SentinelOne, Inc. — Form 10-Q Summary
Business context and reporting period. SentinelOne provides an AI-powered cybersecurity platform, sold primarily through subscriptions and channel partners. This filing covers the quarter ended July 31, 2022 (fiscal Q2 2023) and the six months then ended; comparisons are with the corresponding 2021 periods. Financial statements are unaudited.
Key financial metrics
| Metric | Three months ended July 31 | Six months ended July 31 |
|---|---|---|
| Revenue | $102.5 million, up 124% from $45.8 million | $180.8 million, up 117% from $83.1 million |
| Gross profit and margin | $66.2 million; 65%, versus $27.0 million and 59% | $117.4 million; 65%, versus $46.1 million and 55% |
| Operating loss | $108.2 million, versus $67.2 million | $198.5 million, versus $128.8 million |
| Net loss | $96.3 million, or $0.35 per share, versus $68.2 million, or $0.57 per share | $186.1 million, or $0.68 per share, versus $130.8 million, or $1.59 per share |
| Cash used in operating activities | $111.5 million for the six months, compared with $72.8 million |
Operating expenses for the quarter were $174.4 million, up from $94.1 million. Stock-based compensation was $41.0 million for the quarter and $72.6 million for the six months. The quarter’s tax provision includes a one-time $9.7 million tax benefit related to the Attivo acquisition and release of part of a valuation allowance.
At July 31, cash and cash equivalents were $269.5 million and short-term investments were $949.9 million, totaling approximately $1.22 billion; restricted cash was a further $64.9 million. Current assets were $1.39 billion and current liabilities $333.2 million. The company reported an accumulated deficit of $807.8 million. No borrowings are reported at period end; its revolving credit facility had been repaid and terminated in June 2021.
Business metrics and material changes
- ARR was $438.6 million, up 122% year over year from $198.0 million. Dollar-based net retention was 137%, versus 129%.
- Customers exceeded 8,600, up from 5,400; customers with ARR of at least $100,000 rose to 755 from 348. Management attributes expansion to new customers, more endpoints, added modules, and subscription-tier upgrades.
- Channel partners generated 91% of quarterly revenue. International revenue was 33% of the quarter’s total.
- Attivo Networks was acquired on May 3, 2022, to add identity security and lateral-movement protection. Preliminary total consideration was $534.8 million, including 6.0 million shares valued at approximately $185.9 million. The acquisition added $432.1 million of goodwill and $151.9 million of identifiable intangible assets. Since acquisition, Attivo contributed $9.3 million of revenue and a $9.3 million net loss.
- Deferred revenue was $345.1 million at July 31, versus $262.0 million at January 31. Remaining performance obligations were $444.7 million; the company expects to recognize 84% over the next 24 months.
- Gross margin improved year over year as revenue growth outpaced cost-of-revenue growth. Higher expenses reflected headcount and stock compensation, cloud infrastructure, marketing, travel, public-company costs, and acquired-intangible amortization.
Outlook, risks, contingencies, and unusual items
The filing provides no numerical revenue or earnings guidance. Management expects operating losses and significant investment in research and development, sales and marketing, and general and administrative functions to continue. It believes cash, cash equivalents, and short-term investments will cover working-capital and capital-expenditure needs for at least 12 months; longer-term capital needs depend on growth, spending, and customer cash receipts. Management also notes uncertainty from economic conditions, inflation, interest rates, COVID-19, and geopolitical events.
- Acquisition-related items: Attivo’s purchase-price allocation is preliminary. Acquisition-related compensation and assumed equity awards are expected to result in expenses over time; the filing also reports transaction and integration-related costs.
- Legal proceedings: BlackBerry/Cylance litigation remains ongoing, including a California action; another proceeding is stayed. SentinelOne says it has not accrued a loss because an unfavorable outcome is not considered probable and a loss amount is not reasonably estimable.
- Operating and market risks: The company identifies persistent losses, competition, customer retention and renewal, sales-cycle variability, reliance on channel partners, cloud-provider availability and costs, and its ability to scale and integrate acquisitions.
- Security and regulatory risks: A breach or product failure could harm customers and the company’s reputation and result in liability. Privacy, data-transfer, export-control, and other regulatory requirements may raise costs or constrain operations.
- Concentration and governance: The company depends heavily on channel sales and AWS-hosted infrastructure. Its dual-class structure gives Class B holders approximately 88% of voting power as of July 31, 2022.
Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ARR, customer growth, and 137% net retention continue to translate into recognized revenue and renewals; ARR is a company-defined operating metric, not a revenue forecast.
- Attivo integration progress, final purchase-price allocation, expected synergies, and acquisition-related compensation and dilution.
- Cash-burn trends and the effect of continuing operating losses, capitalized contract-acquisition costs, and stock-based compensation.
- Gross-margin trajectory as cloud usage, customer support, and acquired-intangible amortization change.
- Developments in BlackBerry litigation and any changes to the company’s assessment of potential losses.
- Exposure to channel-partner concentration, AWS service dependence, cybersecurity incidents, and macroeconomic or regulatory changes.