Sumo Logic, Inc. (SUMO) Q4 2022 Earnings Call Transcript

Sumo Logic, Inc. (SUMO)
Q4 2022 Earnings Call
Mar 08, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Sumo Logic fourth quarter and full year fiscal 2022 earnings call and webcast. [Operator instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bryan Liberator, director of investor relations. Please go ahead.

Bryan Liberator -- Director of Investor Relations

Thank you. Good afternoon, and welcome to Sumo Logic's fourth quarter and full year fiscal 2022 earnings conference call. Joining me on the call today are Ramin Sayar, president and CEO; Lynne Doherty, president of worldwide field operations; and Stewart Grierson, chief financial officer. Our format today will include prepared remarks by Ramin, Lynne and Stewart, 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 COV19 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. 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 can be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC on our Investor Relations website at investor.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 on 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

Thanks, everyone, for joining us today on our fourth quarter and full year earnings call. We are pleased with the strong results we saw this quarter and fiscal year, which, again, exceeded the high end of all of our guided metrics. We delivered 24% growth in the fourth quarter, and we executed on our plan to reaccelerate revenue in the back half of fiscal 2022. As a result, we finished the fiscal 2022 with 19% growth year over year, which was several points ahead of our initial guidance.

Additionally, we saw strong annual growth across ARR, billings and customers greater than $100,000. In the markets we serve, digital transformation and cloud migration initiatives remain a high priority and were key drivers of the strength and contribution we saw across our customer base this quarter. As customers embark on their cloud journeys, our leading SaaS analytics platform helps address the challenges and needs for reliable and secure cloud native applications, which ultimately helps address their broader DevSecOps requirements for both observability and security. Increasingly, a customer will start with one use case, then expand to others, taking advantage of our flexible credit space licensing and packaging, which allows them to evaluate new modules and features without having to negotiate a new contract or worry about surprises in billing.

Turning to financial highlights. Total revenue of $67 million came in above the high end of our original guidance range. We again saw a healthy distribution across our customer base with our largest customers continuing to increase their adoption and usage of our platform. We ended the quarter with 456 customers with more than $100,000 in ARR, representing a year-over-year increase of 27%.

We ended the year with 44 customers with more than $1 million in ARR, representing a year-over-year increase of over 40%. In addition, we ended the year with 2,396 total customers. As we highlighted, digital transformation is happening across every geography and vertical, and our vision is to make the world's digital experiences both reliable and secure. This transformation, which we think is still in the early innings, is driving the creation of new applications, acceleration of multi-cloud infrastructure and the adoption of modern architectures, which are creating exponential amounts of new machine data each year.

In fact, IDC estimates that the number of apps will grow at a CAGR of approximately 40% or 750 million apps by 2025. However, according to a recent CIO survey, less than 25% of applications are currently being monitored. So this is not only rapidly increasing the data growth, but also a massive market opportunity for our unique platform. Ultimately, this means the data is growing at a faster rate than budgets.

However, our differentiated tiered analytics solution lowers ingestion costs based on the type and usage of data supplemented by our flexible credit-based licensing model. In fact, customers have continued to realize this value as the overall data growth on our platform has more than doubled year over year. We believe this makes our solutions stickier, more valuable and allows our customers differentiated economics and benefits as they grow and scale. As a reminder, our cloud native platform was purpose-built to ingest and analyze complex unstructured log and other machine data in order to ensure optimal performance and investigate operational issues and security threats.

Over time, we have expanded our platform capabilities from log analytics to a full stack observability solution to address a broader set of applications and cloud infrastructure requirements. We are particularly well suited for cloud native applications, which are dynamic, generate both structured metrics and traces and unstructured log data and run across multi-cloud environments. Additionally, the dynamic threat landscape with consistent and continuous new forms of threats, such as the recent Log4j and software to supply chain issues originating from within and outside of an organization and are, therefore, causing companies to rethink their security solutions. This has required more modern intelligence-based security solutions like our cloud security offerings, which provides security event monitoring, as well as identification, investigation and orchestration for more rapid remediation.

We offer these solutions through our cloud security analytics, cloud SIEM and cloud source solutions. Given the accelerated pace of cloud application modernization and security transformation, this has also created the need for application development teams and security operations teams to collectively adopt a DevSecOps approach. Our platform is well suited for these initiatives and customers of all sizes in all stages of cloud maturity, from cloud-native start-ups, to large enterprise organizations undergoing digital transformation. More specifically, our cloud native platform uniquely helps customers do three things: first, ensure application reliability; second, secure and protect against modern security threats; third, gain insights into cloud infrastructure.

