SentinelOne - Earnings Call - Q3 2026

Transcript

Speaker 0

Hello and welcome to the SentinelOne Q3 FY 2026 earnings conference call. We ask that you please hold all questions until the completion of the forward remarks, at which time you'll be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Saad Nazir, Head of Investor Relations.

Speaker 2

Good afternoon, everyone, and welcome to SentinelOne's earnings call for the third quarter of fiscal year 2026, which ended October 31, 2025. With us today are Tomer Weingarten, CEO, and Barbara Larson, CFO. Our press release and an earnings presentation were issued earlier today and are posted on the Investor Relations section of our website. This call and accompanying slides are being broadcast live via webcast, and a replay will be available on our website after the call. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements about financial performance and future events, including our guidance for the fiscal fourth quarter and full fiscal year 2026, as well as long-term financial targets. We caution you that such statements reflect our best judgment based on factors currently known to us, and that our actual results or events could differ materially.

Please refer to the documents we file from time to time with the SEC, in particular our quarterly reports on Form 10-Q and our annual reports on Form 10-K. These documents contain and identify important risk factors and other information 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 why actual results may differ materially from those anticipated, even if new information becomes available in the future. During this call, we will discuss Non-GAAP financial measures unless otherwise noted.

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results, other than with respect to our non-GAAP financial outlook, is provided in today's press release and in our earnings presentation. These non-GAAP measures are not intended to be a substitute for our GAAP results. Our financial outlook excludes stock-based compensation expense, employer payroll tax on employee stock transactions, amortization expense of acquired intangible assets, acquisition-related compensation costs, restructuring charges, gains on strategic investments, and income tax provision, which cannot be determined at this time and are therefore not reconciled in today's press release. With that, let me turn the call over to Tomer Weingarten, CEO of SentinelOne.

Speaker 1

Good afternoon, everyone, and thank you for joining our fiscal third quarter earnings call. Q3 was another strong quarter for SentinelOne. We exceeded our top and bottom line expectations, demonstrating durable growth and continued operating leverage. Our ARR grew 23% year over year, driven by continued momentum in new business generation and expansion with existing customers. Our third quarter net new ARR also reflects positive growth both year over year and sequentially. We're seeing broad-based momentum with new customers, expansion with existing accounts, and adoption of our emerging platform solutions. Our operating margin reached a new high in Q3, underscoring continued operating leverage and increasing efficiencies across the business. We've put the company on a path towards sustainable profitability both on a quarterly and annual basis, an incredible milestone demonstrating our commitment to profitability.

Overall, our Q3 results highlight steady execution, continued business momentum, and strong demand for our differentiated AI-driven Singularity Platform. We're expanding our market share and gaining traction among the most important domains in cybersecurity, and we're well positioned to lead in both AI for security and security for AI, helping organizations advance their digital transformations securely and intelligently. Let's dive deeper into our customer success and platform momentum. We're winning new logos and expanding our footprint across enterprises of all sizes and industries globally. As AI reshapes how businesses operate, companies are turning to SentinelOne for a unique platform experience that combines AI, data, and security. The best security is not complex. It simplifies operations and provides a great user experience. Alongside industry-leading efficacy, Singularity's intuitive platform, modern interface, and ease of use are key differentiators that are driving strong platform adoption.

Our emerging platform solutions continue to scale and achieve outsized growth. In Q3, our non-endpoint solutions represented approximately half of quarterly bookings, underscoring the growth, diversity, and expanding value of our platform. In addition, our ARR per customer reached a new company record in the quarter. This was primarily driven by strong contributions from our data, Purple AI, and cloud security solutions. Let me share more details, starting with Purple AI. Purple AI growth continues to exceed our expectations and achieve the record attach rate that surpassed 40% of licenses sold in Q3. Purple's growth is being driven by strong adoption from both new customers and existing customers. It's becoming a cornerstone of modern security operations, enabling analysts to automate investigations, accelerate detection, and strengthen response. Reaching this level of adoption so rapidly is a rare feat.

At OneCon 2025, we unveiled the next generation of Purple's agentic AI capabilities, amplifying its ability to triage and remediate threats autonomously in real time. It is a true step towards autonomous security operations where humans and AI work together seamlessly. Q3 was also a standout quarter for data solutions. Bookings growth accelerated to triple digits year over year, and we're seeing growing demand for our AI SIEM solution. We're delivering an industry-leading AI-native security data analytics offering that delivers deeper visibility, real-time detection, faster investigations, and autonomous response, all with more efficient economics and lower costs for customers. And through the acquisition of Observo AI, we now own the data pipeline that powers modern security operations, from data telemetry to AI-driven analytics and response. I'll share more on this later.

