Sumo Logic, Inc. (SUMO) Q4 2021 Earnings Call Transcript

Sumo Logic, Inc. (SUMO)
Q4 2021 Earnings Call
Mar 10, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Sumo Logic fourth quarter fiscal 2021 earnings conference call. [Operator instructions] As a reminder, this company is being recorded. I would now like to turn the conference over to your host today, Mr. Paul Thomas, vice president of investor relations.

Please proceed, sir.

Paul Thomas -- Vice President, Investor Relations

Thank you. Good afternoon, and welcome to Sumo Logic's fourth quarter and full year fiscal '21 earnings conference call. I'm Paul Thomas, Sumo Logic's vice president of investor relations. Joining me on the call today are Ramin Sayar, president and CEO; and Sydney Carey, chief financial officer.

Our format today will include prepared remarks by Ramin and Sydney, followed by a question-and-answer session. Some of our discussions and responses to your questions will contain forward-looking statements, including statements relating to the expected impact of the COVID-19 pandemic, performance of our business, expectations regarding our platform and solutions, expectations regarding our go-to-market efforts, the anticipated benefits and timing of our proposed acquisition of DFLabs, future financial results and guidance, strategy 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 quarterly report on Form 10-Q and the risk factors that will be included in our Form 10-K that will be filed subsequent to this call. 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 8-K 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.

Ramin Sayar -- President and Chief Executive Officer

Thank you, Paul, and thanks, everyone, for joining us today on our fourth quarter and full-year earnings call. We had a strong finish to our year, driven by demand for Sumo Logic's Continuous Intelligence Platform. We see customers of all sizes and maturities choose our platform to enable their cloud and digital transformations. Our multi-tenant cloud architecture delivers rapid time to value, scalability, analytics for all data types and flexible packaging and licensing.

These differentiators position us well in the more than $50 billion addressable market we see in front of us. I'll start with the highlights of the quarter and then go into some more detail. First, we are continuing to successfully navigate a difficult environment and saw strong revenue growth driven by adoption across multiple customer segments as well as both domestic and international markets. Second, we are seeing early signs of stability and recovery in our customer base.

Gross customer adds in the quarter were above the year ago pre pandemic levels. Third, we expanded our routes to market and investments within our partner ecosystem, helping drive early traction for our observability and security solutions launched in the second half of the year. Fourth, we achieved FedRAMP Moderate Authorization, enabling a significant new route to market. We are one of a select few SaaS observability and analytics companies with this type of authorization.

Finally, we continue to expand our platform, launching new integrations and capabilities for both observability and security solutions. Now I'd like to provide some more details on each of these. We saw strong revenue performance with total revenue increasing to $54.2 million, up 22% year over year. Revenue growth was supported by improving momentum in our customer base.

This quarter, we landed over 140 new customers, exceeding the gross additions in the year ago quarter, putting us back above pre-COVID levels. Momentum also continued with our customers who generate more than $100,000 in annualized recurring revenue or ARR. These customers increased to 358, up 11% year over year, and we added two customers with over $1 million in ARR the quarter to finish the year with 31. Despite the challenging macroeconomic environment, we continue to win with customers of all sizes and across multiple use cases.

This quarter, we again saw more than 30% of our wins land with multi-use cases across DevOps, security and IT teams. Often, we initially land in one or more use cases and then expand adoption as more users, teams and organizations leverage our platform and therefore, increase their data ingestion analysis. We see the expansion process in action as daily volume ingestion, scans and analysis increases. In fact, our average daily ingest grew more than 35% year over year, and we continue to scan over 800 petabytes daily.

To put that in perspective, let me share just a few examples of the land-and-expand wins driving this growth in the quarter. I'll start with a win in one of the most impacted segments of the market, the hospitality and travel industry. This quarter, we signed a 6-figure land with a large global hotel operator to replace their legacy SIEM solution with our Cloud SIEM Enterprise or CSE. The legacy solution had become too cumbersome to manage and way too expensive to scale.

Our CSE solution one, because of our automatic threat hunting and rapid reduced mean time to remediation and cloud economics as well as scalability. This win demonstrates that even impacted industries still need to modernize analytics tools and automate their security processes as they migrate to the cloud. We have also seen customers accelerate their digital transformation efforts as a result of the pandemic. This quarter, we had a 6-figure expansion with a large retailer.

The customer initially started with Sumo Logic's platform a year ago in the business intelligence use case. They use our analytics capabilities to give them better visibility into their customers' omnichannel experience. When COVID impacted their business, they shifted to a full digital experience for their customers, which significantly expanded the amount of data they needed to analyze for more comprehensive observability. As a result, they expanded with Sumo Logic, and we have become a core part of the digital transformation strategy.

As adoption of Sumo Logic expands, we also look to cross-sell into other departments with new use cases. This quarter, we had a 6-figure cross-sell into a security use case with a large health insurance provider. While we initially landed with the DevOps team a little over a year ago with an AWS observability use case, the security team was also leveraging Sumo. This quarter, they decided to upgrade their legacy SIEM and chose our Cloud SIEM Enterprise.

