SentinelOne - Q1 2023

Transcript

Speaker 0

Good afternoon. Thank you for attending the SentinelOne Q1 fiscal year 2023 earnings call. My name is Matt, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Doug Clark, Head of Investor Relations.

Doug, please go ahead.

Speaker 1

Good afternoon, everyone, and welcome to SentinelOne's earnings call for the Q1 of Fiscal year 2023 ended April 30th. With us today are Toma Weingarten, CEO Nicholas Warner, President of Security and Dave Bernhardt, CFO. Our press release and the shareholder letter were issued earlier today and are posted on our website. This call is being broadcast live via webcast. And following the call, an audio replay will be available on the Investor Relations section of our website.

Before we begin, I would like to remind you that during today's call, We will be making forward looking statements regarding future events and financial performance, including our guidance for the 2nd fiscal quarter and the full fiscal year 2023, as well as certain long term financial targets. We caution you that such statements reflect our best judgment based on factors currently known to us And the actual events or results could differ materially. Please refer to the documents we file from time to time at the SEC, in Our annual report on Form 10 ks and our quarterly report on Form 10 Q that we will file for Q1. These documents contain and identify important risk factors and other That may cause our actual results to differ materially from those contained in our forward looking statements. Any forward looking statements made during this call are being made as of today.

If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Except as required by law, we assume no obligation to update these forward looking statements publicly or to update the reasons actual results could differ materially from those in the forward looking statements even if new information becomes available in the future. During this call, unless otherwise stated, we will discuss non GAAP financial measures. These non GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non GAAP results is provided in today's press release and in our shareholder letter.

And with that, let me turn it over to Tomer Weingarten, CEO of SensiOne.

Speaker 2

Good afternoon, And thank you for joining our fiscal Q1 earnings call. I'm pleased to announce we had another excellent quarter. The strength of our results reflect 2 important dynamics. First, the demand environment for cybersecurity remains incredibly strong and we're executing well. 2nd, We continue to achieve significant margin expansion stemming from our platform based land and expand strategy, high quality revenue growth And operational efficiencies.

Let me start with a few highlights from the quarter. Q1 marks our 5th consecutive quarter of triple digit revenue and ARR growth, and we expect that to continue next quarter as well. The outlook for cybersecurity remains strong, and we're also raising our full year revenue growth guidance to 98% at the midpoint. Consistent with the power of our business model, we're delivering growth and significant margin improvement. Our gross margin reached a new high of 58%, a 15 percentage point year over year expansion and our operating margin is expanding 54 percentage points year over year.

We expect to achieve the rule of 40 for the full year. Our land and expense strategy is working extremely well. We added a record number of new customers in the quarter, even more than our seasonally strong Q4. We're consistently winning with large enterprises From a major federal agency, another one of North America's largest telecom operators to a global media conglomerate among others. On top of that, our net retention rate was a record 131%.

And finally, we continue to expand the breadth and diversity of our business, Fueling growth and expansion opportunities, we closed the acquisition of Ativo Networks, marking an important milestone, which we believe establishes us as a leader in identity security. We're now covering essential attack surfaces across endpoint, cloud and identity, All of which offer significant growth potential. Cloud security was once again our fastest growing product offering. Thanks to the dedication and execution of Old Sentinels. We delivered another excellent quarterly performance.

And once again, welcome to the Ativo team. As always, please read our shareholder letter that we published on our Investor Relations website, which provides a lot more detail. On today's call, I'll focus on 3 key topics related to our business. 1, the strong demand environment 2, our path to profitability driven by our strong business model, featuring attractive U. S.

Economics and operational efficiency gains and 3, The superiority of our autonomous security platform, which delivers leading protection and detection, is evidenced by our leadership in this year's MITRE Let's start with the demand environment and our opportunity. Demand for our mission critical Security has never been stronger. Cybersecurity is one of the top IT spending priorities, and we haven't seen that change despite macro conditions. Many secular trends are driving strong demand for cybersecurity, including digital transformation, expanding attack surfaces and data proliferation. The consequences and risks of not being protected by a leading cybersecurity solution are just too high.

On top of these industry tailwinds, our Teams are executing extremely well. Our Q1 results reflect broad based strength across geographies, products and customers. Endpoint remains the engine that fuels our growth. In addition, we're seeing significant growth from our head on capabilities. For example, Our cloud workload protection solution continues to reach new heights and was our fastest growing module approaching 10% of Q1 ACV.

Cloud security represents a vast greenfield opportunity. Enterprises are rapidly shifting workloads to the cloud, which requires advanced protection. Our solution is cloud native and directly integrates into the Kubernetes control plane, delivering autonomous runtime protection. Customers are choosing Singularity Cloud in conjunction with endpoints and on a standalone basis. The scale of cloud footprint and early deal sizes Indicates a much larger future potential.

As I mentioned earlier, we added a record number of new customers in the quarter, Even more than our seasonally strong Q4, we continue to engage in win win organizations across the world, which demonstrates the Power of our solutions in competitive processes against our largest competitors. Customers choose our Singularity platform for leading efficacy, Automation, ease of use and platform breadth. As we look forward, we expect these very strong macro trends and our competitive strength to persist, Fueling our growth in future share gains. On top of the excellent sales results, we generated our largest ever pipeline in Q1. With this as a demand backdrop, we expect revenue in Q2 to grow 109% year over year at the midpoint of our guidance range.