Q3 also marked our strongest quarter for cloud security bookings growth in the last 12 months, signifying rising demand for our comprehensive CWS and CNAPP offerings. As cloud environments grow and AI workloads multiply, so does the need for security. We're delivering comprehensive cloud-native protection that scales with our customers' infrastructure. It simplifies operations and fortifies defenses through a unified AI-powered security platform. In Endpoint, we continue to outgrow the market by delivering industry-leading efficacy, performance, and user experience. Customers need a platform that brings simplicity, intelligence, and best-in-class security in a single unified offering. Our growth leadership and innovation in the Endpoint market are the foundation for further expanding the Singularity platform scope. For instance, our Endpoint advantage is enabling us to seamlessly enter the data loss protection space, delivering integrated DLP directly from the agent without requiring additional dependencies.

On SentinelOne Flex, we're seeing strong momentum as customers adopt the Singularity Platform dynamically. Though early, Flex is already helping us secure larger, multi-solution deals and longer-term customer commitments. Enterprises need security that combines simplicity, intelligence, and dependable protection. Singularity provides that balance, enabling faster response, streamlined operations, and stronger defense across the enterprise. We're seeing strong traction with large global enterprises, driven by improved win rates and deeper expansion across existing accounts, which reflects our technology advantage and platform value, and our results clearly underscore our strong competitive position and growing product differentiation. Let's look at a few customer wins from the quarter that exemplify this. For data solutions, a global hospitality brand adopted AI SIEM to replace its legacy Splunk deployment. The customer consolidated on our AI-native platform for its superior performance and user experience. The competitive replacement demonstrates the growing traction of our AI SIEM.

More and more enterprises are selecting SentinelOne to modernize security operations and efficiency. For cloud security, a SentinelOne Flex deal. A global consumer products company signed a multi-million dollar deal with a five-year contract to secure tens of thousands of cloud assets with Singularity. The customer chose SentinelOne for its unified AI-driven cloud security. And by leveraging Flex, the enterprise can dynamically adapt our platform solutions as their needs evolve. It shows both the value of Singularity Cloud and the flexibility of the Flex model. In federal, a major US federal agency significantly broadened its deployment across the Singularity Platform by adding broader platform solutions, including Purple AI, cloud security, and threat services. This multi-year, eight-figure commitment reflects deep trust built over time and our traction in the public sector. Organizations in highly complex and sensitive environments are choosing SentinelOne to simplify operations and drive efficiency at scale.

Lastly, one of the biggest deals in the quarter was with a Fortune 500 brand securing hundreds of thousands of endpoints and expanding into new solutions. This customer, like many others, consolidated multiple point solutions onto our Singularity Platform for better security outcomes and experience. It's a great example of how large enterprises are simplifying their security operations and standardizing on Singularity for unified AI-native protection at scale. These wins highlight our growing traction with large enterprises and continued upmarket success. They also reinforce the industry's recognition reflected in the 2025 IDC MarketScape, which named SentinelOne a leader in worldwide XDR software. On the partner ecosystem front, we continue to expand and deepen our engagements. Our partners are a force multiplier, helping expand our reach and scale. We're seeing strong traction driven by increasing platform adoption across AI SIEM, Purple AI, CNAPP, and broader platform solutions.

We're strategically scaling adoption in the mid-market while driving operational leverage for partners. As an example, we expanded the scope of partnerships with NinjaOne and Pax8 in the third quarter. Among hyperscalers, we deepened collaboration with AWS and Google Cloud, integrating our technology and platform across their cloud marketplaces and AI services. Together, these alliances are enhancing market presence and positioning SentinelOne as a trusted partner for enterprises worldwide. Now, let's dive into the innovation engine that's fueling our growth. We're helping organizations master two disciplines at once, AI for security and security for AI, so they can innovate with confidence. We're putting defenders in control of the AI era, giving them the tools to build, secure, and benefit from AI in a simple, fast, and secure way.

To extend our innovation lead and further differentiate our AI advantage, we acquired Observo AI, the category-defining data streaming platform for AI-native telemetry pipeline management. Let me highlight a few important points on this. Security is, at its heart, a data problem. In legacy, rules-based data pipeline platforms simply weren't built for today's ever-growing attack surface and data-intensive security operations. Observo delivers an AI-native real-time telemetry pipeline that ingests, enriches, summarizes, and routes data across the enterprise before it ever reaches a SIEM or a security data lake. Importantly, Observo gives us ownership of the data pipeline that powers modern security operations. This lets us manage the entire flow of security data, from ingestion and retention to analytics and response, all within a single unified platform.

Combined with the Singularity Platform, we can deliver significant platform value by enabling fast and seamless data onboarding into our AI SIEM or any other destination. Security teams struggle with costs, complexity, and delays created by increasing data volumes, forcing compromises that can reduce visibility, limit protection, and slow response. Observo empowers customers to drastically reduce costs, improve detection, and act faster. This acquisition accelerates our innovation roadmap and amplifies our current data offerings, where we saw triple-digit bookings growth in Q3. In addition, for Prompt Security, the response from customers, partners, and the broader market has been incredible. Prompt Security addresses an urgent and growing need. Nearly every organization is now adopting AI tools, and every CISO we engage with is focused on doing it safely. As enterprises accelerate their use of generative AI and agentic tools, they're looking for real-time visibility, governance, and control.