What differentiated us here was our ease of use with comprehensive out-of-the-box analytics and automated threat detection, bubbling up only the events that matter, therefore, significantly reducing investigation time and mean time to resolution for their security practitioners. Our land-and-expand sales motion can start with very small transactions as well, for example, via self-service and expand over time to become a significant customer. This quarter, we had an expansion win with a financial service technology provider who started $1,000 ARR. After standardizing on our platform and growing their usage as demand for their digital service group, they are now over $500,000 in ARR.

The digital transformation of financial service industries, both in the U.S. and internationally, continues to provide substantial market opportunity for us. This quarter, in the U.K., we had a six-figure land with a bank who's using Sumo Logic to secure their mobile banking platform. The bank has a legacy on-prem security tool, but it could not meet the needs of modern cloud platform they are building.

They picked Sumo Logic because of our leading Cloud SIEM solution powered by cloud-based analytics, our modern multi-tenant architecture and, of course, our dynamic scale. We continue to see customers adopt new observability capabilities we launched in Q2. As an example, this quarter, a healthcare technology customer signed a seven-figure expansion with us that included the adoption of our distributed tracing capabilities in addition to a significant expansion of operational and security use case capacity, leveraging our enterprise suite and cloud flex licensing or credit-based licensing. Now shifting to our ecosystem strategy.

We continue to expand our reach with ecosystem partnerships to drive awareness and adoption of our observability and security solutions. In addition to the integrations with our cloud SIM solution and the AWS network firewall, we updated and broadened our third-party integrations for both observability and security. This quarter, we also expanded our software development optimization solution previously announced with Atlassian and others to also include Sauce Labs. Sumo Logic enables customers to leverage their test data from Sauce Labs, continuous testing cloud, to automatically derive actionable insights that help improve the release velocity, quality, reliability and also security of applications across DevSecOps.

We continue to invest in expanding our routes to market. This quarter, we achieved significant milestone of FedRAMP Moderate Authorization, which further differentiates the security of our platform and opens up significant new public sector opportunities for us at our government agencies. We're proud of our team and the hard work it took to achieve this important milestone. Now I'd like to move on to innovation.

This past year was a massive year for innovation at Sumo. We've broadened the Sumo Logic observability suite with new additions, including our AWS observability solution, which included our new distributed tracing and open source monitoring capabilities. Following on that, this quarter, we announced the launch of Service Maps, providing a holistic view of microservices and their interdependencies, allowing faster root cause troubleshooting for DevOps and site reliability engineers. In addition to Service Maps, we enhanced our Root Cause Explorer capabilities by including a wide array of applications such as Amazon CloudWatch and Kubernetes for logs, metrics and tracing to allow engineers to quickly identify the root cause of these service degradations.

This was also a transformational year in security for us. We integrated the JASK acquisition into our cloud-native SIEM platform, helping us further win significant new business as customers look to secure larger cloud in digital environments, while also improving the automation and intelligence of the security operations center, or SOC. To accelerate the viral adoption of our new observability and security features, this quarter, we added two new free certifications in Sumo Logic's training program: Observability and Cloud SIEM. These were launched at AWS re:Invent and add to our multi-level certification program that provides users with the knowledge, skills and more importantly, competencies to maximize investments in the Sumo Logic platform.

Total certifications now exceeded 25,000, increasing 50% year over year in the most recent quarter. Building on the success of our Cloud SIEM, we are excited to announce that we have entered into a definitive agreement to acquire DFLabs, a leading provider of security orchestration automation response, or SOAR capabilities. DFLabs will further enhance our Cloud SIEM solution by automating the remediation of threats identified by our SIEM. We believe adding SOAR to our capabilities will create a great opportunity for us to take further advantage of the momentum we have with our Cloud SIEM and also provide a great opportunity for our ecosystem of partners.

The transaction is subject to customary closing conditions, including certain government approvals, and we anticipate the transaction will close in the second quarter of FY '22. In addition to the investments we are making in our platform, we continue to invest in our go-to-market functions. This year, we plan to expand our reach through increased direct sales and growing our ecosystem of partners, including ISVs, distributors, resellers, MSPs and MSSPs. We intend to enter and grow into new markets like federal and expand our international presence with distribution partners.

And we expect to leverage our expanded partnership with AWS, which includes enhanced go-to-market and strategic collaboration programs across deal registration, marketplace, target verticals and other geographies. In summary, we are pleased with the strong performance we demonstrated this quarter and this year. The secular tailwinds of cloud adoption and digital transformation continue to drive demand for our differentiated DevSecOps analytics platform. Putting our expectations for the year in context, we believe the overall demand and market dynamics remain generally similar to the second half of last year.