Importantly, we're also raising our full year revenue guidance to 98% growth at the midpoint. Let's turn the discussion to the second topic, The strength of our business model and an increased focus on both growth and profitability. We fully expect to deliver strong revenue growth with Continuous margin expansion as we scale the business. The progress is evident in our Q1 results. Our platform unit economics and business model enable We're increasing our market share in 2 ways.

1, Adding new customers and 2, expanding our footprint with our installed base. In the Q1, our win rates remained high As we continue to secure wins across a significant majority of competitive situations, I'm pleased that our win rates improved among larger deals. And once we start protecting a customer, they remain a customer. And customers are choosing SentinelOne to protect more and more of their network. Our net retention rates reached a new high of 131%.

Our total addressable market is back, growing to over 50,000,000,000 Significantly larger than just a year ago, we've expanded our Singularity XDR platform to cover more attack surfaces than ever, including endpoint, cloud, Identity and an increasing number of emerging capabilities. With the expanding breadth and depth of our Singularity platform, We can efficiently sell to our growing base of enterprise customers. Our platform approach is driving meaningful gross margin improvement. We're able to collect data once and reuse it for multiple security applications, all enhanced by our data set backend. Customers are adopting more of the Singularity platform every quarter to solve their enterprise needs with notable growth from our cloud, Data retention in Ranger modules.

These capabilities deliver high incremental margin. At the same time, our increasing scale and data optimization is improving our cost efficiency. Over the past year, our footprint expansion has far outpaced the growth of our cost. Our business model is designed for operational efficiency. Our partner supported go to market, the global footprint are delivering meaningful operating leverage.

Our magic number is above 1, demonstrating our high sales efficiency and rapid payback periods. Our sales team are ramping faster and becoming more productive. Compounding this, our channel and alliance partnerships expand our reach in a highly scalable manner. For example, In Q1, our channel helped create a record amount of deal registrations, which directly leads to pipeline opportunities and accelerated customer wins. Finally, we're scaling our global R and D footprint, attracting high end talent across multiple continents, enabling us to grow in a cost efficient manner.

Given the massive market opportunity and our share gain trajectory, we will continue investing for the long term success of the business. This is the optimal strategy and it's leading us closer to our profitability targets. You can see us drive 5 consecutive quarters of triple digit growth and consistent We expand our operating margin year over year. In Q1, we delivered 15 percentage points of gross margin expansion to a new high of 68%. Our operating margin also improved dramatically, expanding 54 percentage points year over year.

Our business has never been stronger, And we expect these positive trends to continue as we move towards $1,000,000,000 in ARR and beyond, which brings me to the 3rd main topic, The technological differentiation of our Singularity XDR platform. It can be hard for all of us to sift through all the marketing and corporate messaging found in cybersecurity. In my opinion, the best way to evaluate the technical performance of an endpoint platform is through the MITRE ATT and CK Evaluation Framework, In emulation of real world attack techniques and enterprise requirements, this is as close to a fact based level playing field With objective and measurable metrics produced for each industry participant, this year's MITRE ATT and CK evaluation results Again, paint a very compelling picture. For the 3rd year in a row, SentinelOne leads the test results with superior visibility and automation. You cannot reverse engineer this type of performance.

Out of all the vendors evaluated, our Singularity XDR platform achieved a 100% prevention, 100% attack detection, the highest analytical coverage and 0 detection delays. We are incredibly proud of the team and our technology that makes results like this happen in real life for our customers every single day. The results demonstrate our commitment to preventing and protecting against the most sophisticated threats in keeping our customers safe from adversaries at machine speed. Our technology paves the way for a whole new experience of running a cybersecurity program across an organization, one which enables fewer people to do more, Leveraging the power of data and AI to deliver autonomous and automated cybersecurity. Take a look at our shareholder letter, where we visually show a performance comparison And of course, all major quadrant leaders, it may surprise you to see how wide the gap is between our Singularity platform and some of our closest competitors When it comes to protection, delays and configuration changes, one thing is for certain, attackers will not hit pause Or I do sit by waiting for a human powered service to detect and eventually respond to an alert.

We're delivering autonomous protection through AI and machine learning. Our platform represents one of the largest operational implementations of AI in the real world. This means that every customer is protected by this technology every day. This is the patented technology core of our Singularity XDR platform, and it underscores all Transformative decisions we've made in the past few years to bring this vision to life. A year ago, we acquired Dataset to become the unifying data back end to address the speed, Scale and scope of modern security needs.

Dataset is performing well in security and non security use cases. We just introduced Kubernetes Explorer, which helps manage the health and performance of Kubernetes clusters, deployed applications and underlying infrastructure. A month ago, we added identity protection to our portfolio through the acquisition of Ativo. Our platform has expanded dramatically in the past year alone, Creating an even more diverse business with multiple growth drivers and customer engagement opportunities. Our SDR platform Addresses the major attack surfaces that enterprises need.