Prompt technology is seamless to deploy and frictionless to scale. We're seeing healthy early traction in the field. The sales motion for Prompt aligns naturally with our existing go-to-market framework, both as a cross-sale opportunity among existing customers and as an entry point for new customers looking to secure AI usage and technologies. Together with our AI for security offerings, we are well-positioned to secure the full lifecycle of AI adoption. We're helping enterprises embrace AI safely and confidently, proving that innovation and security can move forward together. At WanCon, we introduced several major innovations that advance our leadership in AI-native security. First, with GenAI Security powered by Prompt, we're helping enterprises adopt and secure generative AI safely and at scale. Second, we unveiled our new AI-ready data pipeline powered by Observo AI, which we believe will transform how organizations collect, process, and act on security data in real time.

Third, we expanded Purple AI's agentic capabilities, giving defenders greater autonomy and precision in detection and response. Purple AI is completely integrated across the entire Singularity Platform and delivers a unique, out-of-the-box applied AI experience. Purple's newer capabilities include natural language threat hunting, agentic investigations, and automated response workflows, driving significant efficiency gains and faster threat remediation for security teams, and we introduced the new Wayfinder Threat Detection and Response suite of managed services, designed to give customers the ultimate human plus AI defense against modern cyber risks. Wayfinder embodies this vision by bringing together SentinelOne's agentic AI and Google's threat intelligence with the most elite threat hunters, analysts, and incident responders in the industry. For customers, this means faster detection, smarter response, and stronger defenses available 24 hours a day. This is how cybersecurity evolves.

Humans and AI working side by side, learning from each other and responding in real time. At SentinelOne, we're helping enterprises build the foundation for modern, intelligent, and resilient digital infrastructure. Importantly, this vision is resonating with customers and partners. The response and excitement at WanCon show that our approach is aligned with the market needs. The spirit of our innovation announcements at WanCon was well captured by CRN, whose article title stated that SentinelOne partners cheer AI moves for leading the charge on autonomous security. We're laser-focused on delivering true value and tangible outcomes through both AI security and security for AI. As I reflect upon our overall performance, we're continuing to deliver top-tier growth and margin improvement while driving innovations that are shaping the future of cybersecurity. Our technology advantage is clear. We're delivering world-class innovations and leading the industry in AI-native cybersecurity.

At the same time, we're making tangible progress in building a stronger sales and marketing engine. The last two quarters reflect steady improvement in execution and meaningful progress along that journey. As we look ahead, we remain focused on durable and profitable growth. This quarter, we made tremendous progress towards that goal by putting the company on the path to sustained profitability. I'm incredibly proud of what our teams have accomplished. We're building a stronger, more efficient, and more innovative company and leading the way in AI security for the modern enterprise. Before I turn the call over, I want to address the news of a leadership transition. Barbara Larson will be stepping down as CFO to pursue an opportunity outside the cybersecurity industry. I want to thank Barbara for her leadership and partnership.

She has been instrumental in supporting our path to surpassing $1 billion in ARR and in guiding our transition to achieve sustained profitability. We are grateful for Barbara's contributions and wish her the very best in the next chapter of her career. We have initiated a search for our next CFO. Barbara will remain with us through mid-January to ensure a seamless transition. Upon Barbara's departure, our Chief Growth Officer, Barry Paget, will serve as interim CFO. Barry is a seasoned executive with more than 25 years of experience in operational leadership at companies like SAP and Stripe. He knows our business intimately and is already a great partner for our finance organization. Barry's leadership will ensure a steady hand as we move forward. Importantly, we have an excellent finance leadership team supporting Barry and ensuring continuity.

Our board and executive leadership are confident in a seamless transition, and our profitable growth strategy remains unchanged. In closing, I want to take a moment to acknowledge the contributions of all Sentinels for another solid quarter. Their relentless focus, dedication, and execution drives our success. And thanks to all of our customers, partners, and shareholders for their continued support. Our mission to be a force for good remains unwavering. Thank you again for joining us today. With that, I'll hand it over to our CFO, Barbara Larson. Thank you, Tomer, and thanks everyone for joining us today. Let's review the details of our Q3 financial performance and our guidance for Q4 and fiscal year 2026. As a reminder, all comparisons are year over year, and financial measures discussed here are non-GAAP, unless otherwise noted. In Q3, we outperformed our guidance on both top and bottom line metrics.

Our total ARR grew 23%, and we added net new ARR of $54 million in the quarter, which exceeded our expectations. This outperformance was driven by broad-based momentum across both new customer wins and existing customer platform expansion. We're gaining market share and mind share across our platform solutions, notably AI, data, and cloud. These results reflect steady execution and healthy demand across the business. In Q3, revenue grew 23% year over year to $259 million. International markets grew 34% and represented 40% of total revenue, reflecting balanced growth and an expanding global footprint. Customers with ARR of $100,000 or more grew 20% to 1,572. Our ARR per customer reached a new company record, highlighting our broader platform adoption and increase in average deal sizes. This reflects the value our customers realize from our platform and our continued success in driving multi-product expansion.