While we see encouraging signs in our customer base, COVID headwinds continued to impact the overall spending environment and create elongated sales cycles. However, the opportunity from cloud migration, application modernization and security transformation are growing, and we are well positioned to benefit. Customers across industries continue to choose Sumo Logic as a core part of their digital platform. We plan to increase our investments in fiscal-year '22 to enhance our ability to capture more of this opportunity.

And we anticipate the increase in investment we made over the second half of last year will drive improved growth in the second half of fiscal-year '22. With that, I would now like to have Sydney Carey, our chief financial officer, provide more details of our strong financial results in Q4 and our outlook for fiscal-year '22.

Sydney Carey -- Chief Financial Officer

Thanks, Ramin, and thanks, everyone, for joining the call today. I will provide a brief overview of our fourth-quarter financial results and discuss our outlook for fiscal-year '22. I'd like to start with a brief summary of the financial highlights for the quarter and year. First, customer and channel metrics continued to improve this quarter with wins across market segments and geographies.

Next, our operational execution delivered strong top line revenue growth. And lastly, we demonstrated efficiency with continued improvements in our margins. We are pleased with the continued momentum we are seeing in our customer base, where our enterprise customers make up over 60% of our total ARR. As Ramin highlighted earlier, our gross customer adds in Q4 were up year over year.

In fact, gross customer additions were the strongest we have seen in the past four quarters, and we are back to pre-COVID levels. We saw this both in the mid-market and enterprise segments. This quarter, our customers over $100,000 in ARR increased to 358, up 11% year over year, and customers over $1 million in ARR increased to 31, up 24% year over year. We ended the year with 2,164 customers.

While the total customer count is up only slightly from a year ago, that total does not include over 400 customers who are managed service providers, or MSPs, also deliver Sumo Logic, too. Those MSP and customers have more than doubled year over year. In addition to MSPs, our channel overall wrapped up an excellent year, growing more than 100% in fiscal-year '21. We continue to expand our partner ecosystem as well and exited the year with over 300 partners globally.

And lastly, we saw a strong finish to the year, both in mid-market and internationally, with the mid-market having the best performance of the last four quarters and EMEA posting the best performance of the last eight quarters. While we continue to operate in an uncertain environment, we are encouraged by the momentum we are seeing in our customer base as we exit the year. Moving to our dollar-based net retention. As we discussed last quarter, we did see a decline in the quarter a few percentage points below 120%.

This is the first time in 11 quarters it dropped below 120%. The this was primarily driven by the combination of pandemic-related impacts of slower-than-historical expansion in the installed base and higher-than-expected downgrades and churn driven by two large impacted customers. We do expect headwinds to persist and continue to drive volatility in our net retention, causing it to decrease in the coming quarters. At the same time, we are seeing encouraging signs, as mentioned earlier, that we believe will drive longer-term improvement in our performance.

Now I'll provide more details on our fourth quarter and full-year financial performance. We delivered a strong performance in the fourth quarter. Total revenue increased to $54.2 million, up 20% year over year. Fourth-quarter revenue, excluding our largest customer, was $50.8 million, up 27% year over year.

Recall that we break out our largest customer because of the variability and seasonality that differs from the rest of our business. For the full year, fiscal-year '21 total revenue was $202.6 million, up 31% year over year. Calculated billings for the trailing 12-month period totaled $220.7 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 of duration for large customers.

Therefore, we believe the 12-month measurement period best reflects the fundamentals of our business. Our remaining performance obligations, or RPO, increased 41% year over year, driven by the size and duration of new and expansion contracts. We are pleased to see customers making larger and longer-term commitments to our platform. In addition, current RPO also increased 24% year over year.

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 financials is included in our earnings release and posted on our website. First, we again saw a significant year-over-year improvement in our operating margin profile this quarter.

Recall that in Q3, we were ramping our hiring back after pausing hiring in the prior quarter. In Q4, we continue to hire with a focus on our go-to-market headcount, but overall, we didn't achieve our forecast which led to lower-than-expected expenses in the quarter. That, combined with lower discretionary spend, were the key drivers of our improved margins. In Q4, we saw strong gross margins at 77%, up from 70% in the year ago period.

In addition, we also saw full-year gross margins improved to 76% compared with 73% in the year ago period. The improvements in the quarter and year were primarily driven by our efforts to improve our platform efficiency over the last year and more favorable AWS expenses year over year. Sales and marketing expense was $25 million or 46% of revenue compared to 64% of revenue in the year ago period. Headcount cost as a percentage of revenue declined year over year.

In addition, we continue to benefit from reduced travel expenses and lower marketing program spend as we shift from in-person events to digital and online. In Q4, we did reach our quota-carrying headcount objectives and continue to hire to drive growth in fiscal-year '22. In fact, in Q1, we are on track to hire back at pre-COVID pace across the company. Research and development expense was $14.3 million or 26% of revenue compared to 34% of revenue in the year ago period.

