.51 to $0.50 on approximately 108,500,000 weighted average shares outstanding. For Q4, we expect total revenue of $63,700,000 to $64,700,000 or a growth rate of 18% to 20% year over year.

Speaker 3

Revenue excluding our largest customer of $59,500,000 to $60,500,000 This represents a growth rate of 17% to 19% year over year. Non GAAP operating loss of $15,900,000 to $15,400,000 or an operating loss of 25% to 24% And non GAAP loss per share of $0.17 on approximately 112,000,000 weighted average shares outstanding. In summary, it was a strong quarter as we saw 20% revenue growth year over year. Customer activity is continuing to improve with We delivered revenue and margin outperformance, while continuing to make investments in our platform and go to market capabilities. These results give us confidence that the investments we've been making are delivering results and we'll continue to expand our efforts capture the growing market opportunity in front of us.

Speaker 3

We remain excited about the opportunity for continued durable growth As evidenced by our differentiated continuous intelligence platform, which has helped our customers ensure application reliability, manage and optimize multi cloud infrastructure and secure and protect against modern security threats. With that, Ramit and I are happy to take any of your questions. Operator?

Operator

One moment please while we poll for questions. Our first question is from Matt Hedberg with RBC Capital Markets.

Speaker 4

Great. Thank you. This is actually Matt Swanson on for Matt. First off, just congratulations to Sumo as well as Stuart on the higher. And then maybe for the question switching to another higher, if we could focus on Lynn Doherty.

Speaker 4

It was great to see the North American issues from last quarter with the elongated sales cycles and some of the close rate First, is that kind of what you saw from the quarter? And then any changes you feel that she might make early on, maybe

Speaker 2

This is Ramin. First of all, we're also delighted to have Stuart and Lynn join us. In particular, with respect to the A question around last quarter. We had a few deals that we had technically won and the commercials were Just a little bit delayed. We did not see that trend in the Q3 time period.

Speaker 2

We saw strong performance In Q3 driven by North America and rebound, so to speak, if you want to refer to it, with some of those transactions that we talked about. More importantly, we saw a strong contribution from our mid market business, cross sells and up sells because of the portfolio investments we've been making and overall contributed to the strong quarter. The second part of your question in terms of the changes, this has been an evolution for us as we've Continuing to enhance and refine and simplify our go to market focus and addition of Lynn and now Stewart We'll help bring in that operational rigor, discipline and scale experience so that we can continue and invest for the future quarters of durable growth.

Speaker 4

That's super helpful. And then maybe as my second question, Ramin, it was great to see another strong quarter for I know digital transformation has been a driver for you. There's always these conversations about digital transformation, security transformation, chicken and the egg, which comes first. But it seems like it really sets the stage for faster growth from DevSecOps as kind of like an overall philosophy of people trying to make Changes on both sides at 1, it needs to become more collaborative. Are you seeing your customer base?

Speaker 4

I mean, obviously, you're seeing traction in security, but is it also People starting to understand kind of the strength of the unified platform more as they're going through these transformations?

Speaker 2

Yes, good question. Sometimes it's hard to delineate whether digital transformation or the threat and risk of security modernization Is driving some of those, particularly in the large enterprise, right? But I will say that these are distinct markets. These are different selling motions. They include different practitioners and buyers.

Speaker 2

This is something that Sumo has been doing for more than 10 years selling to these distinct separate I think what you're pointing out is the need and desire to have ability for security operations and DevOps teams To be able to better collaborate with each other and Sumo Logic is a logical choice with the single cloud native platform that provides that today.

Speaker 4

Perfect. Thank you.

Operator

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

Speaker 5

Great, thanks. It's Andrew on for Derrick. Congrats on the strong quarter. Jennifer, on the net rev retention, you mentioned it was a few points below 110. How are you feeling about getting that back to over 115?

Speaker 5

What levers do you have to get there? And over what timeframe should we think about this?

Speaker 6

Yes. Hi, Andrew. Again, I apologize for my voice. Dollar based net retention did come in below 110 this quarter, which we expected. As a reminder, it is a 4 quarter average, which can obscure the improvement that we are seeing.

