SentinelOne, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022. SentinelOne provides an AI-powered cybersecurity platform, with substantially all revenue generated from subscriptions recognized ratably over contract terms, typically one to three years. Unless noted, amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Revenue | $78.3 million | $37.4 million |
| Gross profit / gross margin | $51.1 million / 65% | $19.1 million / 51% |
| Operating expenses | $141.4 million | $80.7 million |
| Loss from operations | $90.3 million | $61.6 million |
| Net loss | $89.8 million | $62.6 million |
| Net loss per share, basic and diluted | $0.33 | $1.37 |
| Cash used in operating activities | $49.4 million | $30.8 million |
- Revenue rose 109% year over year. Management attributed growth to customer-base expansion and greater purchases by existing customers.
- Gross margin improved to 65% from 51%, as revenue growth outpaced cost-of-revenue growth. Operating expenses grew 75% year over year, faster than revenue.
- Stock-based compensation was $31.6 million, versus $13.4 million a year earlier.
- At April 30, cash and cash equivalents were $766.1 million and short-term investments were $851.4 million; together, approximately $1.62 billion. Cash, cash equivalents and restricted cash at the end of the quarter totaled $769.1 million.
- Investing cash outflow was $858.5 million, primarily $853.0 million of investment purchases. Financing cash inflow was $4.9 million.
- Total liabilities were $391.2 million, including $275.6 million of deferred revenue. The filing says the revolving credit line was repaid and terminated in June 2021; the excerpt does not identify outstanding borrowings at quarter-end.
- Accumulated deficit was $711.5 million. Remaining performance obligations were $372.6 million, of which 83% was expected to be recognized over the following 24 months.
Business trends and changes versus the prior period
- ARR reached $339.0 million, up 110% from $161.3 million. Dollar-based net retention was 131%, compared with 124%.
- Customers numbered over 7,450, versus over 4,700 a year earlier; customers with ARR of at least $100,000 numbered 591, versus 277.
- International revenue rose to 33% of total revenue from 30%. Channel partners accounted for 91% of revenue in both periods.
- Cost of revenue increased 48%, principally from higher allocated overhead and cloud infrastructure costs. Research and development increased 65%, sales and marketing 68%, and general and administrative 109%.
- General and administrative costs included $2.3 million associated with due diligence and planning for the Attivo acquisition. Higher sales and marketing costs also reflected personnel, commissions, overhead, and increased travel as restrictions eased.
- The change in reported loss per share should be read alongside the substantial increase in weighted-average shares, from 45.7 million to 269.6 million.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management expects operating losses and significant investment in research and development, sales and marketing, and general and administrative functions to continue. It stated existing cash, cash equivalents, and short-term investments should support working capital and capital expenditures for at least 12 months.
- On May 3, 2022, after quarter-end, SentinelOne completed its acquisition of Attivo Networks. Consideration included $351.5 million in cash, 6,032,231 Class A shares valued at $195.9 million, and 378,828 assumed options. Purchase-price allocation remained preliminary.
- BlackBerry/Cylance litigation remained ongoing, including a California action and a stayed Texas action. SentinelOne reported no accrual for these loss contingencies, stating it had not determined an unfavorable outcome was probable or a loss amount reasonably estimable.
- Key disclosed risks include continued losses and uncertain profitability; intense cybersecurity competition; reliance on channel partners (including 18% of quarterly revenue from Exclusive Networks and 8% from SHI); dependence on AWS for cloud hosting; cybersecurity incidents or product failures; acquisition integration; privacy and regulatory compliance; macroeconomic uncertainty, COVID-19, and geopolitical risks including Russia’s invasion of Ukraine.
- Management concluded disclosure controls and procedures were effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Investor verification priorities
- Track whether ARR, retention, customer additions, and large-customer growth continue to support reported revenue growth.
- Assess the sustainability of gross-margin improvement against rising cloud infrastructure and operating costs, and monitor the path to profitability.
- Reconcile cash and investment balances and cash burn, especially after the cash-funded Attivo acquisition; review acquisition accounting and integration outcomes in subsequent filings.
- Monitor stock-based compensation, dilution, and the effect of share issuance and the dual-class structure on ownership and voting control.
- Follow channel-partner concentration, AWS dependency, and the status and potential exposure of the BlackBerry litigation.