In addition to endpoint, these emerging capabilities like cloud, Ranger, data and vigilance Our delivering growth, cloud grew to nearly 10% of our Q1 ACV, and identity security will further diversify our business starting in Q2. Before I hand the call to Nick, I want to talk about our people and culture. They are our key competitive advantage. In the past year, We've almost doubled our headcount. Even with such rapid growth, we remain committed to fostering a dynamic and inclusive culture, Which has been consistently recognized by several best workplace awards.

We conducted recent employee survey and 99% of SENTINEL's Said they're proud to work at SentinelOne. We're focused on protecting our digital way of life from threats and attacks. Our mission, Combined with disruptive technology creates a compelling destination for talent. I'm also excited that we've expanded our leadership team at SentinelOne. Vatsri Vatsen has joined as Chief Operating Officer.

Vats brings excellent experience for scaling and executing the business. As we move towards $1,000,000,000 in ARR and profitability, he will oversee our operational efficiency initiatives. At the same time, I'm thrilled that Nick Warner becomes President of Security, taking a wider focus across security product management and go to market. Nick's executive sponsorship will enable even stronger customer engagement and deepen long term relationships. Again, thanks to all Sentinels for a terrific job and to our customers and partners for their trust and collaboration.

Our momentum and our platform Have never been stronger, and the margin progress we're making is a true testament to the scalability and efficiency of our business model. With that, I will turn the call over to Nick Warner, President of Security.

Speaker 3

Thank you, Telmer, and welcome, everyone. We delivered an outstanding Q1 across every geography, driven by our go to market accelerating flywheel of sales, marketing, channel and technology More enterprises are selecting SentinelOne than ever before because of our leading efficacy, automation, Ease of use and differentiated XDR capabilities. In Q1, our ARR growth of 110% was driven by a healthy mix of new and existing customers. Demand was also strong among both large and medium sized enterprises. We added about 750 new customers, setting a quarterly record even more than our seasonally strong Q4.

On top of that, we built our largest ever pipeline, a result of an excellent collaboration between sales, marketing and our channel partners. We delivered healthy growth across all geographies, including in EMEA, a testament to the resilience and durability of During a variety of economic conditions, our momentum with large enterprises continue to build. Our customers with ARR over $100,000 grew 113%. In addition, our win rates in these large deals increased. Here are just a few examples of the broad based strength we're seeing.

We extended our success in state and local government into the federal arena By securing a major federal agency in partnership with CISA, our largest federal deal to date, we were selected based on our performance in a rigorous Evaluation spanning over 100 requirements and because of our cost effective extended data retention and multi tenant capabilities. This showcases why we are winning against the competition time and time again. We continue to secure large enterprises from around the world across all verticals from major North American telecom operators to iconic media brands and multinational conglomerates. These wins demonstrate the global adoption of Singularity XDR and continue to elevate our position in the market. In addition to growing our enterprise footprint, we're seeing strong retention and expansion within our customer base.

Gross retention rates remained extremely high, consistent with prior quarters. And our NRR reached a new record of 131%, above our target of over 120%. This was driven by license expansion, module adoption and platform tier upsells. Singularity Cloud was our fastest growing module followed by data retention and Ranger. Let me double click into the strength of cloud security, which grew over 50% sequentially in Q1 For record Q4, we're landing large 7 figure cloud security deals today.

Over time, cloud footprints can be as large or even larger than the endpoint. So there is significant expansion potential still to come and we are already seeing that with several customers. Many of the cloud wins we are securing today are just a fraction The full deployment potential. For example, the full cloud estate of a global e commerce customer could easily be 10 times or even larger than the initial deployment. More interestingly, we are seeing customers buy cloud security both in conjunction with traditional endpoints as well as on a standalone basis.

Our prowess in cloud security allows us to engage with more accounts, even those that may be currently using an alternative endpoint solution. Cloud security is a greenfield opportunity with significant growth potential. Next, let me share updates on TiVo and our entry into identity security, a new growth driver for our platform and an important layer of protection for enterprises. Identity is critical in delivering the most complete XDR platform. By adding Identity, we are helping enterprises embrace the 0 Trust security model By reducing the open attack surface, not only is it a natural fit within our platform, it complements our network of strategic service providers extremely well, Especially for incident responders.

We are one of the few vendors in the industry to offer identity security. We believe that TiVo is the best and most comprehensive Identity security solution in the market today, recently tested and validated by MITRE. Being able to offer real time identity protection, Active Directory vulnerability insights and deception techniques are a real differentiator. We closed the acquisition in early May And are making good progress integrating the business for both go to market and technology alignment. We are already offering identity security as part of Singularity to our joint and Technologically, our goal is to deliver a unified 0 trust platform that provides seamless identity security.

SentinelOne and Ativo are better together. As an example, we are outpacing the competition by pairing Ranger's network control and visibility with Ativo's Active Directory Assessment to deliver robust attack surface management capabilities. Let's turn the discussion to our partner centric go to market strategy that magnify our reach and efficiency. Q1 was our largest pipeline generation quarter. We crossed a milestone with over 10,000 partner accreditations across Our sales and technical training courses after launching the program just a year ago.

This flywheel drives Digging deeper, our strategic partnerships with incident response providers and MSSPs remain robust contributors to our growth. We are now involved with a record number of engagements with our IR partners. These engagements are creating hundreds of high value and fast moving opportunities each quarter, Significantly more coverage than any single product vendor could hope to gain on its own. Our growing partnerships with MSSPs give us large and expanding enterprise and mid market coverage. We're also enabling our MSSP partners to deploy more of our XDR modules like Ranger, vigilance, remote script orchestration among others.