Our net retention rate remains strong and well into expansionary territory, driven by customer adoption of our broader platform solutions, including AI, data, cloud, and others. Turning to margins, we maintained an industry-leading gross margin of 79%, highlighting healthy platform unit economics. We also achieved operating profitability of 7% in the quarter, with operating margin improving by nearly 1,200 basis points year over year. We also benefited from the timing of expenses as some spending shifted to Q4. We achieved sustained quarterly operating profitability, a significant milestone toward long-term profitable growth, and we remain on track to deliver our first full year of operating profit this fiscal year. We also achieved our highest quarterly net income margin, which increased to 10% in Q3, significantly higher from break-even in the prior year quarter. I'm excited to share that Q3 also marks an inflection point for sustainable quarterly free cash flow margin.

We achieved a free cash flow margin of 6% in Q3 and remain firmly on track to deliver our second consecutive full year of positive free cash flow margin, another key milestone that underscores our path toward profitable growth. Complementing this strong performance, our remaining performance obligations grew 35% in Q3, reflecting growth acceleration on both a sequential and a year-over-year basis. Our total RPO reached $1.3 billion in Q3, a clear validation of the trust we've established with our customers and our commitment to innovation. From a capital allocation standpoint, our strong balance sheet and improving margin profile provide the flexibility to allocate capital strategically, fueling growth initiatives while driving long-term value creation. In line with this strategy, we extended our technology leadership with the acquisition of Observo AI, a leader among real-time data pipeline companies.

This is a strategic deal benefiting SentinelOne's competitive position while enhancing value for our customers and partners. Observo AI's technology is highly complementary to our data solutions and the Singularity Platform. The best security starts with clear visibility, and Observo AI enhances that by enabling data to flow instantly into our Singularity Data Lake. This seamless integration delivers unified, AI-driven security and moves us one step closer to achieving truly autonomous security operations. The purchase price for Observo AI was approximately $225 million. We expect the top-line financial impact of the transaction to be minimal in fiscal year 2026, with immaterial ARR and revenue contribution, and an estimated 60 basis points impact to our full year operating margin. We finalized and closed both the Observo AI and Prompt Security transactions in Q3. Turning to our guidance for Q4 and fiscal year 2026.

For Fiscal Year 2026, we expect revenue to be approximately $1 billion and $1 million, representing 22% year-over-year growth and increasing the midpoint of our prior guidance range by $1 million. For Q4, we expect revenue of approximately $271 million, which represents 20% year-over-year growth. This outlook is supported by a healthy pipeline, continued customer and partner momentum, and growing contributions from our emerging products. Cybersecurity remains a top priority across industries, and this is reflected in the strong demand we're seeing for the Singularity Platform. As always, we continue to monitor the macro environment, which can influence deal timing and sales cycles. Turning to our outlook for margins. For the full year, we expect gross margin to be approximately 78.5%, and for Q4, we expect gross margin to be approximately 77.5%. Our guidance for gross margin also incorporates strategic investments in cloud infrastructure and capacity expansion.

This is a reflection of our growing global scale and platform diversification. For the full year, we now expect operating margin to slightly exceed 3%. This indicates an overall operating margin improvement of more than 600 basis points compared to fiscal year 25. and for Q4, we expect our operating margin to be approximately 5%, representing a year-over-year improvement of about 400 basis points. Our full year operating margin outlook absorbs a combined 130 basis points of impact from the Prompt and Observo acquisitions, and an additional 120 basis points from FX-related headwinds we've seen this year. Adjusting for these macro and strategic factors, our guidance implies meaningful outperformance compared to the initial operating margin guidance provided in March. Importantly, we are reaffirming our commitment to delivering positive free cash flow for the full year, which we expect to be a few points higher than operating margin.

Taking a step back, our momentum, technology leadership, and competitive position remain strong, and we are delivering top-tier growth at scale with continued operating leverage. Our investment approach strikes a thoughtful balance between maximizing long-term growth opportunities and maintaining a strong, responsible, and profitable financial profile. In summary, we're executing on our strategy with focus and discipline, delivering strong growth, improving profitability, and continuing to invest in the priorities that will shape our long-term success. With a solid financial foundation, a differentiated AI-powered platform, and a large and growing market opportunity, we're confident in our ability to drive sustainable, profitable growth and create long-term value for our shareholders. Before we turn to Q&A, I would like to briefly address my upcoming transition. It's been a privilege to serve as CFO of SentinelOne during such a pivotal time.