Speaker 6

As I mentioned in my prepared remarks, the in period retention did increase, And we're encouraged with the momentum that we're seeing across our total customer base as we noted in the metrics that we gave. Gross retention continues to improve due to the investments in our product portfolio, which we're seeing a lot of early upgrades and renewals with our customers. This is one of the best quarters of expansion that we've had, but because of the 4 quarter average, it will take some time to normalize for you to see that.

Speaker 5

Fair enough. And Ramin, last quarter you talked about 25% growth in fully ramped enterprise reps. Just wanted to check how that's trending currently and how the ramp to productivity is going for new reps?

Speaker 2

Yes. I mean, I think we all are facing the global labor market challenges. We're continuing to invest domestically and internationally. In North America, we've been adding in the mid market as well as in the enterprise, and also getting better coverage and capacity outside North America Theatres.

Speaker 5

Great. Thanks, guys.

Operator

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

Speaker 7

Thank you for taking the question and congrats on a solid Quarter. I wanted to talk a little bit just about overall growth and the trajectory of that growth. So Jennifer, I think you mentioned that the trailing 12 month billings number I look at your RPO, your current RPO, I think was up 39% year over year by my calculations. And so Trying to square that with the revenue growth, which is sort of straddling 20%. Does that imply that As quarter sort of progress into 2022 that you should be seeing that acceleration in revenue to converge with The billings growth rates and the RPO growth rates that we're seeing, or do you think they're just kind of more execution, more coming out of the pandemic

Speaker 6

I can start with Ramin. Hi, Sanjeet. So, Yes. I mean, as you mentioned, current RPO was up 39%. What we're seeing is customers are upgrading earlier and Spending their contract duration with us rather than co terming, as they're continuing to commit to the cloud platform.

Speaker 6

So we're happy to see that both Current and total RPO is growing faster than revenue. There isn't a reason to believe that that shouldn't converge with revenue over time. But as we've mentioned, there's still some work that we have to do with the executives coming on board.

Speaker 7

Understood. And I hope I hope you Get your voice some rest and help you start to feel better. So I'll check my next question, Ramin, which I guess the other Sort of positivity on the product side beyond security is like seems like there is the puck is moving forward with the observability strategy. I was wondering if you could frame out, Ramin, if you look at your sort of core log analytics customers for that IT ops team, What percentage of that CoreLog Analytics customers has adopted observability? Like how much How penetrated are we on that?

Speaker 7

And what do you think you can get those penetrations to with the sort of observability cross sell over time?

Speaker 2

Yes. So Sanjay, good to hear your voice. Thanks for joining us. So I think first and foremost, it's important that We realize that the investments that we will make in the product portfolio have manifested itself to not only The install based question and penetration, but also net new business, right? This past quarter, we saw strong contribution for both new logos as well as Cross sells.

Speaker 2

On the cross sells, I highlighted one of the examples where a traditional large enterprise DevOps customer And scaling and using Sumo for logs and as they modernize their new platform to Kubernetes and they rolled it out to production, they realized their Existing tools and do it yourself wasn't scaling. So that's when they logically expanded and moved into the full stack observability. Why we highlight that one or I bring it up is that's a pretty repeatable process that we see when customers deploy The new microservices or Kubernetes architectures and they want to scale up and scale out, it's a logical extension of replacing some homegrown or point tools. I just can't handle that. So now to the other part of the question, I think we have in the early innings of that cross sell and we have a lot to do in the installed base

Speaker 7

Understood. Appreciate it. Thank you, Ravi.

Operator

Our next question is from Mark Murphy with JPMorgan, please proceed with your question.

Speaker 8

Yes. Thank you very much. I'll add my congrats. So, Ramin, I think you commented that 50 Key percent of bookings related to security use cases in Q3, if I heard that correctly. And so I'm just wondering How you see that trending going forward, especially with Lynn taking over field operations, I believe she's had more experience In security than in observability and monitoring in the past.

Speaker 2

Yes. I mean, I think this is not about necessarily Lynn's leadership in This is about the larger market opportunity that we see in front of us. And Stuart has experienced both in observability and security. But I think what we saw in Q3 in terms of the contribution of security was equally balanced by strong contribution and observability For both new business, from new logos as well as cross sell. I think also what we highlighted in the past is Approximately a third of our new business came from multi use case right out of the gates, whether that was an upgrade and renewal or brand new So I think that will continue to be kind of the mix that we will see going forward as we've shown and highlighted in Q3 as well as Q2.