The decline as a percentage of revenue was driven primarily by lower headcount costs as a percentage of revenue and reduced discretionary spend. General and administration expense was $8 million or 15% of revenue compared to 16% of revenue in the year ago period. G&A expense includes increased costs associated with operating as a public company. In total, the strong performance in revenue and the improvements we saw in gross margin, sales and marketing and R&D drove significant improvements in our operating performance.

Our operating loss was $5.7 million or an operating loss of 11%, improving from an operating loss of 45% in the year ago period. For the full year fiscal-year '21, our operating loss of 15% was a 23 percentage point improvement over the prior year. Net loss in the quarter was $6.7 million or $0.07 per diluted share based on approximately 101.7 million weighted average diluted shares outstanding. Turning to our balance sheet and cash flow.

We ended the period with $404.1 million in cash and equivalents, a decrease of $3.3 million from the prior period. Free cash flow in the quarter was negative $1.8 million or negative 3% of revenue compared to negative 46% in the year ago period. Now I'll move on to guidance. As we entered fiscal-year '22, we have not seen a significant change in the macro environment compared with the second half of last year.

The timing and pace of the recovery is difficult to predict, however, we believe the opportunity presented by cloud and digital transformation continues to grow. Regardless of when the recovery picks up, we are investing to capture more of the opportunity and believe that as we exit COVID, the pace of digital transformation will accelerate. We anticipate the investments we made in the second half of last year in sales and marketing and new product innovation will drive improved revenue growth in the second half of this year as our sales capacity becomes productive. In addition, in fiscal-year '22, we are increasing our investment in go-to-market and innovation to build more routes to market and to broaden our security and observability platform.

These investments will result in lower operating margins this year, but will also drive long-term growth. With that, I'll move on to our first quarter guidance. For Q1, we expect: total revenue of $53.2 million to $54.2 million or a growth rate of 13% to 15% year over year; revenue, excluding our largest customer, of $50.5 million to $51.5 million. This represents a growth rate of 17% to 19% year over year.

Non-GAAP operating loss of $11.7 to $11.2 million or an operating loss of 22% to 21%. Non-GAAP loss per share of $0.12 on approximately 103 million weighted average shares outstanding. For the full FY '22, total revenue of $231 million to $235 million, representing a growth rate of 14% to 16%. Revenue, excluding our largest customer of $220 million to $224 million, representing a growth rate of 17% to 20% year over year.

As a reminder, we expect revenue growth to accelerate in the second half of the year. Non-GAAP operating loss of $47.3 million to $45.3 million or an operating loss of 20% to 19%. Non-GAAP loss per share of $0.50 to $0.48 on approximately 104 million weighted average shares outstanding. In summary, we executed in an uncertain environment, and we're pleased with the results of the quarter and the year.

We delivered strong revenue growth, positive momentum in our customer base and improving margins. We plan to invest this year in more platform capabilities and expand our go-to-market reach. We believe we are well positioned for success. With that, Ramin and I are happy to take any of your questions.

Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Derrick Wood with Cowen and Company. Please proceed.

Derrick Wood -- Cowen & Company -- Analyst

Great. Thanks. And congrats on a strong quarter. Maybe a two-parter for Ramin and Sydney and starting with Sydney.

On the billing side, I know you guys talked about kind of volatility quarter to quarter, but it looks like you had a really strong billings quarter at 36% growth. Maybe part of that was from long term deferred. But even stripping that out, it was 30% but it doesn't look like that, that's carried much through into the revenue guidance for fiscal '22. So could you just kind of double-click on that, maybe anything to call out that skewed the billings in the quarter? And then I'll wait for that for a follow-up.

Sydney Carey -- Chief Financial Officer

Sure. Thanks, Derrick. So in the quarter, we had pretty consistent billing pattern to what we've seen last fiscal year. Our billings have normalized back to the bulk of our contracts being annual upfront.

So we didn't have anything unusual. So as we look at the billings growth, it's tracking to where we thought it would be.

Derrick Wood -- Cowen & Company -- Analyst

OK. And then, Ramin, this guidance ex large customers, about 20% growth. And I understand you're still navigating the slowdown from fiscal '21 and need to see the growth [Inaudible]. I've heard some of the key initiatives to drive that growth acceleration.

I know you hit on that a little bit. But if you could just kind of call out maybe the top 2 or 3 things that you think really will move the needle on growth acceleration in the second half. Thank you.

Ramin Sayar -- President and Chief Executive Officer

Sure. Derrick, let me -- part of that question got broken up, but I think I got the gist of it. So what are the drivers for the growth in the back half? I mean, I think it's important to remember that we are still predominantly a direct selling model. And we did slow down capacity hiring in the first half of last year and started to pick it up in the back half of this year, and we're continuing to invest in that.

The second driver for that tends to be around the expansion of our portfolio. And that has a lot to do with the organic innovation with respect to the observability announcements as well as our leading Cloud SIEM Enterprise. The third piece of that growth is stability in some of the international markets as well as in our installed base, particularly those customers and impacted industries as we look to reapproach those.