I'm incredibly proud of what we've accomplished together, scaling the business to over $1 billion in ARR and achieving sustainable profitability. I remain a strong believer in SentinelOne's bright future. With its differentiated AI-powered platform and a massive market opportunity ahead, I believe SentinelOne is uniquely positioned for profitable growth and long-term success. I want to thank Tomer for his trust and partnership, and the entire SentinelOne team for their hard work. Over the coming weeks, my full focus will be on ensuring a seamless transition. I will be working closely with Barry and our seasoned finance leadership team to ensure a smooth handoff. I leave with full confidence in the company's financial foundation and its future success. Thank you all for joining us today. We'll now take your questions. Operator, please open up the line. Thank you.

At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We'll wait a moment to allow the queue to form. Our first question will come from Saket Kalia with Barclays. Your line is open. Please ask your question. Okay, great. Hey, guys, thanks for taking my questions here. And Barbara, congrats on your next phase. Thanks, Saket. Tomer, maybe for you, it's great to hear that half of the bookings are now coming from outside Endpoint.

Can you just maybe talk about which products outside of Endpoint are kind of becoming the most material from a new business perspective? And to what extent is Flex enabling that? Of course. Thanks for the question. First and foremost, data solutions. That accelerated for us to triple-digit year-over-year growth with both new customers and existing customer expansion. So a lot of momentum in kind of the SIEM replacement space. And obviously, with the acquisition of Observo, this will continue and remove the friction in these transitions and allow us to onboard more and more data into our data analytics platform. The second contributor is Purple AI, with no surprise. It's about 40% attached, which is a new record for us. And this is only for the base capability. That really validates our applied AI approach baked in directly into every part of the platform.

That, we believe, delivers true customer value and efficiency gains. And obviously, when you think about Flex, that is what's allowing these customers now to have the freedom to consume every part of the SentinelOne platform. So that is also a catalyst, and we're seeing that come up online for us in a pretty nice way. So as the platform goes wider, Flex enables that consumption across the board. And we believe that these are going to be the modules for us that are going to carry growth for years to come. Our next question will come from John DiFucci with Guggenheim. Your line is open. Please ask your question. Thank you. Listen, team, this looks like a good, strong quarter here. And it's really nice to see that free cash flow.

Guidance was just a little lighter than we were looking for, and I think the street was looking for. Is there anything to read into that? I only half-jokingly ask whether it's because Barry's going to be less focused on growth next quarter in his new role. I'm just trying to figure that out. I guess, Barbara, we'll miss you here. SentinelOne's become pretty consistent here since you've been there. I think people are starting to understand the way your cadence has worked out here. Is there anything other than an opportunity outside of cyber that you can say? Thank you. Yeah, well, let me first cover the guidance, which I think you're specifically talking about the revenue outlook. Q4 revenue outlook reflects steady momentum in the business.

It's supported by a healthy pipeline, continued momentum with customers and partners, and growing contributions from our emerging products. As you know, Q4 is seasonally the largest quarter of the year. So things like deal timing and quarter linearity can influence quarterly revenue. We believe that's a prudent approach to take given that the macro environment continues to be dynamic. And then just zooming out from a full-year perspective, our FY26 revenue guidance implies an improvement of $1 million compared to the midpoint of our prior guidance. Again, steady execution and business momentum. And then on your second question, this is just really a personal decision for me. You can't always time opportunities, but it was an opportunity for me that comes in a space that I'm deeply passionate about. Helping SentinelOne surpass $1 billion in ARR, reach non-GAAP profitability has been a really important milestone for me personally.

I just want to be clear that decision is entirely independent of SentinelOne's outlook. We've built a really strong foundation, achieved profitability, have solid momentum. That's clear by our Q3 outperformance and outlook for FY26, and I'll just say I care deeply about this SentinelOne team, which is why I'm committed to staying through mid-January and help Barry and the team with a seamless handover, so thanks for the questions, John. Your next question will come from Brian Essex with J.P. Morgan. Your line is open. Please ask your question. Hi, good afternoon, and thank you for taking the question and, Barbara, congratulations from me as well. I guess maybe to piggyback on John's question, could you touch on gross margin, and it looks like the guide calls for a little bit of sequential gross margin compression.

Just would love to get your puts and takes on the drivers of that, what you see in the pricing environment, and maybe with the longer-term outlook, how that may or may not have changed after what you've seen this quarter. Thank you. Yeah, thanks for the question. So Q3, we delivered industry-leading gross margins of 79%. We expect to sustain gross margin at the high 70s% level. In terms of the puts and takes, our Q4 guide includes strategic investments in cloud infrastructure and capacity expansion. This is really just a reflection of growing global scale and platform diversification. For example, just this week, we announced that Singularity Platform is now GA on Google Cloud in Saudi Arabia. So you can see the traction we're having in international markets. Your next question will come from Brad Zelnick with Deutsche Bank. Your line is open. Please ask your question.

