“We once again delivered triple digit revenue and ARR growth fueled by strong adoption of our Singularity XDR platform across endpoint, cloud, and identity.
Cybersecurity is mission-critical, and our Singularity platform is purpose built for leading protection allowing us to deliver superior platform value,” said Tomer Weingarten, CEO of SentinelOne. “We’re focused on enhancing productivity and continuing to take market share in a dynamic environment.”
“We maintained the Rule of 60 again in Q3’2023. These results continue to signify our ability to maintain a balance between compelling top line growth and improved progress towards our long-term profitability targets,” said Dave Bernhardt, CFO of SentinelOne.
Letter to Shareholders
We have also published a letter to shareholders on the Investor Relations section of our website at investors.sentinelone.com. The letter provides further discussion of our results for the third quarter of fiscal year 2023 as well as our full fiscal year 2023 financial outlook.Third Quarter Fiscal 2023 Highlights
(All metrics are compared to the third quarter of fiscal year 2022 unless otherwise noted)
- Total revenue increased 106% to $115.3 million, compared to $56.0 million.
- Annualized recurring revenue (ARR) increased 106% to $487.4 million as of October 31, 2022.
- Total customer count grew about 55% to over 9,250 customers as of October 31, 2022. Customers with ARR over $100,000 grew nearly 100% to 827 as of October 31, 2022. Dollar-based net revenue retention rate was 134%.
- Gross margin: GAAP gross margin was 64%, compared to 64%. Non-GAAP gross margin was 71%, compared to 67%.
- Operating margin: GAAP operating margin was (90)%, compared to (120)%. Non-GAAP operating margin was (43)%, compared to (69)%.
- Cash, cash equivalents, and investments were $1.2 billion as of October 31, 2022.
Blockquote
SentinelOne Announces Third Quarter Fiscal Year 2023 Financial Results
Revenue increased 106% year-over-year ARR up 106% year-over-year SentinelOne, Inc. (NYSE: S) today announced financial results for the third quarter of fiscal year 2023 ended October 31, 2022. “We once again delivered triple digit revenue and ARR…
Revenue
Q3'23 Q2'23 Q1'23 Q4'22 Q3'22 Q2'22
106% 124% 109% 120% 128% 121%
“We once again delivered triple digit revenue and ARR growth fueled by strong adoption of our Singularity XDR platform across endpoint, cloud, and identity.
Cybersecurity is mission-critical, and our Singularity platform is purpose built for leading protection allowing us to deliver superior platform value,”
said Tomer Weingarten, CEO of SentinelOne.
“We’re focused on enhancing productivity and continuing to take market share in a dynamic environment.”
- Total revenue increased 106% to $115.3 million, compared to $56.0 million.
- Annualized recurring revenue (ARR) increased 106% to $487.4 million as of October 31, 2022.
Annualized recurring revenue (ARR)
Q3'23 Q2'23 Q1'23 Q4'22 Q3'22 Q2'22
106% 122% 110% 123% 131% 127%
“We maintained the [Rule of 60](Is 60 the New (Rule of) 40? Setting a New Standard of Software Excellence | Bain & Company) again in Q3’2023. These results continue to signify our ability to maintain a balance between compelling top line growth and improved progress towards our long-term profitability targets,”
said Dave Bernhardt, CFO of SentinelOne.
Dollar-based net revenue retention rate
Q3'23 Q2'23 Q1'23 Q4'22 Q3'22
134% 137% 131% 129% 130%
- Total customer count grew about 55% to over 9,250 customers as of October 31, 2022. Customers with ARR over $100,000 grew nearly 100% to 827 as of October 31, 2022. Dollar-based net revenue retention rate was 134%.
Total customer count YoY Growth
Q3'23 Q2'23 Q1'23 Q4'22 Q3'22
55% 60% 55% 70% 75%
- Gross margin: GAAP gross margin was 64%, compared to 64%. Non-GAAP gross margin was 71%, compared to 67%.
Raised Full year Guidance
Last quarter they guided for Full FY2023:
revenues of $403-407 million now raised to $420-421 million
Non-GAAP gross margin of 69-70% raised to 71.0-71.5%
Here is a link to the conference call:
Good quarter with triple digit growth in Revenues and ARR.
Very solid Dollar-based net revenue retention rate.
Growing their customer base.
Raised Guidance.
Fool ommmmmmm, kevin c
long of SentinelOne, Inc.