Now let me turn to some key wins and highlights this quarter. I'll start with several tech and financial services customers who are often the earliest adopters of new technology and whose architectural complexity demands a best-in-class analytics solution. We are proud that Sumo Logic is being selected by these types of highly advanced, digitally disruptive, as well as digitally transforming organizations. The first win I'll highlight is a new logo deal with a fast-growing crypto wallet company for both observability and security.

Their data was growing faster than their budget, and their previous tool couldn't provide a single platform, let alone the right licensing and pricing model or ROI. They needed a partner to make it economical to collect, analyze and retain all of their data in a single platform without having to compromise on which data sets they could afford to collect. With our flexible data tiering capabilities, 80% of their ingest is in our infrequent tier, drastically reducing their cost per gigabyte, which allows them to ingest and analyze 10 times the data and get value from additional use cases that were cost prohibitive with their prior vendor. Next, we were able to land a new logo six-figure deal with our security analytics solution with a leading retail company that is becoming more digital.

We were selected because our solution allowed them to more easily collect and store data, was easier to minister, offered quick time to value with a variety of out-of-the-box integrations. And lastly, our proprietary analytics and insights made it easier to identify and investigate ad hoc security issues. We're also continuing to see customers expand their initial use case as they recognize the benefits of using our platform for engineering, operations and security teams to address the challenges of observability and security, as well as DevSecOps initiatives. For example, we had a large six-figure cross-sell with a Fortune 500 financial services firm in North America.

This customer started several years ago with a log analytics use case for monitoring, troubleshooting and then expanded to security analytics and are now also using Sumo for full stack observability. This was a critical decision and solution for them as they needed to gain better visibility into availability and performance of their top 100 customer-facing applications. Given our strong foundation for log analytics and seamless upgrade to our full stack observability solution, this was an easy technology and a business value decision for them. In APAC, we had another strong quarter and a six-figure cross-sell with a highly sophisticated global bank that's migrating to the cloud as a part of their application modernization strategy.

This has also required them to modernize their security analytics and posture. Similar to the last example, we initially landed this customer with a logging and monitoring and troubleshooting use case and they chose Sumo because we provide a single comprehensive solution for both security and observability, allowing them to ensure that their cloud applications are not just reliable, but also secure. For the last win, I'd like to talk about the benefits we are seeing on our channel investments. This quarter, we had a multiyear multimillion dollar expansion with one of our MSSPs who provides managed detection and response or MDR to its customers.

As attacks are becoming more sophisticated and as the shortage of security experts continues to grow, more companies are using an outside MDR, which expands our ability to sell to additional customers. This MSSP selected Sumo because our platform delivers security, scalability and rapid time to value, such as allowing them to onboard customers within hours. Since we initially landed them, they have increased their spend by more than 5x and have over 450 customers that are not included in our total customer count. In summary, the demand environment and opportunity for Sumo remains strong and growing as our customers and prospects continue their cloud migration and digital transformation journeys.

We delivered on our commitment to expand our portfolio for observability and security, as well as drive further adoption of our leading SaaS analytics platform. Together, these have resulted in accelerated revenue, ARR and large customer growth, exceeding our guidance and metrics. I'm proud of everything that our team has accomplished this year and the drive for continuing our execution and growth. More specifically, while the go-to-market investments are yielding some early results, we are continuing to further optimize these investments and efforts.

With that, I'd now like to turn it over to Lynne Doherty, our president of worldwide field operations, so that she can share some of her perspectives, as well as provide more context on some of the go-to-market enhancements already underway.

Lynne Doherty -- President of Worldwide Field Operations

Thanks, Ramin. I've now completed my first quarter at Sumo, and I'm very excited about the future. I came to Sumo Logic because of the opportunity to help accelerate our growth at a company that plays in a compelling and necessary market with a differentiated product that customers truly love. And in my first 90 days, I have seen just that.

The market for Sumo Logic is large and growing, and we have a fantastic product that truly helps customers solve problems. We have a strong base of customers and we can drive even more adoption, as well as new customer growth with our multiuse case platform. To capitalize on this market opportunity, we are building a best-in-class go-to-market organization, which will leverage our expanded product offerings to allow us to ultimately drive more customer growth and accelerate revenue. I'm focused in three areas to accomplish this: first is to build more operational rigor and discipline into our sales motion, enablement and hiring.