This creates expansion opportunities for us and our partners. Finally, our SENTINEL Labs team discovered cyber attacks that are of keen interest to global organizations. Upon Russia's invasion of Ukraine, Sentinel Labs discovered the hermetic wiper and acid rain attacks, 2 cyber campaigns that accompanied the ground invasion. Our research reached major global news outlets and government agencies. SemaOne's leadership in cybersecurity threat research demonstrates our technological leadership and ability to help the global community in times of crisis, establishing trust and building our brands.

I'm proud of our global teams. Again, a warm welcome to the Ativo team. Together, we'll continue delivering significant growth and elevating enterprise security. As President of Security, I'm looking forward to keeping our customers at the center of everything we do, continuing to out innovate our competitors and growing our business. Thank you again for joining us.

And let me turn it over to Dave Bernhardt, our CFO.

Speaker 4

Nick, Tomer, thank you. And I'd also like to thank Call participants and listeners for joining us today. I'll discuss our quarterly financial highlights and provide additional context around our guidance for Q2 and full year fiscal 2023. As a reminder, all margins discussed are non GAAP unless otherwise stated. We delivered another strong quarter of revenue and ARR growth, both well into the triple digits.

We achieved year over year revenue growth of 109 percent reaching $78,000,000 and ARR growth of 110 percent to 339,000,000. We added net new ARR of $47,000,000 in the quarter, outperforming our seasonal historical averages. The demand environment remains incredibly Sean, the strength of our performance was broad based coming from a healthy mix of new customer additions, existing customer renewals and upsells. We set new records for both customer adds and our net retention rate. Demand was also balanced across geographies.

Revenue from international markets grew 129% to 33% of revenue, including continued strength in EMEA despite current geopolitical conflicts. Turning to our costs and margins. Our non GAAP gross margin in Q1 was 68%, reflecting a double digit increase of 15 percentage points year over year. 68% represents a new high for our company and demonstrates the significant progress we've made in a short amount of time since our IPO. Our margin progression really showcases the benefits of our land and expand strategy and platform unit economics, where we collect data once And enable more and more capabilities.

We're seeing benefits from economies of scale, data processing efficiencies and module cross sell. These tailwinds should pave the path towards our long term gross margin target of 75% to 80% or higher. The impact of customer migrations to our data set back end was immaterial our gross margin in the quarter, we've migrated all of our largest customers and remain on track to largely complete the migration this summer. We do not expect any material impact to our gross margin in the future from this. Our customers are now realizing profound benefits of using the data set back end resulting in up to 10 times performance improvements.

Looking at the rest of our P and L, our non GAAP operating margin was negative 73% compared to negative 127 percent a year ago, a vast improvement of 54 percentage points. Our strategy is to invest efficiently for growth, And it's working well. Our magic number was over 1 again this quarter. We're achieving scale from our market share expansion, improving our sales And globalizing our talent pool into new areas like the Czech Republic and India. Moving to our guidance for Q2 and fiscal 'twenty three.

We're excited to welcome and integrate the Ativo team and portfolio, which is now included in our guidance. Based on the strong But we do not intend to break this out specifically going forward. In Q2, we expect revenue of $95,000,000 to $96,000,000 Reflecting 109% growth at the midpoint, we expect organic growth in the low to mid 90% range. For the full year, we are significantly raising our outlook to $403,000,000 to $407,000,000 This reflects 98% growth at the midpoint. As part of our improved guidance, we've increased our organic growth expectations to mid-eighty percent growth from 80% previously.

While we don't specifically guide for ARR, I do want to remind you that we are a subscription business, which gives us higher visibility. Our ARR and revenue growth track very closely. Therefore, based on our Q2 revenue guidance, net new ARR should grow at or slightly above 20% sequentially. This is consistent with last year's Q2 seasonal growth and still comes on top of our Q1 outperformance. In addition, we expect TiVo to contribute approximately $5,000,000 to Q2 total ARR and over $45,000,000 for the full year, reflecting about 50% growth for the year.

Our guidance reflects our confidence and optimism around cybersecurity demand as well as our business momentum. We exited Q1 with our largest ever pipeline. Endpoint security is a must buy for the enterprise in all economic conditions, And we're seeing increasing demand for our cloud security solutions and other capabilities. Turning to gross margins. We've taken a major step forward as a company.

The impact of the dataset migration is behind us, and you can see how powerful our platform model can be at increasing scale. We expect Q2 gross margin to be between 68% to 69%, holding the significant progress we made in Q1 And reflecting 6 to 7 points of improvement year over year. The progress does not stop here. We're increasing our full year gross margin guidance 69% to 70%, up from prior guidance of 65% to 67%. The key takeaway here is that we now expect Exit the year in Q4 at or slightly above 70%.

We're marching towards our long term target of 75% to 80% or higher. As Tomer mentioned earlier, we're benefiting from data efficiencies inherent in our business model and our platform approach. Finally, I'll discuss our operating margin outlook and give some color around our longer term path to profitability. We expect Q2 Non GAAP operating margins of negative 75% to negative 73%. This incorporates several $1,000,000 of planned investment to accelerate the integration of Ativo.

