SentinelOne, Inc. Q1 FY2023 earnings

SentinelOne opened fiscal 2023 with another triple-digit quarter. Revenue reached $78.3 million in the three months ended April 30, 2022, up 109.3% from $37.4 million a year earlier. Gross profit rose to $51.1 million from $19.1 million, an increase of 167.5%. Gross margin expanded to 65.3% from 51.1%, up 14.2 percentage points. Management credited the gain to higher revenue, increasing scale, and better data processing efficiency.

Annualized recurring revenue grew 110% year over year to $339.0 million as of April 30, 2022, with net new ARR of $47 million. The customer base topped 7,450, up more than 55% from a year earlier, and the company added about 750 customers in the quarter, which it called a record for organic additions. Customers with ARR over $100,000 totaled 591, up 113% from 277. Dollar-based net retention reached a record 131%, above the long-term target of 120%. International revenue represented 33% of total revenue and grew 129% year over year, with particular strength in EMEA. Cloud workload protection was the fastest growing module, up more than 50% sequentially. Management also pointed to its largest ever pipeline, a record quarter for channel deal registrations, and more than 10,000 partner accreditations.

The bottom line is still deeply negative. Operating loss was $90.3 million, wider than the $61.6 million loss a year earlier, and net loss was $89.8 million, wider than $62.6 million. Operating margin improved to -115.4% from -164.8%, a gain of 49.4 percentage points, because revenue grew faster than expenses. Diluted loss per share narrowed to $0.33 from $1.37. Cash used in operating activities was $49.4 million, compared with $30.8 million a year earlier. Capital expenditures, reported as purchases of property and equipment, were $2.8 million, up from $0.8 million. Free cash flow, a separate non-GAAP measure that also deducts capitalized internal-use software, was negative $54.7 million. Deferred revenue stood at $275.6 million, and remaining performance obligations were $372.6 million.

Guidance for the second quarter of fiscal 2023 calls for growth of 107-110% and non-GAAP gross margin of 68-69%, with non-GAAP operating margin of (75)-(73)%. For the full fiscal year 2023, the outlook calls for growth of 97-99%, non-GAAP gross margin of 69-70%, and non-GAAP operating margin of (60)-(55)%. Both periods include the expected results of the Attivo Networks acquisition, which closed on May 3, 2022 for $351.5 million in cash, approximately 6 million shares of common stock, and 378,828 assumed options. Management framed the year as a continuation of hyper growth paired with margin expansion, and said the company is investing for long-term scale while making steady progress toward its profitability targets.

The risk list is long and mostly familiar for a fast-growing security vendor: a limited operating history, a history of losses, intense competition, the difficulty of integrating acquisitions such as Attivo, defects or vulnerabilities in the platform, strain from rapid growth, and the ability to attract and retain customers. The company also flags general market, political, and economic conditions, including the continuing impact of COVID-19 and geopolitical uncertainty, and the risk of securities class action litigation. Longer sales cycles for some prospective customers and delays in professional services tied to the pandemic remain possible. On the product side, SentinelOne reported 100% prevention and 100% detection in the 2022 MITRE ATT&CK evaluation, with the highest analytic coverage at 108 of 109, and it is folding Attivo identity technology into the Singularity XDR platform. The central tension for the year is whether that momentum can hold while the operating loss keeps widening.