We are underway on this journey with added structure, discipline and metrics in our process; second is to align and resegment our sales force to have dedicated account teams that either focus on new customer acquisition or expansion and renewals. This is a proven model that I have experienced implementing and frankly, was overdue. These strategic changes have already been implemented as we began our new fiscal year, and I'm confident this change will yield longer-term results as it will allow us to scale and focus the organization. We will also continue our path for international expansion as we build out our team in key areas; third, we will increase our focus on strategic partnerships.

We had a very strong year through our channel, and we were named AWS ISV Partner of the Year. By leaning into AWS, we are able to accelerate transactions, align with our customers' most strategic partners and provide a global co-fill motion with AWS. Even with this progress, I still think there is more we can do in going to market together with our strategic partnerships as customers embark on or continue their digital transformation and cloud migration journey. Additionally, we plan to drive increased focus with other strategic partners, including our MSSP partners and strategic bars as a bigger focus for our sales organizations.

We will also leverage our partners to continue to grow our presence internationally and in new markets. I'm looking forward to continuing this momentum through next year and bringing more success to our team, partners and investors. With that, it's my pleasure to now have Stewart Grierson, our chief financial officer, who will provide more details on our financial results in Q4 and our outlook for fiscal 2023.

Stewart Grierson -- Chief Financial Officer

Thanks, Lynne, and thanks, everyone, for joining us on the call. I'm excited to be here at Sumo. I'd like to start with a brief summary of the financial highlights for the quarter and then go into more detail on each topic. First, as Ramin mentioned, we saw strong performance in Q4 with year-over-year revenue growth of 24%.

This strong finish to the year resulted in 19% year-over-year revenue growth for the full fiscal year. Our Q4 revenue growth was driven by continued traction with our customers that spend more than $100,000 a year with us, as these customers grew 27% year over year. As highlighted by the customer use cases we shared, we are winning new customers in both the security and observability markets while also successfully cross-selling the benefits of our entire cloud analytics platform as we enable our customers to deliver reliable and secure cloud-native applications. As further evidence of the value we provide our customers, we ended the year with 44 customers with ARR greater than $1 million, representing more than 40% year-over-year growth.

Before moving on to some of the other metrics we have shared in prior quarters, I'd like to introduce a new metric that we will be providing on a quarterly basis, which is ARR. We believe ARR is the best leading indicator of growth in our SaaS business and will provide greater transparency to investors as it reflects our current business and growth trajectory. We ended the year with ARR of $259 million, representing 24% year-over-year growth. This is a significant acceleration from the prior year ARR growth, which was 15%.

In a similar spirit of transparency, we are also going to change the way we calculate and report on dollar-based net retention. Historically, we have calculated this metric using an average of each of the trailing four quarters. Going forward, we will use a simple trailing four-quarter methodology to calculate dollar-based net retention to better align this metric with our ARR reporting and provide better visibility into current trends in our business. For clarity, this means taking the ARR from the cohort of customers at the beginning of the prior 12-month period and comparing it to their current period ARR.

On this call, I'll share both numbers. The average of the trailing four quarters, while sequentially higher than Q3 remained below 110% as previously communicated and expected. Using the simple trailing four-quarter view, our dollar-based net retention was 112%. Taken in conjunction with our ARR growth of 24%, this means that our FY '23 ARR growth was driven equally by the new customers we added in the last 12 months and by our existing customers expanding the use of our platform.

The realignment of our sales force will likely result in a relatively higher focus on new customer acquisition in FY '23. And as a result, we expect our dollar-based net retention to be fairly stable over the next year. Turning to billings. Calculated billings for the trailing 12-month period was $272.8 million, up 24% year over year.

Recall that we look at calculated billings over a trailing 12-month period as this metric can fluctuate from quarter to quarter due to the timing of our renewals and billings duration for larger customers. Moving to remaining performance obligations or RPO. We ended the year with $328.3 million in RPO. Current RPO is $213.5 million.

We believe RPO provides perspective on the strength of committed customer contracts as opposed to being an indicator of future revenue growth. Both RPO and CRPO can be positively impacted by early renewals and/or contract extensions. While this is an indicator of the value our customers get from our platform and confidence in the company, it is not the best proxy for future year-over-year revenue growth. For this reason, we will continue to disclose RPO on a go-forward basis, but will no longer be disclosing CRPO.

Now I'll review the income statement in more detail. As a reminder, and unless otherwise noted, all metrics are non-GAAP. A reconciliation of GAAP to non-GAAP measures is included in our earnings release and posted on our website. As previously stated, total Q4 revenue increased to $67 million, up 24% year over year.