Importantly, we're maintaining our full year operating margin guidance of negative 60% to negative 55%, which implies another year of nearly 30 percentage Even with planned investment in the integration of Atevo, we expect to achieve the rule of 40 for the full year. We're committed to investing in talent and technology given the tremendous opportunity in front of us. We are delivering excellent growth, And at the same time, we are delivering excellent margin improvement. We have a strong balance sheet with over $1,200,000,000 in cash and investments after the Ativo acquisition. This is more than adequate for investments in the business and additional runway and should take us to positive cash flow generation.

I want to provide an illustrative example around the timing of potential profitability. If you consider our fiscal 'twenty three guidance, we're on track to deliver an average of about 30 percentage points of operating margin expansion each year since fiscal 2021. If one extrapolates this further, We could be on a path to operating profitability in fiscal 'twenty five. On a quarterly basis, we could see positive cash flow generation even sooner. During fiscal 'twenty three, we plan to continue investing efficiently for growth, while making steady progress towards our long term profitability targets.

In summary, Q1 was another excellent quarter with strong execution company wide, and we're expecting that momentum to continue. Thank you all for attending our earnings call. We can now take questions. Operator, can you please open up the line? Thank you.

Speaker 0

Thank you. Our first question is from Tayliani with Bank of America.

Speaker 4

Great results.

Speaker 5

I would like to know Sorry, I have clarification and a question. So the clarification part, what's your full year growth expectations And on the question, I want to focus on the margins. 2Q operating margin guide is 74%. 1Q was 73, but the full year guidance was maintained at 57.5%. So what Drive the expected margin expansion in the second half?

Thanks.

Speaker 4

Yes. Excluding OTIVO, we increased Our guidance from 80% to mid-80s, so our organic was up about 5% for the year.

Speaker 0

Got it.

Speaker 4

And then in regards to the EBIT margin, we're making we're continuing to make significant investments during the year. One of the things I think we're proud of is that we're able to integrate Ativo and to build in all the integration costs this year and maintain our current guidance. Our plan is to spend between 1% 2% of the actual purchase price in integration cost So to make sure we accelerate this and hit the ground running with Ativo and we're doing all that while maintaining our current guidance. So Obviously, our organic guidance, Sanbativo, would have been improved.

Speaker 5

Right. But what drives the improvement? You're guiding for basically second half improvement over first half, right? It's quite a sharp improvement in the second half. What drives it?

Is it economies of scale or finishing the integration of Ativo? Or do you expect

Speaker 4

Yes, I think what you're seeing is obviously our gross margins have improved. So we ended this quarter, we are 68%. We've put a lot of the dual costs behind us in terms of the integration For Ativo Backend, we're also just seeing continued scale within the business. I think this is just another Step in the right direction to show the scale we're going to have in our model as we continue to grow larger. So you're seeing that just continue into the second half.

Speaker 5

Great. Thank you.

Speaker 0

Thank you for your question. The next question is from the line of Brian Essex. Your line is now open.

Speaker 6

Great. Thank you. Thank you for taking the question and congrats on the results. Nice to see the incremental progress here. I guess, I have one question and this is around margins as well and maybe That's fielded by Dave.

Could you dig in a little bit to expectations around gross margins? How much if I recall, Ativo Margin Accretive. How much units will be contributed by Ativo? How much by better scale across dataset? And then how much by pricing increases or better attach rates on the platform?

Just so we can get a sense of Impact of drivers here for better unit economics going forward?

Speaker 4

Yes, I think it's really a balance of all three. We're continuing to just scale and business expansion. So obviously, the revenue outperformance and the revenue growth that we're expecting, The strong module attach is a big piece of it. The data processing efficiencies are a piece of it. And yes, Atevo is accretive from a gross margin standpoint, But obviously they're not at the same revenue scale we are.

So it's still mostly led from our organic work. They are accretive to But it's not a significant driver for a step up in our gross margin.

Speaker 6

Okay. Any way you can kind of And maybe give us a sense of what Ativo's gross margins were and if you were to rank them Most impact or least impact, how should we anticipate the impact on the gross margin side?

Speaker 4

Yes. I think in terms of Contribution to the overall company, TiVo would be number 3. If I had to think about it, I would say the revenue outperformance and the efficiencies in our product 1 and 2.

Speaker 6

Okay. Thank you very much. I appreciate it.

Speaker 4

Sure.

Speaker 0

Thank you for your question. The next question is from the line of Alex Henderson with Needham. Your line is now

Speaker 7

open. Great, thanks. So the question we've been asking almost every company we talk to is Really around the correction in the stock prices that have happened and how you adjust For stock compensation to your employees, particularly given the challenges Bringing on new employees with stock compensation based on where the stock is and older employees Potentially having stock that's significantly underwater. How do you balance that problem and what is your Thought process around it. Thanks.

Yes.

Speaker 2

It's a good question. And I think, obviously, for us, We feel relatively good about how we structured our entire stock based compensation strategy. All in all, we encourage Everybody to look at Stolt Grand, obviously, it's something that's over a 4 year period. So we wouldn't want, I think, to really go into any specific adjustment. With that said, I mean, we're obviously constantly monitoring.