Derrick Wood -- Cowen & Company -- Analyst

OK. And anything you could share in terms of kind of where you stand today on sales capacity growth or where you'd like to get to by the end of the year?

Ramin Sayar -- President and Chief Executive Officer

Yes. The good news there is we're actually ahead of plan on capacity hiring as we entered the quarter, we were up 20%, correct me if I'm wrong, Sydney, in terms of capacity entering fiscal '22.

Sydney Carey -- Chief Financial Officer

Yes, we're up more than 20% of fully ramped capacity in the enterprise. Overall, capacity was up also entering, but we saw good improvement in our enterprise capacity for fully ramped reps as we enter fiscal-year '22.

Derrick Wood -- Cowen & Company -- Analyst

Right, right. That's great to hear. OK. Thanks, guys.

Operator

Our next question comes from Matt Hedberg with RBC Capital. Please proceed with the question.

Matt Hedberg -- RBC Capital Markets -- Analyst

Hey, guys. Thanks for taking my question. Ramin, we're now several months removed from the SolarWinds SUNBURST hack. I'm curious, how is your conversation with customers around that front? Because I have to imagine you guys are in a good spot to help folks navigate that situation, but just more broadly, sort of this increased threat landscape as we enter calendar -- fiscal year -- fiscal '22.

Ramin Sayar -- President and Chief Executive Officer

I think, Matt, nothing's much different in terms of the opportunity for security due to that unfortunate circumstance, to be blunt. I think it's risen the awareness, I would say, at the Board level as well as across e-staff and a lot of our customers. And so there's more conversations we're having there. Secondly, we're seeing enhanced need for auditing capabilities.

Third, in terms of some of the components of our spec ops and services related to our Cloud SIEM to help with augmentation of staff, so to speak, around the clouds on enterprise offering. But by and large, I think what a lot of the conversations are around is how do they need to assess and look at their own environments and practices and policies and then look for incremental tool spend.

Matt Hedberg -- RBC Capital Markets -- Analyst

That's great. That's helpful. And then Sydney, it was really good to see the growth in net customers. I know you guys have had some churn on kind of the more of the SMB side of your business.

I guess, thinking about the first half versus second half and the acceleration you're looking toward in the second half, how do you think about where we're at in that SMB churn? Do you think we're toward the end of that now that we're sort of kind of -- we've got vaccines out there and the economy starts to pick up a little bit. Just kind of curious on your thought on churn for here on the SMB side.

Sydney Carey -- Chief Financial Officer

So as I look at last year, fiscal-year '21, over 85% of our churn in customers with mid-market or below and the bulk of those were SMB. And so I think we'll still see volatility in that base, but we were really pleased with the net -- I'm sorry, with the growth customer adds in Q4, and in particular, it was both strong in the mid-market as well as the enterprise and getting back to some pre-COVID levels. We also saw that our new logo average deal size was also back to pre-COVID levels and our average deal size overall was also coming back to pre-COVID levels. And in the enterprise segment, we saw those coming up about 20%.

So we actually had some very good customer metrics in the quarter. And so we feel like that's a bit of momentum as we go into the next year.

Matt Hedberg -- RBC Capital Markets -- Analyst

That's great. I mean it seems like there's a lot of momentum exiting this year with a little bit of conservatism in the first half, but it seems like trends coming out of Q4 were quite strong. So that's it for me, guys. Thank you.

Operator

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

Sanjit Singh -- Morgan Stanley -- Analyst

Thank you for taking the questions, and congrats on a good Q4. I guess my first question is on the acquisition, just more on the source space. And I guess the question, I mean, would be if we think about observability and the ability to instrument and help undiagnose the performance of modern apps, plus cloud-based SIEM, plus SOAR, talk a little bit about this acquisition of what sort of brings to the table. And then ultimately, do we need to get to the endpoint to have sort of a unified security offering across all the elements of apps to endpoint?

Ramin Sayar -- President and Chief Executive Officer

Sanjit, good to see -- hear your voice again. I think if we look at some of the trends across both observability as well as security, the need for automation analytics remain the same. And interesting aspect about this particular acquisition for us, and we've looked at dozens of stores out there and automation tools is that it's not only applicable to the security use case, but much more broadly. So that's rationale one.

I think the second point of that in terms of where do we need to continue to invest, to be honest with you, we don't need to go all the way to the endpoint. And there's a reality in a lot of enterprise customers, where they have more than one endpoint tool, more than one network firewall service, more than xyz. And so we need to be continuing to provide the bridge from the old to the new. And we've been doing that for quite some time over a decade, in fact.

So our strategy remains the same. In terms of why now and why SOAR, we believe strongly that, that's not a separate market category. It's an extension of a cloud-native SIEM. And frankly, we're the only cloud-native SIEM on the market now with an integrated SOAR capability to bring to market.