Excluding our largest customer, Q4 revenue was $62.4 million, up 23% year over year. As we previously signaled, this is the last quarter that we plan to break out our largest customer because their activity has become more aligned with our overall business, making this break out less relevant. Fourth quarter gross margin was 72%, compared to 77% in the year ago period. Our annual gross margin was 73%.

Our data consumption has more than doubled in the last year. This reflects our strategy of encouraging customers to ingest more data onto our platform. As data continues to grow faster than budgets, customers can take advantage of our tiered data architecture to capture the data required by their business. The crypto company example Ramin shared earlier is a perfect example of this.

While this strategy creates some downward pressure on our gross margins, we believe it is a unique differentiator that will allow us to upsell and cross-sell more value-added features in the future. Looking forward, we expect gross margins to remain in the low 70% range as we continue to execute on the strategy in order to drive further adoption of our platform. Moving on to operating expenses. Sales and marketing expense was $31.2 million or 46% of revenue, the same as it was in the year ago period.

Given the opportunities ahead, we are continuing to invest in go-to-market coverage, capacity and new market expansion and expect to increase sales and marketing expense as a percentage of revenue in FY '23. Research and development expense was $17.8 million or 27% of revenue, compared to 26% of revenue in the year ago period. The security and observability markets are large and growing markets, so we will continue to invest in our platform to take advantage of the growth opportunity in front of us. G&A expense was $10.4 million or 16% of revenue, compared to 15% of revenue in the year ago period.

In FY '23, we will continue to make investments required to operate as a public company. Our Q4 operating margin was negative 17%, which was better than the high end of our guidance range driven by revenue outperformance in the quarter. Our annual operating margin was negative 20%. Net loss in the quarter was $14.2 million or negative $0.13 per diluted share based on approximately 112.3 million weighted average diluted shares outstanding.

Turning to our balance sheet and cash flow. We ended the period with $356.5 million in cash and marketable securities. Free cash flow in the quarter was negative $11.2 million or negative 17% of revenue. For the full year, free cash flow was negative 14% of revenue, a significant improvement from the prior year.

We expect to continue to drive modest improvements in free cash flow as a percentage of revenue in FY '23. Turning to guidance, we believe that it is more relevant to judge the growth of our business on a full year basis given potential volatility in quarterly growth rates. In addition, our guidance takes into consideration the recent sales force changes Lynne described earlier. For the full fiscal year 2023, we expect total revenue of $288 million to $292 million, representing 19% to 21% year-over-year growth, non-GAAP operating margin of negative 27% to negative 26% and non-GAAP loss per share of negative $0.68 to $0.66 on approximately 116.5 million weighted average shares outstanding.

For the first quarter, we expect total revenue of $65.5 million to $66.5 million, representing 21% to 23% year-over-year growth, non-GAAP operating margin of negative 28% to negative 27% and non-GAAP loss per share of negative $0.17 on approximately 114 million weighted average shares outstanding. In summary, we finished the fiscal year strong and delivered on our goal of reaccelerating revenue in the second half of the year. This execution gives us the confidence to increase our investments in both sales and marketing to drive growth and engineering to extend our platform functionality and technology integrations. We are in the early innings of digital transformation and cloud migration and believe our cloud analytics platform is uniquely positioned to enable companies to deliver reliable and secure cloud applications.

With that, Ramin, Lynne and I are happy to take any of your questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question today is coming from Derrick Wood from Cowen and Company. Your line is now live. 

Derrick Wood -- Cowen and Company -- Analyst

Great. Thanks, and congrats to the team on a nice, strong finish to the year. A couple of go-to-market strategy questions for you guys. The first, it sounds like with the resegmentation in sales, there's going to be a bit more focus on going after new customer generation.

Correct me if I'm wrong, but if that's the case, can you just talk about how you guys are thinking of investing in mid-market versus enterprise? And maybe get a sense of how your sales rep capacity grew in the year and what you're looking to do for capacity growth in the next year?

Lynne Doherty -- President of Worldwide Field Operations

Yeah. Really good set of questions. So let me start with the resegmentation realignment is really moving us here at Sumo to a proven SaaS sales model. And so it does give us focus on both bringing in new logos, as well as focus on renewals and expansion of customers.

And so we're getting focus and clarity in our account managers roles, which is really important. And again, aligns with our primary initiative of accelerating growth and diversifying our business both with go-to-market roles and international expansion. The mid-market and enterprise investments, we continue to evaluate that every quarter, every year to say where do we see the growth and the investment opportunity. And so that's something we'll continue to look at and make the right trade-offs so that we optimize and accelerate growth.