We're looking for ways to obviously offset any injustices. But Generally speaking, we feel pretty good about it, and we don't feel like anything material will be changing in the way that we compensate, call it, in the next 12 months or so.

Speaker 4

Yes. I think stock based comp is obviously something we're focused on. If we look at ourselves as a percent of the operating We're in line with our peers. If you look at us in terms of percentage of revenue, It's something we expect to decline over time as we achieve scale. Obviously, we've been hiring into revenue, And we're seeing that start to dissipate over time where we'll fall within industry norms.

So it's something We're very cognizant of, we pay attention to it. But yes, I think, Tomer hit it right. Employees are coming here because we're a destination, Because we're going to offer a lot of value to employees over a 4 year period. And this is unfortunate what's happened recently with the stock performance in the entire market, We believe if we continue to execute, we'll ride out of this very strong.

Speaker 7

So you do not expect to restate or we Cast existing stock compensation to employees that have been there for a year or 2 or 3 or longer? Correct.

Speaker 4

If you've been an employee here for a few years, you're still well up in your stock.

Speaker 7

Okay. Thanks.

Speaker 0

Thank you for your question. The next question is from the line of Trevor Walsh with JMP Securities. Your line is now open.

Speaker 3

Great. Hi, team. Thanks for taking my question. Maybe for either Tom or Nick, You mentioned in the prepared remarks around the fast pace at which the cloud module is growing. I wonder if you could comment or provide a little color around the competitive landscape versus when it's maybe a cloud purchase Within the context of a larger endpoint type deal or if the dynamics change when it's just a standalone purchase of that module without Kind of the legacy endpoint products entering the play and then kind of an additional question or part of that Do you see those mostly as displacements of legacy or incumbent tools or customers doing a kind of multi vendor Approach with respect to the cloud security piece?

Thanks.

Speaker 2

I think you're seeing pretty much all of the above. When we go into kind of standalone opportunities where just cloud, we typically win on the strength of our platform. We get a best of breed solution For cloud worker protection, it's one of the biggest needs right now when you think about securing cloud footprints and we have a superior approach. So it's something that goes hand in hand with endpoint security, but doesn't have to be deployed alongside the same vendor. So we're seeing a good number of opportunities, sizable opportunities, where we're actually deployed side by side with maybe one of our competitors on the endpoint side We take over the cloud side.

I'm needless to say that opens up the opportunity to then cross sell and up sell into the endpoint environment, and we really like That's mode of operation. It allows us to unlock many more accounts that otherwise we would not have been able to go into just on our ability to secure the endpoint. But obviously, when you look at our installed base, there is plenty of opportunity to go from that endpoint footprint into the cloud. Cloud is a greenfield opportunity. There's no incumbent vendor in cloud that we're set to replace.

It's always an Extension, at least in the vast majority of patients that we see. So to us, that represents not only a growth vector on the Stateside, but again, another piece of our strategy to unlock more and more accounts alongside endpoint. And again, it all comes on the back Of technological superiority, the ability to sell just cloud workload, it's just something that we feel is a major strength of the business here, We are continually investing in it.

Speaker 3

And the results are there today. In Q1, we actually grew cloud sales 50% quarter over quarter Off of a record Q4 and where that shows how far we've come in a year, that's literally 30x growth year over year From Q1 to Q1. So, we're at the early stages of what we feel like it's going to be a very big market. Great. Thank you both.

Congrats on the quarter.

Speaker 0

Thank you for your question. The next question is from the line of Saket Kalia with Barclays. Your line is now open.

Speaker 4

Okay, great. Hey, guys. Thanks for taking my question here. I'll just keep it to Juan and maybe direct it to you, Tomer. Can you just talk a little bit about how much customers are adopting the higher end Endpoint bundles that include EDR.

And maybe just illustratively or just anecdotally, I mean, How much of a lift is that higher end bundle compared to some of the lower end ones? Does that make sense?

Speaker 5

Of course.

Speaker 2

Yes. And I think we kind of talked about it in the past as well. For the vast majority of customer adds that we've had this quarter, and it's also to the past quarter, especially in the enterprise segment, you're talking only about the highest tier At the beginning point of any one of these deals. And then on top of that, you actually see very strong module attach in the form of Ranger, Cloud Security For vigilance, these are our 3 top modules. Data retention is right there with them.

So to us, really, the dynamic Shifted away from these bundles into just selling complete and on top of complete attaching our modules. I think you're also going to see us in all likelihood I'm revamping the way that we design our platform in the next 12 months or so, again, to reflect That shift from the base packages around endpoint and really a more inclusive approach to an XDR platform with attachment modules.

Speaker 4

Got it. Very helpful. Thanks, Tomer.

Speaker 0

Thank you for your question. The next question is from the line of Hamzah Badriwala with Morgan Stanley. Your line is now open. All

Speaker 6

right. Thank you for taking my question. I'll keep it to 1, 2. For Tomer and Nick, just you talked about some pretty strong growth in Europe. I'm wondering if you could give us a sense of to what degree you're seeing displacements against Kaspersky given the sanctions in Got you.

And do you expect to see more displacement with Carbon Black in light of the VMware Broadcom acquisition?

