Summary
SentinelOne's second quarter of fiscal 2024, ended July 31, 2023, delivered revenue of $149.4 million, up 45.8% from $102.5 million in the prior-year quarter. Revenue for the six months ended July 31, 2023 was $282.8 million, up 56.5% from the same period a year earlier. The gain came from a combination of sales to new customers and additional endpoints and modules sold to existing accounts. Gross profit was $104.75 million, up 58.1% from $66.24 million a year earlier, and gross margin rose to 70.1% from 64.6%. Non-GAAP gross margin was 77%, compared with 72%. Management described the quarter as a gross margin record and said the 5 percentage point year-over-year expansion puts the business inside its long-term gross margin target range.
Profitability remains far off. Operating loss for the quarter was $100.36 million, narrower than the $108.19 million loss a year earlier, with operating margin at negative 67.2% versus negative 105.5%. Net loss was $89.54 million against $96.31 million, and diluted loss per share was $0.31 compared with $0.35. On a non-GAAP basis, operating margin was negative 22%, compared with negative 57%. Operating cash flow was negative $11.90 million for the quarter, an improvement from negative $62.13 million a year earlier. Free cash flow, which the company reports as operating cash flow less purchases of property and equipment and capitalized internal-use software, was negative $15 million, compared with negative $67 million, and the free cash flow margin improved by 55 percentage points year over year. Capital expenditures were $0.03 million, down from $1.29 million.
Operational metrics kept pace with the top line. Annualized recurring revenue reached $612.2 million as of July 31, 2023, up 47% year over year, and net new ARR was $49 million, which management credited to improved execution and second quarter seasonality. Total customers grew about 30% to more than 11,000, while customers with ARR of $100,000 or more grew 37% to 994. The dollar-based net retention rate exceeded 115%, down from 135% or more a year earlier, which management tied to the inclusion of Attivo Networks products and macro-driven budget constraints. International revenue represented 36% of the total and grew 57% year over year. Deferred revenue stood at $421.40 million, up 22.1% over the prior-year quarter, and remaining performance obligations were $676.10 million, up 52.0%.
Guidance for the third quarter of fiscal 2024, ending October 31, 2023, implies revenue growth of about 35% year over year, a non-GAAP gross margin of about 76% and a non-GAAP operating margin of about negative 22%. For the full fiscal year 2024, ending January 31, 2024, the company raised its revenue outlook and now points to growth of about 43%, a non-GAAP gross margin of 76% and a non-GAAP operating margin of about negative 25%. The full-year operating margin target is 2 percentage points better than the prior midpoint, and the gross margin target sits about 4 percentage points above the prior-year level. Management framed the raise around share gains and a strong competitive position, while warning that global economic conditions and the broader demand environment should stay consistent with the trends discussed last quarter.
That demand backdrop is the main caveat. Enterprises continue to right-size security investments against near-term budget constraints, which has produced longer sales cycles, deal downsizing on new business and renewals, and lower usage and consumption from some customers, especially larger enterprises. SentinelOne announced a restructuring plan in June 2023 and expects the related actions to be substantially complete by the end of fiscal 2024. The company's risk factors also flag a history of losses, intense competition in cybersecurity, actual or perceived defects or vulnerabilities in the platform, geopolitical uncertainty and a non-cancellable cloud infrastructure commitment of at least $860 million to be spent between March 2023 and February 2029. The ARR comparison additionally rests on a one-time adjustment of roughly 5% made in the first quarter of fiscal 2024, which lowered prior-period figures.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $149.4M | $133.4M | +12.0% | $102.5M | +45.8% |
| Gross profit | $104.8M | $90.8M | +15.4% | $66.2M | +58.1% |
| Gross margin | 70.1% | 68.1% | +2.0 pp | 64.6% | +5.5 pp |
| Research & development | $54.2M | $55.3M | -2.0% | $55.0M | -1.5% |
| Sales & marketing | $98.3M | $99.2M | -0.9% | $79.0M | +24.4% |
| General & administrative | $48.4M | $51.8M | -6.4% | $40.4M | +19.7% |
| Total operating expenses | $205.1M | $206.2M | -0.5% | $174.4M | +17.6% |
| Operating income (loss) | -$100.4M | -$115.4M | +13.0% | -$108.2M | +7.2% |
| Operating margin | -67.2% | -86.5% | +19.3 pp | -105.5% | +38.4 pp |
| Net income (loss) | -$89.5M | -$106.9M | +16.2% | -$96.3M | +7.0% |
| Net margin | -59.9% | -80.1% | +20.2 pp | -94.0% | +34.0 pp |
| Diluted EPS | -$0.31 | -$0.37 | +$0.06 | -$0.35 | +$0.04 |
| Net retention rate | 115.0% | 128.0% | -13.0 pp | 137.0% | -22.0 pp |
Risks
Worsening global macroeconomic conditions and reduced IT spending are affecting demand. The filing states current impacts include a decline in usage and consumption patterns from certain customers, especially larger enterprise customers, longer sales cycles, and deal downsizing by new customers and of renewals by existing customers.