You also asked about the capacity. It's a tight labor market. We continue to hire. We've made a lot of investments in both making sure we have the best recruiting effort out there, the best competitive compensation so that we retain the talent we have and can attract new talent.

And then we've also got to focus around enablement. So how do we bring in the people that we have and make them the best out there. So that's some of the summary of what we're doing in go-to-market.

Derrick Wood -- Cowen and Company -- Analyst

Yeah. Thanks. That's helpful color. And you did say on the flip side of that, with the segmentation will be certainly the focus on renewals and cross-sell.

And Ramin, I think I remember you saying a stat one time about maybe 30% of your business is multiuse or multiproduct. You've invested quite a bit to expand the portfolio and the technology in the platform. What can we expect in terms of trying to cross-sell other products, target different personas, ops, devs, sec pros, and kind of maybe what kind of ASP uplift you typically see if you have success in that kind of cross-selling?

Ramin Sayar -- President and Chief Executive Officer

Sure. Well, I guess it's not new to Sumo to sell to two primary buying centers, one being the developers and platform engineering type teams on one hand. And then on the second hand, more the CISO and SOC teams. So that effort has been something we've been focused on.

But I guess to your broader question, there's a massive opportunity for us to go back into our installed base and be able to sell full stack observability, let alone security analytics, SIEM and SOAR. So there's now a great opportunity for us to take advantage of the realignment on coverage, particularly with the hunter versus the farmer model to be able to go back into installed base, drive upsell, cross-sell, let alone drive new logo transactions.

Derrick Wood -- Cowen and Company -- Analyst

Great. Good luck. Great. Thanks.

Ramin Sayar -- President and Chief Executive Officer

Thanks, Derrick.

Operator

Thank you. Next question is coming from Matt Hedberg from RBC Capital Markets. Your line is now live. 

Matt Hedberg -- RBC Capital Markets -- Analyst

Great, guys. Thanks for taking my questions. Congrats on the acceleration on what looks like a further acceleration in fiscal '23. I had a follow-up question for Lynne.

On the call, Ramin gave some great examples of both new customer wins and expansions and the reason why Sumo won those deals. But given you're still new to the company, you're having a lot of conversations with both new and existing customers. Is there one or two things to you that stands out to why Sumo is differentiated versus peers in what is obviously a competitive market?

Lynne Doherty -- President of Worldwide Field Operations

Yeah. Absolutely. And you're right, I'm having lots of conversations with our team and with customers. And I mean, I came here because we have a differentiated product in a growth market and customers love us.

And so that's a great place to be when you're leading go-to-market. I think to the question of why are we winning. It's customers that want a single platform and that continues to be a trend that customers move to, is a single platform for reliability and security, also customers who want scale and want a cloud-native platform. And so I think we do that better than anybody.

And then lastly is probably around the economics, and that is we keep talking about data growing faster than budgets. And so the way we do licensing and tiering of our product is a real differentiator. It allows customers to get access to the data that they need, but do it in a cost-effective way.

Matt Hedberg -- RBC Capital Markets -- Analyst

That's great. Thank you for that. And then, Stewart, for you, first of all, welcome to the company. I look forward to working with you again.

And also, thanks for the new ARR disclosure, as well as the reworked dollar-based net revenue retention. I guess looking at ARR, is there -- you're not guiding to ARR, obviously, more of a revenue guide, but is there anything that we should think about from a quarterly seasonality perspective in ARR for fiscal '23 that we should be aware of given this is a newer metric for you guys?

Stewart Grierson -- Chief Financial Officer

Sure, Matt. And nice to be talking to you again. And so I think we really focus on ARR from an annual perspective. And so that's the way I would encourage you to think about it.

We've had seasonality in the business if you just look at historic revenue trends. And so which is why we're pointing to kind of sort of an annual number. And no, we will not be guiding to this. I think to your point, ARR for a SaaS business gives the best visibility around what's happening in the business today, which is why we chose to do that and obviously, meaningful reacceleration from 15% a year ago to 24% in the last year.

Matt Hedberg -- RBC Capital Markets -- Analyst

Thanks, guys.

Operator

Thank you. Next question is coming from Kamil Mielczarek from William Blair. Your line is now live. 

Kamil Mielczarek -- William Blair -- Analyst

Hi. Congrats on the strong end to the year, and thanks for taking my question. So just starting maybe on the research investment side. You announced a number of new products and feature enhancements over the last year.

Can you provide more color on how you balance R&D spend across the product portfolio today and looking out over the next few years, where do you see the most opportunity to add functionality to drive further differentiation?

