Summary
SentinelOne delivered another quarter of rapid growth in the second quarter of fiscal 2023. Revenue reached $102.5 million, up 124% from the prior-year quarter. GAAP gross profit rose 146% to $66.2 million, and GAAP gross margin expanded to 64.6%. The company also reported annualized recurring revenue of $438.6 million, up 122% year over year. Dollar-based net retention rate hit a record 137%. Total customer count grew about 60% to over 8,600, and customers with ARR of $100,000 or more increased 117% to 755. The quarter included record customer additions of over 1,100, with over 750 organic adds and over 350 from the Attivo acquisition. International revenue represented 33% of total revenue and grew 135% year over year. Management described the quarter as the sixth consecutive quarter of triple-digit ARR growth.
Growth did not translate into GAAP profitability. GAAP operating loss widened to $108.2 million, and GAAP net loss widened to $96.3 million. Diluted GAAP net loss per share narrowed to -$0.35. GAAP operating margin improved to negative 105.5%. On a non-GAAP basis, operating margin improved to negative 57% from negative 98%, and non-GAAP gross margin was 72% compared with 62% a year earlier. The company said it achieved a Rule of 60 in the quarter. The wider loss reflects increased headcount, public company operating costs, and stock-based compensation, which the company excludes from non-GAAP results. The Attivo acquisition also added integration and amortization expenses.
Cash generation remained negative. Operating cash flow was negative $62.1 million, and capital expenditures rose to $1.3 million. Free cash flow, a non-GAAP measure, was negative $67.0 million. Deferred revenue rose 86.9% to $345.1 million, and remaining performance obligations rose 103.0% to $444.7 million. Those metrics suggest strong bookings momentum. The Attivo acquisition closed in May 2022 and added identity security capabilities. Management said net new ARR of $100 million more than doubled from the prior quarter. The company ended the quarter with a strong cash position to support ongoing investment.
Management issued guidance for the third quarter of fiscal 2023 and the full fiscal year 2023. Third-quarter revenue is expected to be about $111 million, representing 98% year-over-year growth. Full-year revenue guidance is $415 million to $417 million, or 103% to 104% growth. Non-GAAP gross margin guidance is about 71% for the third quarter and 70.5-71% for the full fiscal year. Non-GAAP operating margin guidance is about (57)% for the third quarter and (58)-(55)% for the full fiscal year. Management said it is narrowing the full-year non-GAAP operating margin range from prior guidance. Risks include evolving macro conditions, cost-consciousness among enterprises, marginally longer sales cycles, intense competition, a history of losses, and the integration of Attivo. The company also faces risks from the COVID-19 pandemic, geopolitical uncertainty, network or security incidents, defects or vulnerabilities in the platform, and challenges managing rapid growth. No single end customer accounted for more than 4% of ARR.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $102.5M | $78.3M | +31.0% | $45.8M | +124.1% |
| Gross profit | $66.2M | $51.1M | +29.6% | $27.0M | +145.7% |
| Gross margin | 64.6% | 65.3% | -0.7 pp | 58.9% | +5.7 pp |
| Research & development | $55.0M | $45.9M | +19.9% | $31.0M | +77.2% |
| Sales & marketing | $79.0M | $60.6M | +30.3% | $41.0M | +92.8% |
| General & administrative | $40.4M | $34.9M | +15.9% | $22.1M | +82.9% |
| Total operating expenses | $174.4M | $141.4M | +23.4% | $94.1M | +85.3% |
| Operating income (loss) | -$108.2M | -$90.3M | -19.8% | -$67.2M | -61.1% |
| Operating margin | -105.5% | -115.4% | +9.8 pp | -146.8% | +41.2 pp |
| Net income (loss) | -$96.3M | -$89.8M | -7.2% | -$68.2M | -41.3% |
| Net margin | -94.0% | -114.8% | +20.8 pp | -149.0% | +55.0 pp |
| Diluted EPS | -$0.35 | -$0.33 | -$0.02 | -$0.57 | +$0.22 |
| Net retention rate | 137.0% | 131.0% | +6.0 pp | 129.0% | +8.0 pp |
Risks
SentinelOne has a history of losses and expects operating expenses to increase. Net loss widened to $96.3 million for the three months ended July 31, 2022 from $68.2 million in the prior-year quarter, and the accumulated deficit was $807.8 million as of July 31, 2022.
Risk factors name CrowdStrike, VMware, Trellix, Symantec/Broadcom, Microsoft, and Palo Alto Networks as competitors. Larger competitors may bundle products, offer lower pricing, or have broader offerings, which could reduce market share, revenue growth, and gross margin.
Substantially all sales are fulfilled through channel partners, which generated 91% and 92% of revenue for the three months ended July 31, 2022 and 2021. Exclusive Networks accounted for 17% and SHI International for 7% of current-quarter revenue, and the agreements are non-exclusive and may be terminated at any time.
Adverse economic conditions or reduced IT spending could lead to longer sales cycles, lower prices, higher default rates among channel partners, and slower or declining growth. The filing cites labor shortages, inflation, geopolitical instability, weak economic conditions, and effects of COVID-19 and the conflict in Ukraine.
Sales cycles are long and unpredictable, especially with large organizations and government entities. MD&A states COVID-19 caused a lengthening of the sales cycle for some prospective customers, and risk factors say a strengthening U.S. dollar increases the real cost of the platform outside the United States and could further lengthen the sales cycle.
The Attivo acquisition closed in May 2022 with $351.5 million cash, 6,032,231 Class A shares, and assumed options. Risk factors warn integration may divert management, disrupt the business, dilute stockholders, and fail to achieve expected benefits, and general and administrative expenses included $3.1 million of Attivo diligence and planning costs in the current quarter.
Customers have no obligation to renew subscriptions, which generally run one to three years, and some have elected not to renew. Dollar-based net retention rate was 137% as of July 31, 2022, but retention and expansion may decline due to customer satisfaction, pricing, spending levels, competition, or economic conditions.
The company depends on CEO Tomer Weingarten and other key employees, and competition for skilled personnel is intense in the San Francisco Bay Area and Israel. Headcount grew from over 900 employees as of July 31, 2021 to over 1,800 as of July 31, 2022, increasing hiring, training, and retention demands.
Operating cash flow decreased 53.1% year over year to negative $111.5 million for the six months ended July 31, 2022. Cash, cash equivalents, and short-term investments declined to $1.2 billion as of July 31, 2022 from $1.7 billion as of January 31, 2022, though management believes existing liquidity supports at least the next 12 months.
Risk factors state revenue growth is expected to slow or decline and revenue may decline due to reduced demand, increased competition, a decrease in market growth, or failure to capitalize on growth opportunities. The company also experiences seasonal fourth-quarter ordering concentration.
Future growth depends in part on increasing sales to government organizations, but demand is unpredictable and subject to budgetary cycles. FedRAMP certification is costly to maintain, and losing it could restrict sales to government customers; audits or certification refusals could harm revenue and reputation.
SaaS KPIs
All quarters →Annualized recurring revenue (ARR)
Non-GAAP operating margin
Free cash flow
Net New ARR
Total customers
Customers with ARR over $100K
Summary, forecast, risks and KPIs are extracted from SentinelOne, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.