Sales cycles are long and unpredictable, and the company observed a lengthening of the sales cycle for some prospective customers due to higher cost-consciousness around IT budgets. Large enterprises and government entities often undertake lengthy evaluations, delaying revenue.
Generative AI initiatives, including Purple AI, carry execution, margin, and litigation risks. Competitors may incorporate AI more successfully or faster than the company, and bad actors are beginning to utilize AI based tools to execute attacks, creating unprecedented cybersecurity challenges.
Dollar-based net retention rate was 115%+ as of July 31, 2023, compared with 135%+ as of July 31, 2022. Customers have no renewal obligation and may renew for shorter terms or cease using certain features, which could slow revenue growth.
The company has a history of losses and an accumulated deficit of $1,196.8 million as of July 31, 2023. Net loss for the six months ended July 31, 2023 was $196.4 million and operating loss was $215.7 million, with both year-to-date losses widened versus the prior year.
Exclusive Networks was the largest channel partner and generated 19% of revenue for the three months ended July 31, 2023, up from 17% for the three months ended July 31, 2022. Channel agreements are non-exclusive, have no set terms, and impose no minimum purchase requirements.
The market is intensely competitive, with competitors including CrowdStrike, VMware, Trellix, Symantec, Microsoft, and Palo Alto Networks. Larger competitors may bundle competing products or offer lower pricing, pressuring revenue and gross margin.
In June 2023, the company approved a restructuring plan to improve operational efficiencies and align its workforce. Restructuring charges increased by $4.3 million for the three and six months ended July 31, 2023, and the plan may not achieve intended cost savings or the company may re-accelerate operating expenditures.
As a cybersecurity company, it faces particularly intense attack efforts and has faced and will continue to face cyber threats. Bad actors using AI based tools increase the risk, and a breach could harm reputation, create liability, and trigger regulatory exposure.
Expanding international operations expose the company to privacy, data protection, and tax risks. GDPR breaches could result in fines of up to €20 million or 4% of annual global turnover, and U.K. GDPR breaches could result in fines of up to £17 million and 4% of total annual revenue.
Cash, cash equivalents, and investments were $1.1 billion as of July 31, 2023, compared with $1.2 billion as of January 31, 2023. The company may require additional equity or debt financing, and macro conditions may make raising capital difficult on favorable terms.
The company is currently subject to securities class action litigation as described in Legal Proceedings. This type of litigation can result in substantial costs and a diversion of management attention and resources.
SaaS KPIs
All quarters →Annualized recurring revenue (ARR)
Customers with ARR of $100,000 or more
Non-GAAP operating margin
Free cash flow
Net New ARR
Total customers
Dollar-Based Net Retention Rate (NRR)
Summary, forecast, risks and KPIs are extracted from SentinelOne, Inc.'s SEC filings for Q2 FY2024 (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.