Ramin Sayar -- President and Chief Executive Officer

Kamil, it's Ramin. Thanks. I think first and foremost, we look at it from an individual market opportunity as it pertains to security versus logging versus observability. And what -- where we're penetrated in our installed base and what's required to continue to evolve our capabilities.

Secondly, as a percentage of revenue, naturally, right? And then third, from kind of a margin and cost and how the service needs to be rolled out and deployed in various regions for the various use cases. Now in summary, I think the best way to answer your question is we have a very balanced scorecard, so to speak, across observability and security and the contribution of both. But the newer features irrespective of it's on tiering or observability or security, take a little bit more time as we deploy and enhance and scale the service. And so that also is factored in from a margin point of view.

Now meta point here is I think we have a very competitive full stack observability solution on the market available today. Similarly, we have a very competitive security analytics, let alone cloud SIEM and now a cloud SOAR opportunity to go after as well for both existing customers, as well as Sumo SIEM and security analytics customers, let alone non-Sumo security customers with just SOAR. So it gives us a lot of ways to look at landing and expanding with direct versus indirect, meaning our channel partners, MSPs with that portion of our business.

Kamil Mielczarek -- William Blair -- Analyst

That's helpful, Ramin. And if I could just follow up. Last year or early in the year, you saw some customers downgrade in verticals that were hit particularly hard by the pandemic. Given the macroeconomic changes over the past year, are there any industries where you've seen a noticeable change in demand relative to your broader business, whether positive or negative? And more generally, how have customer conversations changed in recent quarters? Thank you.

Ramin Sayar -- President and Chief Executive Officer

Sure. I mean, I think, first and foremost, where we win is with digitally native customers. And secondly, where customers are digitally transforming or trying to versus being left behind. So that naturally means strong tech -- and from a vertical perspective, strong tech, financial services, media, gaming, e-tail, retail, tend to be those who are digitally transforming faster than some of the other verticals.

And that's where we're seeing better traction in both the mid-market, as well as the enterprise and also globally that we saw last quarter in APJ as an example.

Kamil Mielczarek -- William Blair -- Analyst

That's helpful. Congrats again.

Operator

Thank you. Next question today is coming from Sanjit Singh from Morgan Stanley. Your line is now live. 

Matt Wilson -- Morgan Stanley -- Analyst

Hi, it's Matt Wilson on for Sanjit Singh. Thank you for taking our questions, and congrats on a strong quarter to finish the year. I'd like to kind of hear your thoughts on kind of like the elevated threat landscapes, Log4j and some of the other geopolitical events ongoing. Can you kind of talk about like how customer conversations have changed or if they haven't changed, then kind of how are customers coming to Sumo Logic to kind of help alleviate some of the security threats that they are seeing?

Ramin Sayar -- President and Chief Executive Officer

Sure. So unfortunately, there's far fewer people trying to protect versus attack. And when you have bad actors, bad nations, let alone accidents that happen within the firewalls in organizations, it just makes the threat landscape even more challenging, coupled with the fact that as workloads get migrated and moved to the cloud, the architecture of these applications are very distributed and so it exposes a lot of APIs, access keys and way more than what traditional security operations teams are used to doing. So as a result, modern organizations are having to adopt the DevSecOps approach, meaning collaborate across the value chain to be able to fight these reactive issues, let alone proactively.

Now in terms of customer conversations, it's pretty clear. One is, how do I compare? Two centers around what else do I need to be thinking about versus what I'm already doing from a tooling and technology. And three, how do I need to be thinking about organizational alignment and processes internally as I want to digitally transform, move to the cloud. So those tend to be the three buckets that we talk to customers a lot about and also our channel partners.

Now one of the aspects that's really important here is because of the shortage of labor, in security in particularly, this is a great opportunity for Sumo to really leverage our MSPs, EDR/MDR partners to bring them to complement our superior technology from a SaaS perspective, to complement where customers are either because of maturity or secondarily, because of resources.

Matt Wilson -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. Next question is coming from Gray Powell from BTIG. Your line is now live. 

Gray Powell -- BTIG -- Analyst

Great. Thanks for taking the questions. Yeah. So maybe focusing back on the sales and marketing side.

So it sounds like you're going to invest a little bit more aggressively there in fiscal '23 than at least what we expected. Is there much in the way of incremental revenue from those investments baked into the current guidance? And then how should we think of the timing of those investments paying off? Is it more of a fiscal '24 thing? Or just how should we think about that sort of layering through into the growth rate?