Hi, this is Naas Islam on for Brad Zelnick. Tomer, nice quarter on both the new business and the margin front. As you evaluate the breadth of products in the Singularity Platform, do you see the need to add further functionality, perhaps through further M&A? And relatedly, what are the guardrails at M&A as you balance growth and profitability? Thank you. Thank you. We believe we have a pretty complete platform. I think if you kind of look at the sum total of all the capabilities we have, it's incredibly competitive in the market. There aren't many platform providers that have the breadth and depth of capabilities that we have. We made these two acquisitions in areas that we believed are incredibly strategic, not only for now, but also for the future opportunity in cybersecurity.

So as we look at our platform capability set today, we don't envision any big missing pieces. We're always going to remain opportunistic, but at the same time, we've not changed our philosophy around M&A. And we have a substantial part of our platform built in-house. We're going to continue and invest in innovation in-house. And in the areas where we believe there's both opportunity and a strategic gap, we might opt to acquire. But again, nothing impending, and we believe our platform is incredibly competitive at this point. Your next question will come from Meta Marshall with Morgan Stanley. Your line is open. Please go ahead. Great, thanks. Maybe just in terms of you kind of noted improvement in execution and just kind of traction with the Flex deals.

Just wondering if you could kind of give more details in terms of where you're seeing kind of that strength with both Flex and with kind of improved execution? Thanks. Sure. Definitely steady execution, a lot of platform momentum. Our teams executed above our expectations. And I think what's also clear is our technology advantage is resonating. And at the same time, we're still making tangible progress in building stronger sales and marketing engines. But the last two quarters really reflect a steady improvement in execution and meaningful progress along that journey. SentinelOne Flex, there's just a lot of momentum as customers adopt the Singularity Platform in a more dynamic fashion. And it's still early for us, but Flex is already helping us secure larger multi-solution deals and longer-term customer commitments. I think you see some of that true acceleration of RPO, as an example.

The target is obviously to do more and more larger deals. You can also see that through a record ARR per customer contribution. So the more dynamic licensing capabilities we give to our customers, the more they're able to consume from the platform. So it's enabling our teams to lend bigger and with higher efficiency for us. To us, strategically, Flex, again, opens the door for customers to experiment and try more of our platform. And we're seeing that translate into more and more business for us. When you think about these acquisitions that we've done, when you think about the new capabilities that we bring online, Flex allows customers to immediately consume them as well. So it bodes well for our entire go-to-market motion. The next question will come from Joseph Gallo with Jefferies. Your line is open. Please ask your question. Hey, guys, thanks. Really appreciate the question.

It was great to see the net new ARR growth the past two quarters. Just any commentary on 4Q? And then, given you're investing so much in capacity, you're clearly confident on the future. Can we expect net new ARR growth to grow again next year? Or how should we think about the glide path of growth into next year? Thanks. Hi, Joe. Thanks for the question. So while we don't provide formal ARR guidance for Q4, we do expect net new ARR to be higher sequentially, which would be consistent with what we've seen historically from a seasonality perspective. Your next question will come from Fatima Boolani with Citi. Your line is open. Please go ahead. Oh, good afternoon. Thank you for taking my questions. And Barbara, congratulations on your next adventure. I wanted to drill in on the net new ARR performance.

So that 1% growth, can you unpack sort of the puts and takes there? And Barbara, maybe if you can help marry that with some of your commentary in the prepared script around net retention rates well into the expansion territory. I'm just sort of trying to reconcile the RPO and booking strength versus maybe a little bit more anemic on the net new ARR side. Thank you. Thanks for the question. So Q3 net new ARR remained solid. We saw healthy contributions from new customer wins, expansion with existing customers. We also saw record ARR per customer. Really, that's driven by continued adoption of our emerging solutions, AI, data, cloud. So continuing to innovate and execute in this quarter is an evidence that our land and expand strategy is working well, given the momentum we're seeing across our emerging products.

And from an NRR perspective, yes, remains in expansionary territory and relatively stable with what we've seen the past few quarters. The next question will come from Eric Heath with KeyBank. Your line is open. Please ask your question. Hey, thanks for taking the question. Barbara, you mentioned the guide takes some considerations like deal timing and linearity into effect when talking about Q4. I'm just curious, thus far, through the month of November, if linearity was a little bit slower than maybe anticipated. And maybe if there's the sales cycles are possibly getting longer as you introduce Flex deals that are bigger and more strategic in nature. Thanks. Yeah, I mean, I would just comment on two factors that I discussed last quarter that are still relevant to Q4. In quarter, linearity is one of them.

We expect it to be a back-end loaded quarter, especially given the U.S. holidays in November and December. And then also lower than initially anticipated services contribution. So as a reminder, services contributes to revenue, but not to ARR. The next question will come from Jonathan Ho with William Blair. Your line is open. Please ask your question. Hi, good afternoon. I just wanted to see if you could give us a little bit of a sense of where we are in terms of AI security adoption and maybe where customers are in terms of that maturity curve for adopting some of these new solutions. It sounds like you've had tremendous success. And I just wanted to see maybe what inning we're in in terms of analogies. Thank you, and congrats, Barbara. Thank you. Well, I mean, obviously, to us, AI security is now centered around Prompt Security.