So I think competitively and differentiated offering is really important here. Now with that said, we still support choice, and we'll still integrate with some of our partners that have their own SOAR tools and the like. But we'll definitely be integrating that very quickly after close of the acquisition.

Sanjit Singh -- Morgan Stanley -- Analyst

Very interesting, and we'll see how that progresses over the next couple of quarters. My follow-up question was more for Sydney. And I understand the guidance. I guess my question is around kind of the pace of change in terms of the growth rates in the business.

So if I look at prior to the year, you just completed on an ex customer -- ex large customer basis, you grew about 42%. When COVID hit the business, growth rates took a step down. For the past three quarters, you sustained revenue growth at sort of the high 20s and then guidance calls for another incremental leg down to the 17% to 20% range. So certainly, I guess the question is around why was the weakness so quick to be reflected in the financials? And then when we talk about some of these green shoots you see in your business, why is that going to take that much longer for that to get reflected in the overall growth rates?

Sydney Carey -- Chief Financial Officer

Yes. So again, as a reminder, we are a capacity-driven model. And so the freezing of hiring really in the first half of fiscal-year '21 is impacting our go-to-market and the growth rate. We also saw some larger churn in Q4.

We had two large -- not churn, but downgrades. We had two larger customers that downgraded. One was in the travel and hospitality space, and the other one was an M&A consolidation. That's definitely impacting growth rates as we look into the next fiscal year.

We're seeing a bit slower expansions in our installed base. And we believe that as we start to see a bit more normalization coming out of COVID, that those will also begin to bounce back to better rates that we've seen in the past.

Sanjit Singh -- Morgan Stanley -- Analyst

Understood. Best of luck.

Operator

Our next question comes from Bhavanmit Suri with William Blair. Please proceed.

Kamil Mielczarek -- William Blair -- Analyst

Hi, everyone. This is Kamil on for Bhavan. Congrats on the solid into the year. I have a quick question on competition.

Several companies have begun -- began to ramp new security solutions over next year. Have you seen a change in the competitive environment?

Ramin Sayar -- President and Chief Executive Officer

No. I don't think we've seen any change in either the security or the observability segments of the market that we serve. I think there's still quite a bit of noise given some of the issues with other vendors and the hack that happened. But to be super blunt, we believe that our cloud-native architecture, our long history in security and the ability to deal with all types of data is what's driving a lot of success for our Cloud SIEM Enterprise.

That, coupled with, obviously, the acquisition of the stores continues to set us apart.

Kamil Mielczarek -- William Blair -- Analyst

That's great to hear. And just as a follow-up, how have customer conversations changed over the past year since you changed your pricing model? Are customers using Sumo Logic products differently than they did year and a half to two years ago?

Ramin Sayar -- President and Chief Executive Officer

Yes, great question. In Q4, we saw the strongest quarter in terms of contribution from the new packaging and licensing and hence, the credit-based licensing. We still have good portion of the installed base at the lower end that's in that transition as well as the mid- to enterprise segments. And as they come up for renewal, those conversations naturally happen.

Point 2, if you look at the gist of those conversations, it's really about value and transparency. And so they can really understand usage. They can understand the consumption or usage of credits and by use case as well as departments or different teams, and so they can either allocate that out or plan for what they need to spend. So a lot of those conversations are helping them become more proactive versus reactive and getting a surprise shock and build like they do with other vendors in the space.

Kamil Mielczarek -- William Blair -- Analyst

That's great. Thanks.

Operator

Our next question comes from Mark Murphy with J.P. Morgan. Please proceed.

Pinjalim Bora -- J.P. Morgan -- Analyst

Yeah. Hi. This is Pinjalim sitting on behalf of Mark. And congrats on the quarter.

On that topic of pricing, Ramin, could you update us if what portion of your customer base is in the credit-based pricing as of today? Have you seen any kind of an average uptick in ARR as they have moved over to the new pricing?

Ramin Sayar -- President and Chief Executive Officer

Yes. We're not disclosing the percentage of installed base that's on the new model, but I can say north of 84% -- 80% of deals last quarter were all credit-based licensing. So there's indication of strong adoption for both net new as well as upgrades and renewals.

Pinjalim Bora -- J.P. Morgan -- Analyst

Understood. OK. And on the competition front, obviously, we have seen Splunk kind of shore up their cloud observability suite, albeit through acquisitions. Could you maybe highlight what differentiates Sumo's suite versus Splunk's cloud observability or others, and if you have seen any kind of material change in win rates?

Ramin Sayar -- President and Chief Executive Officer

Yes. I mean, first and foremost, we have been organically building that out and integrating it to the core analytics back end of our platform for multiple years. We started back in 2015 with the first unified logs and metric solution on the market period. Then we added more of not just the basic monitoring, but extending into the application in Kubernetes environments and then extended that with observability lineup last fall in September with distributed tracing as well as AWS observability, CDN and much more.