Stewart Grierson -- Chief Financial Officer

Yeah. So Gray, it's Stewart. I'll answer that question. So if you just think about what we've done in the last 12 months, right? So we started the year telling that we would reaccelerate growth in the back half of the year.

I think we've demonstrated that. If you look at the ARR, we're now disclosing pretty significant reacceleration of that growth. And that comes with investment. So we've been investing this year in sales and marketing.

And then as Lynne's come on board and some of the changes there, we are continuing to invest. So it's adding capacity. It's the enablement. And that will obviously help with the guidance, the revenue guidance we gave this year but also will flow into FY '24 as well.

Gray Powell -- BTIG -- Analyst

OK. That's helpful. And then just the follow-up would be with the realignment and resegmentation, should we think about linearity on revenue or billings or anything like that differently this year versus last?

Stewart Grierson -- Chief Financial Officer

I don't believe so.

Gray Powell -- BTIG -- Analyst

All right. That's easy. Thank you very much.

Operator

Thank you. Next question today is coming from Ben Schmidt from Piper Sandler. Your line is now live. 

Ben Schmidt -- Piper Sandler -- Analyst

Hey, Ben Schmidt on for Rob Owens here. Thanks for taking my question. First one for Lynne, I guess. So sort of building off the last question, should we expect any like ramp time here as these teams change their focus? And I know you've only -- you mentioned that this change was made at the beginning of the fiscal year, so you've only got a little bit more than a month here, but has there been any initial traction you can talk about?

Lynne Doherty -- President of Worldwide Field Operations

Yeah. So I think the question around ramp time, I'm not sure if you mean with new employees or with people who are changing jobs, but I think it's probably a similar answer. I mean, as we bring in new employees, and they have to ramp, that's a big focus of us is around enablement and how quickly can we get them effective and how do we focus on sales efficiency as part of our go-to-market organization. I think naturally, there are some changes in customer coverage and people doing different roles as we get more focused roles.

But that's all been baked into the guidance that both Stewart and Ramin have talked about. So I think that we're in good shape on that. I think that it's been on us to make sure that we have -- taking really good care of our customers through that has really been my focus of how do we take care of customers as we transition resources and make sure that we provide a real premium experience for that. I think that answers the question.

I think you had a second question. Is there a second question?

Ben Schmidt -- Piper Sandler -- Analyst

The second was just related to that, any initial traction or feedback you received from -- yeah.

Lynne Doherty -- President of Worldwide Field Operations

Initial traction. I would say, generally, it's gone incredibly smoothly. And so for what is a big change to move to a hunter farmer model and to get us really focused, it's been an incredibly smooth change. I know that sounds like a big change for us.

It's really an evolution of what's really already been put in place and already started, and this is the next level of that evolution to get us really focused on those roles. So I think it's gone incredibly smoothly and I'm excited to see the results start to pay off.

Ben Schmidt -- Piper Sandler -- Analyst

Great. Thanks, Lynne. And second one for either Ramin or Stewart. If I understood the high-level discussion around gross margin for the year here going into fiscal '23, it sounded like low 70%.

So should we be thinking about that as lower than our initial models that we've had over the last year or so? And if lower, what's changing in the assumptions that is driving that lowered expectation?

Ramin Sayar -- President and Chief Executive Officer

Well, we commented last quarter on this, and particularly, as we expand our regions, as we bring new capabilities to market organically, let alone inorganically through some of the acquisitions, you'll see a temporary hit on the gross margin. The second thing we commented on this quarter was the volume of data growth because of enhancements we made to our platform to be able to ingest, persist and analyze 2 times more than 2x the volume of data. So we've been signaling that's kind of the intention to be able to drive more adoption, stickiness and then ultimately cross-sell with additional features and use cases. So you should expect the margins to be in those low 70s as part of our conscious strategy to deliver value, as well as economic benefit, as well as further revenue acceleration.

Ben Schmidt -- Piper Sandler -- Analyst

Great. Thanks, Ramin.

Operator

Thank you. Next question is coming from Brent Thill from Jefferies. Your line is now live. 

Unknown speaker

Hey, guys. This is Bill on for Brent. Thanks for taking our question. Just wondering if you could give us an update on how you're thinking about the international theaters? And maybe just double click on that, how you're organizing or realigning your sales channels to tackle those markets in a bigger way? Thanks.

Lynne Doherty -- President of Worldwide Field Operations

Yeah. International markets continue to be a place that I think we can see a real growth opportunity. And so -- our strategy there is really to continue to double down on places that we have already invested, double down in investments where we're seeing success, as well as move into some new strategic markets. So -- that's a place that I believe we can see a real growth opportunity and continues to be an important part of our plan.