The response from customers and partners has just been incredible. It addresses, obviously, an urgent ongoing need. Every organization adopting AI tools and every CISO we engage with is just focused on doing it in the most safe way possible. The use of generative AI and agentic tools is accelerating, as anybody can see and everybody can see, and customers are obviously looking for real-time visibility, governance, and controls as they deploy AI workloads, so we're seeing healthy early traction in the field. The sales motion for Prompt aligns very naturally with our existing go-to-market framework. It's a great augmentation to our endpoint footprint into our AI footprint with Purple, so it's both a great cross-sell opportunity among existing customers and an entry point for new customers looking to secure AI usage and the technologies that they onboard, so all in all, really great traction right now. Pipeline looks promising.

All in all, as you can imagine, everybody's looking for ways to deploy AI workloads responsibly. Prompt is just a great answer for that. The next question will come from Shaul Eyal with TD Cowen. Your line is open. Please ask your question. Thank you. Hi, good afternoon. Tomer, what actions are you taking internally to accelerate net new ARR performance? Maybe how do you guys think about hiring into the new fiscal year? Thanks and congrats, Barbara. Yeah, I think a lot of what we just discussed, I mean, SentinelOne Flex is allowing us to just drive with more efficiency, customer expansions. Obviously, continuously investing in the acquired assets is another strategy for us where we continue and scale these businesses as we integrate them. The other, I think, action that is allowing this is also a very rapid integration into our existing platform capabilities.

So all of those just result, I think, in more strategic conversations with customers. It's not just about selling AI security or an AI data pipeline. It repositions our entire platform and creates more and more competitive differentiation when we're able to come in and fully deliver end-to-end security, fully deliver end-to-end data onboarding, data ingestion, data retention in one solution, in one unified platform. So as we think about net new ARR, that's obviously the number one imperative, which is land bigger and expand bigger. And now we have the capability set and the outcomes to deliver to customers. The next question will come from Mike Cikos with Needham. Your line is open. Please ask your question. Hey, thanks for taking the questions, guys. I appreciate it. Congrats on the quarter and best of luck to you, Barbara.

I just wanted to sanity check some of the commentary here and appreciate the consistent messaging on what you guys are communicating on macro. But it'd be helpful at the margin to hear, with respect to deal timing, macro sales cycles, how did that play out in Q3 versus your expectations? And then to the degree you can elaborate, how was public sector? I know it's a relatively small part of your business, but if that in any way impacted how you were thinking about the guidance here as well. Thank you so much. I think that in terms of deal time, I'm just going to echo what Barbara said. The environment, as you can see throughout this entire earnings cycle, is a bit unpredictable. So for us, we felt, for me, the most prudent to solve for that, so to speak.

With that, we feel very confident in our ability to execute against our Q4 guide. So all in all, we are just trying to create a more measured approach to what we see out there in terms of deal timings. Barbara mentioned Q4 is our biggest quarter, so there's a lot of business coming in. Linearity can change $1 million here or $1 million there, which is the entire gamut of this adjustment. So again, all in all, these are the factors that we're taking into play here as we continue and execute through the year. And obviously, as you can see for the full year guidance, we have taken our guidance up. As it regards to federal business, Q3 was in line with our expectations. Overall, we remain mindful that federal opportunities often progress at a slower pace due to procurement cycle and budget dynamics.

But at the same time, our engagement in the federal vertical remained very strong with positive demand signals and alignment across our FedRAMP high offerings, which span all the way from our endpoint solutions and through data and AI. Just this quarter, as we mentioned, we had a meaningful expansion with an existing customer. And we're building durable relationships, advancing the opportunities, and solidifying SentinelOne's position as a trusted long-term partner across the entire federal ecosystem. The next question will come from Shrenik Kothari at Baird. Your line is open. Please ask your question. Hey, guys, this is Zack Schneider on for Shrenik. Thanks for taking the question. So you noted the minimal revenue and ARR contribution from Observo next year, but just more from a high level, previously talked on how it unlocks a multi-hundred million dollar ARR opportunity by really eliminating third-party telemetry dependencies.

So just curious to hear sort of what benefits have you seen since the acquisition and just tactically how you're positioning Observo versus private vendors and some platform peers and competitive bake-offs? Thanks. This goes back to my commentary around giving a complete end-to-end out-of-the-box functionality. Not only Observo brings advanced capabilities to ingest data, it's not just another data pipeline. It's a complete AI native data pipeline, which just the pace of onboarding, the level of ease of use that we can provide is already above and beyond everything else in this space. And when you couple that with the ultra-fast data lake we have, you kind of arrive at a world where we have the complete data suite from data pipelines and ingestion to data lake and search and data orchestration and hyper-automation.