Saul, I see slowing QoQ growth and slower guide, this slowed much faster then crwd did:
S numbers:
| fq4 23 | fq3 23 | fq2 23 | fq1 23 | fq4 22 | fq3 22 | |
|---|---|---|---|---|---|---|
| rev | 115.32 | 102.51 | 78.26 | 65.64 | 56.02 | |
| QoQ | 12.5% | 31.0% | 19.2% | 17.2% | 22.4% | |
| guide | 125 | 111 | 95 | 74 | 60 | 49 |
| GuideQoQ | 12.6% | 16.8% | 28.4% | 23.3% | 22.4% | |
| 4% | 8% | 6% | 9% | 14% |
CRWD numbers:
| fq3 23 | fq2 23 | fq1 23 | fq4 22 | fq3 22 | fq2 22 | fq1 22 | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| crwd | 6.14 | 516 | rev | 535.15 | 487.83 | 431.01 | 380.05 | 337.69 | 302.84 | |
| QoQ | 9.7% | 13.2% | 13.4% | 12.5% | 11.5% | 14.3% | ||||
| guide | 569.1 | 512.7 | 458.9 | 406.5 | 358 | 318.3 | 287.8 | |||
| GuideQoQ | 11.0% | 11.7% | 12.9% | 13.5% | 12.5% | 10.6% | 17.2% |
CRWD slowed from 13.2% to 9.7% whereas S dropped to 12.5% from 31%…guide slowed by 4% as well…whereas CRWD maintained near 11% guide over guide
Hi stryker. You are comparing qoq growth against the anomalous huge quarter last quarter when if you check your figures you’ll see that they had an astounding 31% sequential growth, so they are growing from that this quarter.
Sure they are slowing like everyone is, but they aren’t focussed on macro troubles like Crowd was.
Saul
the other issue here is operating margin:
S:
Operating margin: GAAP operating margin was (90)%, compared to (120)%. Non-GAAP operating margin was (43)%, compared to (69)%.
CRWD:
-10% gaap operating margin and 15% non-gaap operating margin.
with such negative operating margin S is still slowing and hence fails to earn my dollars.
Well I was unhappy with the large negative cash flow as well. But it is nice to have a company growing at 106% in the smb market while Crowd was crying about how slow the smb market was.
We each make our own decisions though and I respect your decision to avoid Sentinel.
Saul
Crwd is two years ahead of them with both the founding and IPO date, so I try to think of S as being a bit younger in its development.
I was happy to see the operating margin improvement and I’m expecting to see it continue to trend in the right direction. As they mentioned on the call, they are guiding -39% next qtr and projecting to be breakeven in about two years.
From the call:
Finally, for operating margin. We expect Q4 operating margin of negative 39%, up 27 points year-over-year and implying a Rule of 50 for the quarter. At the same time, we are improving our full year margin outlook to negative 51% to negative 50%.
Our updated operating margin guidance is a 6 percentage point improvement at the midpoint from our prior range. It is also an improvement of 35 percentage points compared to last year. Our long-term margin targets remain intact and our goal is to reach operating breakeven for fiscal year 2025, which is primarily calendar year 2024. We are making excellent progress.
Jeff
Q2’s 31% qoq growth included Attivo’s revenue, organic QoQ in Q2 was 19%.
Yes, this is a slowdown but S is taking more and more shares from CRWD:
When $CRWD is guiding “Q4 net new ARR will be below Q3 by up to 10%.”, $S seeing “Q4 net new ARR to grow at least 20% from Q3” and they are highly confident to outperform this.
Zoro
→ I like that juxtaposition.
I felt the commentary, especially in the Q&A was pretty strong and frank.
A couple of further things that give me confidence:
- CFO stated that they will be FCF positive end of next fiscal year - so essentially in 1 years’ time: Q4 2024, so the quarter ended Jan 2024.
- break-even - meaning op margin positive - in the year thereafter, fiscal 2025
- they expect to have a strong 4Q (as per Zoro’s quote above). they are acknowledging that their Q4 sequential growth guide is half of their historical 40% qoq growth, but they also said that their guidance is much more conservative than the past. So even with a much more conservative guide they are planning to significantly outperform/i.e. take market share from CRWD.
- They have not seen weakness in SMB (same as ZS, in contrast to CRWD); they have rather seen the sales cycle lengthening in larger customers same as everyone else.
→ In a way my take-out from the call is similar to TTD; they are taking market share in a very tough environment. I also felt the commentary was frank, confident but sober.
negative operating margin means essentially means they are selling products below cost to gain market share. this is an environment where companies need to save money and hence sentinel is attracting those value conscious customers.
crwd is having trouble growing because its actually “making” money in this environment.
I do understand that winner retains customer for long term once earned and that is why companies are motivated to run negative operating margin in early life. but don’t be fooled that S is having no problem due to macro. it is not feeling it because it is subsidizing its product right now.
Stryker,
Negative operating margin does not mean that they’re selling products below cost. That would imply a negative GROSS Margin, which isn’t Sentinel’s case, as they reported a 71.5% non-GAAP GM. A negative gross margin business cannot have any reason to exist in the first place. Remember, above the gross margin are all costs directly related to producing the product/service that you sell, while below the gross margin are all costs related to grow the business, innovate, and run the organization. The fact that they have a negative operating margin means that these latter cost categories exceed the gross profit available to cover them, i.e., the company essentially prioritizes growth over turning an operating profit. Just for the sake of accuracy.
Silvio
Stryker, I’m sorry to say this, and I know that it’s not true, but you sound like someone who doesn’t understand what SaaS companies do.