Speaker 8

Okay. So remaining somewhere around 50% going forward. For the upcoming fiscal year, You commented as well that you are investing in go to market. Of course, that's good to see. Can you approximate what the quota carrying sales head Count increase could look like that Lynn would be targeting for that for the next fiscal year?

Speaker 2

Mark, you got to remember, she's 30 days into the job, right? And so doing a very good job so far in the 1st 30 days understanding the business and coming up to speed. So that coupled with Stuart starting next week, we got some work ahead of us to get prepared for that for next year. So at this point, Can't really approximate. I need to bring these new leaders in and get them on board and together develop our plans and strategy going forward.

Speaker 2

I will say This is a continuation of stuff that we put in place and our commitment to reaccelerate growth and more importantly to what we've already delivered on. Feel that is a huge market for us.

Speaker 8

Okay. One final one, Ramin. If you look back on the move that you made to the cloud flex credits pricing model, think it was about 18 months ago. So you've got it based on DPMs and it's allowing completely unlimited users. Any comments on just how well you think that has resonated with the customer base?

Speaker 8

Is that any is there like is there a delayed reaction to that that could be helping you now or has that driven an increase in the number of active users you've got per customer?

Speaker 2

Yes, great question. Well, I mean, we've commented before on the volume of growth in terms of data that we're Analyzing every day, which is exceeding an exabyte. And I think a lot of that has to do with the continued innovation on tiered analytics, new features, but also because that complements the desire for a more appropriate licensing model That mirrors the economic model of analytics and cloud. Now to the second part of your question, From an ARR perspective, approximately actually greater than 80% of our ARR is on the new credits model. And a lot of that contract duration you'll see is 24 months or more when they upgrade.

Speaker 2

So that gives us Strong indication that they like the new features, they like the new CloudFlex licensing model with credits and allows them time to Right size, supersize and expand on different features. So we know we have the right product capabilities, the right strategy for DevSecOps And the right benefit customers expect in this era. Thank you very much.

Operator

Our next question is from Kamil Malkariq from William Blair. Please proceed with your question.

Speaker 9

Thanks and congrats on a good quarter. It's good to see the progress you're making in the partner ecosystem. Can you provide more detail on how partner Today compared to contributions maybe pre COVID, especially when you started making some of these MSP investments. And as you look out longer term, how do you about the investments you need to make to further leverage this channel.

Speaker 2

Sure. Camille, good to hear your voice. Hope you're well. So I think from an ecosystem perspective, it's important to delineate when we talk about partners, The ISV ecosystem, which we continue to make strong traction and integrations to provide customers the flexibility and choice they need To get access to the data sources, that's why we put a lot of effort in the security monitoring and observability efforts around OpenXDR as an example, or efforts we've done with the DevOps space with Atlassian and others. Now on the go to market side, As you look at how we sell through and with, MSPs continue to be a massive opportunity as they themselves need to transform.

Speaker 2

A lot of cases, the tools that they've been cobbling together or tried to build it themselves, where they could easily flip on Sumo to address not only security, but even observability use cases to grow their stickiness and retention with their business, right? So we continue we'll continue to invest in that and drive that globally. 3rd, as it pertains to the standard 2 tier distribution model With respect to distributors and VARs, that's an area where we think we can get better coverage, particularly international and new markets And new markets being fed, LatAm and international. So those will continue to be a focus for us going forward and Lynn's experience there will be helpful for us as we continue to scale out next year. Now for Q3, to your question, more than 50% of our business Approximately, 2% of our business came to the channel.

Speaker 2

Last thing I'll leave you with is, sorry. Yes, go ahead. Sorry. Sorry. Camille, last thing I'll leave you with is, in recognition of that, we were also awarded by AWS the ISV Global Partner of the Year Award last week because of the help that we've been giving them and the ecosystem of ISVs and VARs to transform their business.

Speaker 2

So we're pretty proud of that.

Speaker 9

Yes. It's great to see that, Ward, and thanks for all the color, Ramin. It's really thorough. If I could just quickly follow-up on Competition. So we've seen some of your competitors introduce features over the past year or 2 that help their customers actually limit the amount of data that's being low down to their platforms and Help better control the costs that the enterprises are seeing.

Speaker 9

Are you seeing any changes in competition generally? And have the conversations around pricing Changed in the most in the last 1 or 2 quarters. And really quickly, can you maybe update us on how win rates have been trending?