Think about SentinelOne and AI SIEM and our data solution as a complete one-stop shop to transition away from your old legacy SIEM provider and into an ultra-fast, quick-to-deploy type of a solution that's fully AI-enabled. And obviously, if you then take into consideration the amount of automation that we can bring into the picture, given that we control that real-time streaming element and the data ingestion pipeline, then you start to understand the art of the possible with deploying more and more agentic-based capability to automate more and more of the tasks in cybersecurity, which obviously has been our vision for quite a while now. And that marriage of data ingestion, data processing, and data orchestration really starts to produce this vision of the complete autonomous cybersecurity platform, which is where we're going. The next question will come from Adam Tindle with RJF.

Your line is open. Please go ahead. Okay, thank you. And best wishes to Barbara. Tomer, I wanted to just mention you talked about the partner ecosystem. And just to be very blunt, a competitor called out a pretty big displacement on their earnings call just earlier this week. And that was a partner that you had ramped just earlier this year. They're indicating that there's more to come after this. Just wanted to sort of give you a forum to respond to some of that, comments on defending that, and the notion of more displacements to come. And if you could tie that into how you're thinking about forward growth from here, the ability to maintain this 20% growth, which you're guiding to in Q4, that would be helpful. Thank you. Sure. I think you're going to have to talk to them.

I mean, we still have quite a lot of licenses going with all of our partners. And at the same time, this quarter specifically, we doubled down in a very significant way with two of our biggest partners with multi-year commitments. So we have not seen any meaningful disruption from whatever competitor that is. Our partner ecosystem is incredibly robust. I mean, we have a lot of partners globally. So I don't know exactly what they were talking about, but at the same time, all I see is growth from our partnership as a whole. As for the next year, I think you can look at our Q4 exit rate as a good indicator. All in all, we have a ton of momentum in the business. At the same time, we're trying to balance the macroeconomic environment and how unpredictable and at times volatile it can be.

But all in all, we have a lot of confidence in the momentum we're seeing right now, in the traction we're seeing with our solutions. And I think more than anything, the customer reception and how well our solutions resonate versus everything else out there just gives us a lot of hope that this is the right solution at the right time and just a great market fit. The next question will come from Joshua Tilton with Wolfe Research. Your line is open. Please go ahead. Hey, guys, can you hear me? We can hear you, Josh. Awesome. Thanks for sneaking me in. Barbara, actually, maybe this one's for Tomer.

I guess my question is, there's been a lot of talk and a lot of focus, and rightfully so, about, I don't know if it's been more focus on the bottom line or just an emphasis on delivering operating cash flow, free cash flow, just more of a conversation around profitability this year. And I know it's only in the interim while you guys conduct a search, but I can't help but notice that you're kind of choosing to replace the CFO that seems to have led this profitability motion with someone whose title is growth or growth officer. And my question reading too much into a title? You're absolutely reading too much into it. I don't think there was any intent to signal anything. And we'll continue down the same path that we've been executing towards in the past couple of years.

I mean, you're seeing us consistently expand operating margin year over year. And that's going to continue into next year as well. We're striving to achieve the Rule of 40 as fast as we can, basically. And that is just the way that we look at expansion. And we believe there's obviously more operating leverage in the business that we'll continue and extract. The next question will come from Patrick Colville with Scotiabank. Your line is open. Please ask your question. Thank you, guys. Tomer, I guess my question's for you, please. When I look at the metric around the proportion of quarterly bookings from emerging products, it's kind of interesting to me that it stayed consistent around 50%. And so I guess that could mean two things.

It could mean that the core endpoint has continued to surprise to the upside, and there's still a decent amount of Trellix, McAfee, etc. to go after. Or it could be that these emerging products are maybe being a bit disappointing versus what we might have hoped. So I guess, could you just unpack that metric and what is going on behind the scenes? And maybe with a lens towards next year, what should we expect next year there? Sure. I'd say, I mean, to us, it looks like a very balanced contribution. We like it where we are. There is definite potential and continued expansion in the core endpoint space, and we definitely don't want to wave that away. I just mentioned we doubled down with two of our biggest endpoint partners. So that obviously shows you that there's more to go after in that core endpoint space.

And obviously, we're having a lot of success there. We have one of the best products in the space. But then, obviously, a lot of our data solutions, which are highly pertinent both for existing customers, but also as we land in competitive estates, those are strategic to us as well. So we kind of feel like the 50/50 contribution is a good place for us to be as we continue to execute both on the core endpoint opportunity and starting to extract more and more meaningful revenue from data analytics and from AI. We're also adding more and more capabilities to our endpoint suite. So it's not only about EDR, we're adding adjacent capabilities to continue and expand in that core footprint. So all in all, we got multiple growth vectors as we go into next year. We have no further questions at this time.

I will turn the call back to Tomer Weingarten for closing remarks. Thank you all. Our third-quarter results show the solid execution and progress we're making as we scale the business. Customers are increasingly turning to SentinelOne for better security outcomes and value. And we're focused on driving durable growth, expanding margins, and continuing to deliver the industry's leading AI-powered security. Again, thank you all for joining us today.