When a SaaS company gets a new customer, they have that revenue not just for this year, but for probably at least the next 10 years, EACH YEAR! In fact, with their NRR of 120% or more the revenue won’t just be there next year, it will compound each year.
So we want our companies to go all out to land that revenue, NOW, when it’s available. Crowdstrike is doing the same thing, not covering the cost of its new sales. But they show a profit because they have a big backlog of that recurring revenue that they get each year at minimal S&M cost. Sentinel isn’t profitable yet because each year they grow revenue by at least 100% at this point, in other words their new revenue doubles all their previous years of recurring revenue, and they have to pay the S&M for all that new revenue. But it will recur pretty much “forever”, Oh! It will stay !!!
Saul
12/6/22
What I did: Before the end of SentinelOne’s Conference Call, I sold nearly all of my 11% Crowdstrike position and bought SentinelOne with the money.
Why I did It: I had maintained that I was only going to buy the Leader in this Market and Crowdstrike is the Leader. I reasoned that there should be some advantages to being the leader. My attempt to maintain this reasoning was overcome by SentinelOne’s tremendous Revenue Growth rate and incredible margin expansion, over this last year.
From the CC-
SentinelOne repeatedly expressed the strength in there pipeline and conservative nature of their guides in Q4. So even with a much more conservative guide they are planning to significantly outperform Crowdstrike in both top line growth and margin expansion(I am clear here, in that Crowdstrike is up,against the ‘law of large numbers’.). Here we have Crowdstrike having said that they’re moving into the SMB market and now complaining about it. And we have had SentinelOne saying that they were going to move into the larger Enterprises and then doing it above my expectations.
In the SSE market I invest in both Zscaler and Cloudflare, with the understanding that each has proven what I consider disciplined growth into an enormous TAM. So, I’m not totally against owning more than one company in any one market segment. I will,say, I did have major doubts in SentinelOne’s ability to maintain top and bottom line growth in an environment with significant macro headwinds. I do see the move of SentinelOne into larger Enterprises being easier in this macro environment than Crowdstrike trying to move into SMBs at this time. It’s just that after this quarters’ results, I no longer have any doubt that SentinelOne’s management currently has the right solutions at the right time and the mindset for the disciplined growth I’m looking for.
This is my first foray into ownership of any SentinelOne shares. Good on you SentinelOne for building such an amazing business alongside a powerful next gen incumbent , Crowdstrike. I do see that along with Crowdstrikes size, Crowstrike has the upper hand in preventing breaches with their growing AI capabilities. So what if SentinelOne bettered Crowdstrike in MeTR testing when Crowdstrike had zero false positives and didn’t need to compete in the MeTR test due to the fact that Crowdstrike prevented the attacks before the testing began. I’ll likely take advantage of any price swings between these two companies🤩
Negative operating margin does not mean that they’re selling products below cost. That would imply a negative GROSS Margin, which isn’t Sentinel’s case, as they reported a 71.5% non-GAAP GM. A negative gross margin business cannot have any reason to exist in the first place. Remember, above the gross margin are all costs directly related to producing the product/service that you sell, while below the gross margin are all costs related to grow the business, innovate, and run the organization. The fact that they have a negative operating margin means that these latter cost categories exceed the gross profit available to cover them.
Wow, Silvio really captured this perfectly, even clearer than I did !!! Thanks to Silvio !
Saul
Just finished the call and posted my thoughts on Twitter.
Summarized here
Model for next Q shows 98-113% YoY revenue. aQoQ a bit weaker range (61-117). Look at those margin graph, line continues to go up and to the right!! RAISED FY GUIDANCE. Not many did that, especially 4% or so up!
They harped on UBER CONSERVATIVE guides. Pre-guided 50% ARR next year (then stated they consider this a FLOOR). Trying to be good stewards on this guidance; expecting no macro improvement. If there is any kind of improvement, LOOK OUT!!
In-line for Op margin improvements 35% for full year. Guiding next year an additional 25%! Expect at least even for FY25. FCF remained a bit stubborn but guide they expect positive near end FY24 with full FY25 being positive!
Great insight into FCF weaker improvements,
Customer count numbers not a reliable KPI, mostly due to MSSPs being counted as 1, even if an MSSP has THOUSANDS. Also, direct SMBs moving to MSSPs (last call they said they prefer MSSP cust over direct customers).
Greater focus on large customers.
MUCH more focused on prudent investment spending & margin improvements rather than growth at all costs.
MSSP is definitely a shining point for us.
Some interesting contrasts to what we heard on CRWD call.
CRWD - SMB weakess, S, maybe, didn’t see in direct SMBs, perhaps MSSPs masking this?
CRWD not expecting Q4 budget flush. S never sees Q4 budget flush.
CRWD expects LOWER NET NEW ARR Q4, S expects only 20% GROWTH
WITHOUT macro, they’d be expecting 40% ARR growth for the Q (so their previous guide formula indicates 40%, they cut in half to account for Macro).
Considering selling my CRWD and buy more S & TSLA…