Speaker 2

Well, I'll say welcome to the game. Sumo has been doing this for since our existence. We've always provided the flexibility Around average utilization or usage with respect to ingest and that's when we move to the credit based model, That's why we introduced tiered licensing and more changes. So I think that's been a core focus and strategy for us for a long time. In the new credit based model, customers can see real time their ability to real time their usage and their ability to optimize Versus be building arrears and shocked.

Speaker 2

So unfortunately, with a lot of other vendors who are putting some things in to throttle the ingest, it's because Too often times customers are still surprised and they get that bill that shock afterwards. So what we have seen in the marketplace is customers want transparency. They want choice. They want flexibility. And that's what Sumo has always provided.

Speaker 2

So we underscore our benefit for customers, and I think that's been something that we'll continue to see going forward. As it pertains to more broadly speaking in the marketplace, nothing in terms of competitive dynamics have changed in Last quarter versus previous quarters.

Speaker 9

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

Operator

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

Speaker 10

Thanks very much and nice quarter guys. Ramyen, just two quick things. I wonder if you could Give us an update on, Sensu Go in particular, Go Plus. I know it's really early, but just wondering if you had any Early customer feedback?

Speaker 2

Sure. Blair, so I think it's important to put some context around that. For quite some time, Sumo has been committed to open source community and the ability for customers to be able to leverage a lot of their open source Collection and data pipeline efforts, and that's what Sensu had been doing for quite some time. The addition of SensuGo Plus as a result that we announced during our Our conference last quarter was really the ability to connect the back end, so to speak, that provides that ingestion, analysis, Dashboarding, alerting and troubleshooting with the collection of the data pipeline that they have been building. So that's the second point.

Speaker 2

3rd point in terms of early feedback, in terms of their existing customers and net new opportunities, it's still only Very short time since we closed the acquisition and released the integration, but it's been very positive to reinforce their strategy and commitment to the ecosystem, being part of Sumo and secondly, the product vision of how those 2 come together with SensuGo Plus.

Speaker 10

Okay, great. Thank you. And just a quick follow-up on the go to market side. In terms of your new customer lands, What did you see in the quarter in terms of the customer average deal sizes for some of these new customers? And are they mostly greenfield or what sort of what can you characterize as what the new customers are coming in as?

Speaker 2

Well, as I mentioned before, we saw strong multi use case from our customers in the quarter. Naturally, when you see about 50% of the new business come from security, you're going to have a higher ASP from security versus the transaction lands on observability, right? However, we saw some very strong performance In up sells and cross sells, as I highlighted with one of the customers in the enterprise segment moving to full stack observability. So that also drove the ASP of the observability business up last quarter. But I still think that this is still very much a best of breed market.

Speaker 2

Greenfield opportunities prevail and we have a great market opportunity to go capture with improvements that we've released and brought to market this year.

Speaker 10

Great. Thank you.

Operator

Our last question Is from Gray Powell with BTIG. Please proceed with your question.

Speaker 11

All right, great. Thanks for working me in. Yes, a lot of my questions have been asked and answered, but I did have one left. So I should be curious, like one of

Speaker 9

the bigger themes That we often hear about in our work on

Speaker 11

the security space is on managed detection and response. And it's just mainly because your typical company, particularly in the end market, they just don't have the headcount they need on the security side. So can you maybe just kind of talk about how you play into that theme and what kind of exposure you have to MDR providers?

Speaker 2

Great. So I mean, I think if anything, the MDR providers are a partner for us. A lot of the EDR, MDR Providers are becoming MSPs and MSSPs and they need to evolve their offering. That's been a strong go to market for us. The second response to that is, as customers want to move from an Element Manager of endpoint, right, and get a broader holistic view of their infrastructure to cloud to compliance.

Speaker 2

That's why we did that integration to security analytics Offering that is a stepping stone to the Cloud SIEM and or SOAR opportunities and offerings that we have in the portfolio. So it's not only an expansion opportunity for the partners, but also directly for customers. So I think it's a great time to standardize on how The endpoints, firewall, network and more is collected and that's what we've been trying to do and help the ecosystem evolve.

Speaker 11

Okay, great. Thank you very much.

Operator

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

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Earnings Conference Call
Sumo Logic Q3 2022
00:00 / 00:00