So I think you're seeing a continued focus and innovation and delivery organically from us there. And so as a result, you're not left to kind of have different licensing models, different back ends, different usage, different UI, different XYZ. So that's generally across the market where a lot of customers, unfortunately, have to deal with today. Now with all that said, where we see a majority of practitioners still decide in how they buy, it's still very much a best-of-breed environment out there.

Irrespective of vendors trying to build out their entire suite, claiming they're doing XYZ or expanding to security monitoring and claiming more, the practitioners are smarter than that, and they evaluate technologies, and they know what they're getting. And we have a good opportunity to continue to not only attach to our installed base the new modules as well as net new logo lands that we talked about earlier in terms of Q4 and go forward.

Pinjalim Bora -- J.P. Morgan -- Analyst

UUnderstood. Thank you.

Operator

Our next question comes from Rob Owens with Piper Sandler.

Rob Owens -- Piper Sandler -- Analyst

Great. Thank you guys for taking my question. Curious as you look at net retention rate, in fact, it fell below 120% and could continue there. Any kind of guide reels or how we should be thinking about that as we transition throughout fiscal '22?

Sydney Carey -- Chief Financial Officer

Yes. As we did guide last quarter, that net retention would fall below 120%. We did see that happen. It did drop by a few percentage points.

It was really driven by slower than expansion in our installed base, and that's due to some contraction in budgets due to the pandemic. We also had some churn. I spoke about the two large downgrades that happened in the period that did also have a bit of impact on it. And then travel and hospitality, in general, was a headwind for us in fiscal-year '21.

So I think we're going to see it bounce around a little bit as we enter into fiscal-year '22 quarter by quarter. But we should see improvements in the COVID-impacted industries and our mid-market segment, and we expect over time for that to come back above 120%.

Rob Owens -- Piper Sandler -- Analyst

And then second, as we look at billings on an annual basis for fiscal '22, should that pace with revenue growth ex large customer? Or can you put some parameters around that as we think about our models?

Sydney Carey -- Chief Financial Officer

Yes. I mean, again, we think the best metric for billings is looking at on a trailing 12-month basis, and we should see trailing...

Rob Owens -- Piper Sandler -- Analyst

Sure. So on an annual basis. Right.

Sydney Carey -- Chief Financial Officer

Yes, on an annual basis. And we see we that, that should track more closely to our revenue growth rate.

Rob Owens -- Piper Sandler -- Analyst

Right. Thank you very much.

Operator

Our next question comes from Gray Powell with BTIG. Please proceed.

Gray Powell -- BTIG -- Analyst

Great. Thanks a lot. Congratulations on the good Q4 numbers. So yes, just maybe a couple of follow-ups to some prior questions.

I know you've kind of talked about this at a high level, but is it possible to roughly estimate or just sort of like a ballpark number in terms of how much COVID impacted billings growth in fiscal '21? And then just can you talk about how you feel about your visibility today relative to three to six months ago? And then just how you see -- how long do you think it takes customer spending patterns to return fully to pre-pandemic levels? Thanks.

Ramin Sayar -- President and Chief Executive Officer

Yes. I'm not sure if we can really talk about the exact impact of billings. I think what Sydney was highlighting earlier around some elongated sales cycles, lower-than-normal historical expansion, right, as well as some of those impacted industries and customers that you would expect naturally to get more upgrades and cross sells, those had obviously an impact that we've talked about. I don't know if you want to...

Sydney Carey -- Chief Financial Officer

Yes. And I'd just like to add, we had in prior quarters, in fiscal-year '21, we saw a big shift of customers wanting payment terms, customers wanting quarterly, customers not wanting to do the annual upfront. And we were trying to align and help our customers as they were working through this difficult time and allow for some of that. As we've gotten into Q3 and Q4, we've actually seen our billing patterns return more back to pre-COVID, where the bulk of them are annual upfront.

And so from that standpoint, again, if we look at our annual billings growth in trailing 12 months, that's really where you should look at because we will get fluctuations quarter to quarter. If we have a big renewal slip from a period, that can also cause issues with our in-period billing -- calculated billings number. So I would just really encourage you to look at the annual billing.

Gray Powell -- BTIG -- Analyst

Got it. That's helpful. And then just a follow-up. Yes, just anything on the contract duration side or macro factors or anything from like a comparative perspective that could impact the headline billings growth in 2021 that we should be thinking about?

Sydney Carey -- Chief Financial Officer

Well, we had a strong year for RPO, up 41%. And we did see larger and longer term commitments. In the enterprise segment of our business, and we did see our average duration of contract kind of approached that 24 months. And so we did see some good strength there.

Gray Powell -- BTIG -- Analyst

Understood. All right. Thank you very much.

Operator

Our next question comes from Kingsley Crane with Berenberg. Please proceed.