Speaker 3

Yes, great question. Indeed, we are seeing an immense amount of demand around Kaspersky. Kaspersky traditionally Had done well from a legacy vendor perspective in EMEA, Latin America, parts of Asia, and what we're seeing is Really a wholesale movement away from Kaspersky, either by mandate or because folks want A better security platform, typically we're seeing really a combination of both. So that represents An amazing opportunity for us. I think with the recent news around Broadcom and VMware, We've seen that movie before with Symantec.

And if you look at any market share report, the largest contributor of market share shift to next Jen Vendors was from Symantec post Broadcom acquisition. So we have already begun in earnest to replace Carbon Black in a variety of accounts, very large, large and midsize businesses. We have a technology platform that can literally automate The transition away from Carbon Black and we expect that to really accelerate in the quarters to come post Broadcom acquisition VMware Carbon Black.

Speaker 2

Thank you. Maybe just one small thing to add there. I mean, that's definitely the case on the endpoint I think on the cloud side, that's also true. I mean, we feel like VMware represents pretty much A complete new greenfield to protecting workloads. And again, we feel that that's again Something that's worked in our favor in this case.

Speaker 0

Thank you for your question. The next question is from the line of Fatima Boolami with Citi. Your line is now open.

Speaker 8

Thank you. Good afternoon. Thank you for taking my questions. Nick, I'll direct this one to you. Just given some of your Commentary on the channel partner traction and some of the voluminous deal registration that you saw in the quarter.

So maybe taking a step back, can you talk about What proportion of the business today is being derived from the OEM and MSSP channel that you More or less cornered. And then if you can share with us or give us a refresher on, is there a unit economics when you OEM with some of these MSFPs It's different from if you sell into a large enterprise?

Speaker 3

Sure. And we're Really proud of what we built from an MSP and MSSP perspective. And a lot of that also dovetails into our dominance With IR incident response partners because many of them are doing both. What they're realizing now is you go in, you help clean up and do Incident response and remediation and customers commonly want that new solution to be managed by experts, those experts Being intimately aware of the environment that they were called in to help save and protect. And so I think from a contribution perspective Directly, it's over 20% coming from MSSPs.

I think one important note is what we've recently done is Unlock the ability of our MSSP partners to be cross selling, upselling complete and other modules Like data retention, like Ranger into that MFSP base. So we expect that contribution from an overall macro Perspective to grow, but also from a unit economics perspective, we expect that to continue to grow as well. And Like I said before, it's a fantastic way to consume a cloud native platform is to have it managed by experts and We think of no better way to do that than to partner with the best and brightest, who all they do is provide managed services and give our customers And abundance of choice, so they can find the right MSSP partner for them and have them manage SentinelOne.

Speaker 8

Thank

Speaker 3

you.

Speaker 0

Thank you for your question. The next question is from the line of Patrick Colville with Deutsche Bank. Your line is now open.

Speaker 9

Hey, thank you so much for taking my question and congrats on a very healthy set of numbers. Can I ask about the Ativo, contribution to your fiscal 'twenty three guidance, if I'm not mistaken, the guidance has increased from 3.6 $8,000,000 at the midpoint to $4,000,000 or $5,000,000 which is a $37,000,000 increase? If I've done the math correctly, you said that organically, the growth has gone from 80% to mid-80s. So it's about $10,000,000 So if my math is correct, the Ativa contribution I should kind of bake into my numbers is roughly kind of Like $27,000,000 Just want to understand whether that logic is correct in terms of how much you're putting baking in Fortivo for fiscal 2023? Thank you so much.

Speaker 4

Yes, I think there's some rounding in there, but ativo is directionally around 30,000,000 For the year about $8,000,000 for Q2, if you're updating your models.

Speaker 9

Okay. That's great. Thank you so much for that.

Speaker 0

Thank you for your question. The next question is from the line of Joseph Gallo with Jefferies. Your line is now open.

Speaker 6

Hey guys, really appreciate the question. This one is for Tom or Nick. You guys mentioned improved win rates among larger opportunities in your shareholder letter. Is that first next gen players or more legacy vendors? And then maybe what's driving that?

Is that product led with a larger number of modules? Or is that more of a refinement the go to market side. Thanks.

Speaker 2

Yes, I mean it's both, but I think what we're seeing out there, Especially as we engage with more and more incident response partners, are just folks getting a bit disillusioned with all the next gen offerings, maybe even Chris, specifically, we're seeing this barrage of exploited vulnerabilities Day in, day out, and I think that, again, customers are looking for ways to clean up their environment and deploy best of breed security. So we're seeing improved win rates in these scenarios. I think all in all, if you take the sum total of all of our components, A very strong cloud offering, an incredibly strong endpoint offering as reflected by MITRE, you're starting to see a platform That's quite hard to compete with. And I think that is again reflected in the way in the pace that we acquire customers.

Speaker 3

Yes. And I think directly, we've talked before about having high win rates. They continue to be at or above 70% and that is Absolutely against our closest peer company public competitors. And the vast majority of enterprise Deals that we're closing, which is again outpacing our overall growth, the number of deals that we're closing over $1,000,000 or over $100,000 It's safe to assume that in the vast majority of those, those are against other so called next gen competitors and our win rates Remain high and in fact are growing in that area as well.