Partners in those international markets always play an important role, whether that's strategic relationships or whether that's MSSPs or traditional VARs or distribution channels. And so that will continue to be a focus for us, and actually a place that we're investing this year is to make sure that we have those channels to accelerate the wraps market both internationally and in the Americas. So the channels piece is a focus across the world, not just in international markets, is to enable us to move faster and leverage their existing relationships and leverage the move that a lot of customers are making into MSSPs or MDR vendors to make sure that we are partnered with strategic ones to accelerate our go-to-market.

Ramin Sayar -- President and Chief Executive Officer

Only thing I'll add to that is international contribution for us from a bookings perspective grew 100% for Q4 in fiscal '22. But we feel that we're still pretty underpenetrated as we look at our international theaters, particularly contribution from Tier 2 countries and some of those, and as well as more capacity and coverage in Tier 1 countries across APJ, Japan, India and more. We have a great opportunity in LatAm and Fed. So as we look holistically, we're deploying a conscious choice of how we incrementally add capacity versus incrementally push partner and channels to drive footprint.

Unknown speaker

Great. Thanks.

Operator

Thank you. Our next question today is coming from Blair Abernethy from Rosenblatt Securities. Your line is now live. 

Blair Abernethy -- Rosenblatt Securities -- Analyst

Thank you, and nice quarter ending the year here. Just wanted to drill in a little bit more on the MSSPs. And Ramin, I was just wondering how big -- it sounds like some of the MSPs are doing really well for you. And I'm just trying to understand how big of an opportunity is this channel for you? Can it drive growth rates comparable to the overall company growth rate or faster? Just kind of give a sense on that market.

Ramin Sayar -- President and Chief Executive Officer

Sure. Well, I think first and foremost, the space in general around service providers, MSPs, MSSPs, EDR, MDR, is dramatically changing for a few reasons: one, the technology has evolved considerably from traditional point tools to more SaaS analytics tools that the MSPs can be able to deliver pretty seamlessly; secondly, a lot of cases, the MSPs are becoming VARs in addition. So their business models are transforming. Third, they can't continue to build and integrate an -- homegrown technology.

So the ability to use a platform like Sumo that not only addresses the modern security needs but allows them to even enhance and shift left to DevOps is a huge differentiator for us and for them. So I think that could be even a larger proportion of contribution for us, particularly because we've made investments not only in technology to simplify it, but also investments on the compensation side for our reps, let alone the reps from the MSPs, both on the VAR side, as well as their own delivery side to make sure there's no friction, but more importantly, there is margin and value to the ultimate customer.

Blair Abernethy -- Rosenblatt Securities -- Analyst

That's great. Thank you. And then just shifting over to the federal or government markets, anything to update us in that market segment?

Ramin Sayar -- President and Chief Executive Officer

Well, we did get FedRAMP moderate certification last year, and we're continuing to push more there with partners, as well as Lynne's been building out the direct coverage team there. We feel that we're way early in the innings there with some of the legislative requirements around logging, some of the opportunities to get listed. We've substantially grown the list of customers that are enterprise that require FedRAMP, let alone government and public sector customers and partners. So that's something that we're investing in quite more this year in FY '23 to be able to drive not only the seasonality and budget, but also into the next fiscal year.

Blair Abernethy -- Rosenblatt Securities -- Analyst

Great. Thanks very much.

Operator

Thank you. We reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today's teleconference. I'd like to turn the floor back to management for any further or closing comments.

Ramin Sayar -- President and Chief Executive Officer

Thank you very much. Thanks, everyone, for joining our fourth quarter and fiscal '22 conference call. We're happy with the results for last year. We feel that we're very well-positioned with the investments we made in our products and our portfolio, let alone our go-to-market evolution.

And we believe that we're on the right side of technology as we continue to go after the massive market opportunity for digital transformation and cloud migration, underpinning that with a single platform. So we appreciate your support, and we look forward to talking to you soon.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Bryan Liberator -- Director of Investor Relations

Ramin Sayar -- President and Chief Executive Officer

Lynne Doherty -- President of Worldwide Field Operations

Stewart Grierson -- Chief Financial Officer

Derrick Wood -- Cowen and Company -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Kamil Mielczarek -- William Blair -- Analyst

Matt Wilson -- Morgan Stanley -- Analyst

Gray Powell -- BTIG -- Analyst

Ben Schmidt -- Piper Sandler -- Analyst

Unknown speaker

Blair Abernethy -- Rosenblatt Securities -- Analyst

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