Sentinel One Earnings June 2023
SentinelOne provides AI-powered cybersecurity solutions for threat detection, response, and remediation across cloud and on-premise environments.
Opening comments:
In Tomer Weingarten’s (CEO of SentinelOne) opening comments, he highlighted
The company's significant growth in terms of revenue and margin improvement
The strong focus on customer retention and expansion
They have secured a place in the cybersecurity defenses of half the Fortune 10 companies.
The company saw a 25% operating margin improvement for seven consecutive quarters and made headway towards profitability, although Q1 top-line growth was slightly disappointing due to global economic pressures.
To mitigate this, the company is taking steps to enhance its business model by improving cost structures and optimising for profitability.
Cybersecurity is essential, particularly as businesses undergo digital transformation.
SentinelOne is leading in security AI innovation, and building the future enterprise security platform.
This quarter, SentinelOne saw a 70% increase in revenue growth, added $42 million of net new ARR and expanded operating margin by 35 percentage points, reflecting their continued growth and profitability targets.
Weingarten acknowledges some challenges:
Macroeconomic conditions impacted deal sizes and sales cycles, while some enterprises deferred purchase decisions
Additionally, contract execution issues on large deals led to delays.
However, the company aims to adapt quickly and enhance execution, while considering factors such as deal rightsizing and pipeline conversion in their future outlook.
Despite the challenges, the company continues to add significant new business, and expects full-year revenue to grow 41%.
SentinelOne aims to scale the business towards $1 billion in ARR, while expanding into security analytics and cloud security.
It aims to disrupt a $100 billion market with innovative AI-driven technology, providing leading protection to enterprises of all sizes.
Looking at Q1 results, the company added over 700 new customers, and customer count grew by 43% year-over-year.
SentinelOne was chosen as the cybersecurity platform by another Fortune 10 company, reflecting its capacity to meet stringent security requirements.
The company's ARR per customer also increased by more than 20%, demonstrating its success with large enterprises.
SentinelOne aims to continue its growth by optimising resources and sharpening cost discipline, adjusting its cost as needed to drive efficient growth.
This includes implementing a plan to optimize the workforce, reducing variable spend to business-critical needs, and prioritizing core products with the greatest potential for delivering value.
SentinelOne has evolved from an endpoint security solution to a comprehensive enterprise security platform.
Their leading innovations and holistic approach to cybersecurity place them in a strong position for long-term growth across multiple markets.
SentinelOne is also leading the industry in incorporating AI into cybersecurity.
They recently launched Purple AI, a unique innovation that allows users to control all aspects of enterprise security with unmatched speed and efficiency.
In the near future, SentinelOne aims to bring more AI to customers, and is committed to ensuring its cutting-edge technologies are used ethically, safely, and responsibly.
SentinelOne's Singularity platform allows customers to maintain complete control of their data, underscoring their commitment to data security.
In a significant development, Sally Jenkins joined SentinelOne as the new Chief Marketing Officer in April.
With over 30 years of experience, Jenkins is expected to help expand the company's brand presence and lead growth across multiple market segments.
Despite current macro challenges, SentinelOne believes enterprise transformation is just beginning, and the market will continue to convert towards AI-driven enterprise-wide cybersecurity platforms.
The company remains committed to innovation, improving operating performance, and delivering value for all stakeholders.
The company sees adaptation, innovation, and value delivery as key to long-term success.
Quarterly financial results
David Bernhardt (CFO) gave an update on the quarterly financial results and guidance for Q2 and fiscal year '24, highlighted a few key areas for investing audiences.
The company, having seen steadily increasing usage and consumption patterns over the past few years, observed a marked decline in usage in the first quarter, attributing this to the current macro environment and expecting these trends to continue.
As a result, the company has decided to tighten the methodology for calculating ARR for consumption and usage-based agreements to reflect committed contract values.
This move aims to ensure ARR and revenue are more closely aligned and reduce ARR volatility.
Historical inaccuracies relating to ARR on subscription and consumption contracts were corrected, resulting in a one-time ARR reduction of $27 million.
In the Q1 results:
the company's revenue grew by 70% to $133 million
international revenue grew 84% year-over-year and represents 35% of total revenue
however, ARR growth was below expectations due to tightened budgets and deal sizes from customers
the company maintained a dollar-based net retention rate of over 125% and an ARR per customer increase of over 20%, showcasing its ability to maintain growth among large enterprises and adopt its Singularity platform.
Despite lower top-line growth, the company achieved a record gross margin of 75%, up seven percentage points year-over-year.
This progress showcases benefits from economies of scale, data processing efficiencies, and cross-selling from adjacent solutions.
Operating margin improved as well, and the company reduced its operating losses and free cash outflow year-over-year.
Forward guidance:
the company foresees worsening macro conditions into Q2 and 2024
that might impact enterprise budgets and sales cycles, leading to a more challenging selling environment
for Q2 they expect revenue to be around $141 million, up 38% year-over-year, and net new ARR in the low $40 million range
for the full year, it expects revenue between $590 million and $600 million, growing 41% at the midpoint.
The company is also working to improve its operational efficiency, taking steps to align its cost structure with its updated growth outlook.
Measures include optimizing talent and facility locations, reducing variable spend and cloud hosting costs, and a 5% total headcount reduction. These changes aim to increase performance accountability and operating efficiency, projecting cost savings of about $40 million.
Concluding remarks
Bernhardt emphasised the company's strong balance sheet, which includes $1.1 billion in cash, cash equivalents and investments, and no debt.
He acknowledged the need for the company to adapt and execute better amidst evolving economic conditions, committing to meeting fiscal year '24 margin targets and disciplined growth.
Let’s go trade!