Speaker 6

Great to hear. Thank you.

Speaker 0

Thank you for your question. The next question is from the line of Gray Powell with BTIG. Your line is now open.

Speaker 3

Okay, great. Thanks for taking the question and congratulations On the really strong results. So yes, maybe just a high level question. My understanding is that EDR penetration is somewhere in the 40 5% range, give or take. I'm just curious, where do you think that peaks out over the next few years?

And then how do you feel about your competitive positioning, just given that the next leg of adoption is probably going to be more mid market focused versus Cineplex.

Speaker 2

Yes. I'd really encourage you all to not think about this very linearly. I think that what we're seeing is transition from endpoint to EDR, from EDR to XDR, each one of those represents a different set of opportunities, a different set Challenges, different set of products and capabilities. So all in all, I don't know if the number is 45% or it's a different number. There's plenty of opportunity out there.

Again, us generating record pipeline in Q1 in these macro conditions I should tell you something. But again, all in all, when we look at our pipeline, when we look at the types of customers that are looking to augment EDR, To expand from EDR to XDR or changing the requirements or putting cloud into that mix, That just represents a massive opportunity across multiple TAMs. So I think it really depends on how you want to define it. The way that we look at It's a broad based XDR platform that plays across multiple TAMs, and that's even before touching on what we believe is going to be the next opportunity here, Which is really data analytics, security data analytics and security data lakes.

Speaker 3

One thing I would also add is there's really only 2 XDR players in the market that have identity capabilities. And so I think if you're talking point solution either EPP or EDR vendors, Those are all falling to the wayside. They themselves are getting replaced by XDR platforms. And what we feel like is we're really just at the beginning stages Growing massively into this identity security market, which again, it's one thing we've definitely seen in the last several quarters from a threat research is identity is becoming front and center of attacks. That has really become in a lot of attacks, the crown jewels Of what malware actors are after.

And so that really is opening up an enormous market and it's really changing everything in terms of how Customers are perceiving what they need from an EDR or XDR vendor. That's really helpful. Okay, thank you.

Speaker 0

Thank you for your question. The next question is from the line of Andrew Nowinski Key with Wells Fargo. Your line is now open.

Speaker 3

All right, thanks. I want to ask about the large federal deal that you mentioned in Can you give us any more color around the size of that deal, whether it's already reported in ARR or if that's going to be rolling into ARR in future quarters?

Speaker 0

And which vendors do you beat in that win? Thanks.

Speaker 3

It was a large multimillion dollar deal. And I think for us what it really points to is The federal opportunity is beginning now. Typically in cybersecurity, federal And federal organizations have moved slowly, but I think there's been a really good push and movement by CISA, Pushing these agencies forward to begin evaluating and purchasing XDR solutions, I think our results in MITRE has really proven to a lot of federal prospects That we're the best choice from a technology perspective. And certainly, the work that we put in from a FedRAMP perspective over the last

Speaker 0

Thank you for your question. The next question is from the line of Joshua Tilton with Wolfe. Your line is now open.

Speaker 10

Hey guys, thanks for taking my question. Is there any way you can give maybe some more color on what led to more customer additions In 1Q over 4Q, was it something in the marketplace or was it more about your execution in the quarter?

Speaker 2

I think a lot of it was our execution. I mean, we're doing, as Nick mentioned, a better job at enabling our MSSP partners, as an example. So, certainly, that flywheel creating more and more opportunities for us. You see more traction with IR partners ramping up. You see that showing contribution back into the quarter.

To us, it was again a very healthy mix of large customers and mid market customers, 100 ks deals and above grew faster than the overall, dollars 1,000,000 deals and above grew faster than the overall. So to us, I mean, it really is a broad based strength across everything we do. And again, we obviously wish For that to be the case every quarter, and we work hard to make sure to replicate itself in Q2 as well. Yes. And one thing

Speaker 3

I would add, and I spoke to this in Your comments was we recently just crossed over 10,000 channel partner accreditations. So if you think about enabling over 10,000 sellers In our various channel programs around the world, that flywheel is spinning fast And increasing in velocity. And so I think the result of that is that we're seeing material strength across All sizes and all geographies of our business. And I think what that underscores Is what we've built is really a durable business model that provides technology to incident response partners to MSPs, To MDRs and to channel partners and we don't compete with them, we enable them. And what we found in business is if you treat your partners well, They will put you very much at the center of their go to markets, and we're going to continue to see that contribution accelerate in the quarters to come.

Speaker 10

Makes a lot of sense. And then just one clarification question for me. In the shareholder letter, you characterized the net new ARR as being exceptionally strong on a seasonal basis. Is there anything about it that was unusually strong For 1Q that we should know about, was anything kind of pulled in from 2Q or maybe closed from 4Q that should have closed last quarter but closed this quarter? No,

Speaker 2

no, I think it was mostly broad based. But once again, I think we're lapping 1 year in the public market, and we're just Getting better at our ability to drive the business. So I think some of it might be debt. But all in all, we were just very pleased to overachieve on Q1, which In our seasonality, it's typically the one that is the most difficult for us, and this was a pleasant surprise. Thanks,

Speaker 0

Thank you for your question. The final question is from the line of Roger