Kingsley Crane -- Berenberg Capital Markets -- Analyst

Congrats on the quarter. I just wanted to talk a little bit about the self-service model. If you think about a customer that starts with $1,000 ARR can gross to $500,000, what have you noticed in terms of the cadence of upsell and the types of products that they're adopting to sort of grow that quickly in that time frame?

Ramin Sayar -- President and Chief Executive Officer

Kingsley, so I think this has been something that we've been investing in over the back half of last fiscal year. Because fundamentally, a lot of the marketing activities that were done prior to going in the year were changed, right? Everything moved to digital. And the type of campaign suddenly changed. As a result, we've been putting a little bit more focus and emphasis on the end-to-end experience from lead to trial to conversion, and you'll see that continue to be investment for us.

But in this particular case, whether it's a self-service or a direct initiated opportunity, we require a customer to create an account. And they go in, set up an account in Sumo and they experience what it is to get data in and grow from there. So I think that sales motion, we're trying to make it as frictionless as possible, one. We're trying to help automate the end-to-end so we can reduce the cycle times, two.

And we're investing more in product capabilities as well as marketing on a growth initiative going forward.

Kingsley Crane -- Berenberg Capital Markets -- Analyst

Yes. It's great. I think it's an excellent addition to the go-to-market. So just another one would be on -- I thought the mentioning the MSP customers was important.

So I guess just to clarify, what most of these new customers be entirely net new with some of these have converted from sort of being an existing Sumo customer? And then how was the spend profile of these type of customers compared to maybe the average?

Ramin Sayar -- President and Chief Executive Officer

Well, they grew significantly year over year. So those are new. We typically -- and we have never counted those in our installed base, as you know, that's why we've called that out. I think the other important thing here is a lot of the cases for these managed service providers, managed detection response type of solutions, they're in a transition from the existing offering to the new Sumo offering.

So they already have something that's organically built or third-party coupled and cobbled together, and they're in the midst of that transition. So you're seeing the opportunity for them to more quickly shift their installed base to the Sumo platform, and that's what we're trying to enable them by adding a lot more product capabilities as well as commercial agreements and support that.

Sydney Carey -- Chief Financial Officer

Yes. And I'd just like to add, we've been making investments in our channel. And we've seen those investments definitely pay off in fiscal-year '21 with the channel contribution doubling year over year. We talked about the MSPs giving us a new route to market.

In a lot of cases, we would not be touching those customers. And then really having a focus as we were adding channel partners. Last year, we have over 300 channel partners, and we were really focused internationally and how we broaden out the reach as well.

Kingsley Crane -- Berenberg Capital Markets -- Analyst

Yeah. I think the traction there is really clear. That's impressive. And that's it for me.

Thanks.

Operator

Our next question comes from Blair Abernethy with Rosenblatt. Please proceed.

Blair Abernethy -- Rosenblatt Securities -- Analyst

Thanks very much. A nice quarter, guys. I just wanted to dig in a little bit more on the FedRAMP authorization and moderate authorization. Can you just give us a sense of sort of how you're attacking that? What sort of stage you're at now there? And when you can start to see some good traction in terms of building your pipeline in the fed market?

Ramin Sayar -- President and Chief Executive Officer

Blair, good question. I think it's really important to point out that we're one of the few SaaS companies to build to achieve this moderate authorization. There's been a lot of investment. And there's different ways that you can go down FedRAMP.

In terms of agency sponsorship, you still have to do a RAR, followed by either going to the alternative path. But we actually have been working on this for more than a couple of years in terms of the channel partners as well as more important product capabilities. And the opportunity to your question that, that opens up as a result is really to go target not just federal, state and local government, but also higher ed. And so we've been now ramping the channel and ramping direct sales capacity to be able to go attack that opportunity.

It's important to note that the federal budget cycles are a little bit different. So the timing of this will spread across that throughout our fiscal year as we continue to ramp our partners and our direct sales capacity there.

Blair Abernethy -- Rosenblatt Securities -- Analyst

Thank you very much.

Operator

At this time, I would like to turn the call back over to management for closing comments.

Ramin Sayar -- President and Chief Executive Officer

With that, we want to thank everyone in attendance, more importantly, to the Sumo employees, our customers and our partners for their strong will, their dedication and hard work to be able to achieve the great results in Q4 and fiscal '21, and we're excited about the opportunity in fiscal '22. And we look forward to connecting with you guys again soon.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Paul Thomas -- Vice President, Investor Relations

Ramin Sayar -- President and Chief Executive Officer

Sydney Carey -- Chief Financial Officer

Derrick Wood -- Cowen & Company -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Sanjit Singh -- Morgan Stanley -- Analyst

Kamil Mielczarek -- William Blair -- Analyst

Pinjalim Bora -- J.P. Morgan -- Analyst

Rob Owens -- Piper Sandler -- Analyst

Gray Powell -- BTIG -- Analyst

Kingsley Crane -- Berenberg Capital Markets -- Analyst

Blair Abernethy -- Rosenblatt Securities -- Analyst

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