SentinelOne, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2022 third quarter and nine months ended October 31, 2021. Comparative periods are the three and nine months ended October 31, 2020. Amounts are in U.S. dollars.
Business context and results
SentinelOne sells subscriptions to its AI-powered Singularity cybersecurity platform, primarily through channel partners. It reported more than 6,000 customers at quarter-end, compared with more than 3,350 a year earlier. The February 2021 acquisition of cloud-data analytics company Scalyr expanded its data ingestion, search, and retention capabilities.
Key financial metrics
| Metric | Three months ended Oct. 31 | Nine months ended Oct. 31 |
|---|---|---|
| Revenue | $56.0 million; up 128% from $24.6 million | $139.2 million; up 120% from $63.2 million |
| Gross profit and margin | $35.7 million; 64%, versus 58% | $81.7 million; 59%, versus 60% |
| Operating loss | $67.4 million, versus $29.7 million | $196.1 million, versus $78.5 million |
| Net loss | $68.6 million, versus $30.2 million | $199.4 million, versus $79.7 million |
| Net loss per share, diluted | $0.26, versus $0.85 | $1.39, versus $2.30 |
Revenue growth reflected demand from new and existing customers and the Scalyr acquisition. Third-quarter gross margin improved as revenue grew faster than cost of revenue; nine-month margin edged lower, which management attributed mainly to cloud infrastructure expansion, support staffing, and stock-based compensation. Operating expenses rose substantially, including stock-based compensation of $27.4 million for the quarter and $62.2 million for the nine months, compared with $4.6 million and $9.8 million, respectively, in 2020.
Cash, liquidity, and debt: At October 31, cash and cash equivalents were $1.665 billion, with $0.4 million of short-term investments; cash, cash equivalents, and restricted cash totaled $1.668 billion. Current assets were $1.773 billion and current liabilities $205.2 million. Nine-month operating cash use was $90.0 million, versus $43.3 million; investing cash use was $12.0 million, versus $3.9 million. Financing provided $1.370 billion, primarily from the July IPO and concurrent private placement. The company had no long-term debt at quarter-end: it repaid its $20 million borrowing and terminated its revolving credit facility in June 2021.
Deferred revenue was $206.9 million, compared with $141.8 million at January 31, 2021. Remaining performance obligations were $265.5 million, of which the company expected to recognize 87% over the next 24 months.
Material changes and business indicators
- The July IPO and concurrent private placement raised approximately $1.4 billion net; preferred stock converted to Class B common stock.
- Scalyr was acquired for approximately $124.6 million in consideration, largely stock. The acquisition added $108.2 million of goodwill. Since acquisition, Scalyr contributed $8.8 million of revenue and a $0.5 million net loss.
- ARR was $236.7 million, up 131% year over year. Customers with ARR of at least $100,000 rose 140% to 416.
- Dollar-based net retention was 130%, versus 115% a year earlier; gross retention was 97% in both periods.
- Channel partners generated 92% of revenue for both the quarter and nine-month period. Exclusive Networks represented 18% of revenue in each period.
Outlook, risks, and contingencies
No specific quarterly or annual revenue or earnings guidance is provided in the filing. Management said existing cash, cash equivalents, and short-term investments should fund working capital and capital expenditures for at least the next 12 months. It expects continued investment in product development, sales and marketing, and international expansion, while warning that these investments may weigh on near-term results and that profitability is uncertain.
Management described COVID-19 effects as mixed: some sales cycles lengthened and services were delayed, while remote-work demand supported usage and some expenses were lower. It cautioned that benefits could diminish as workplaces reopen. Principal risks include intense competition, continued losses, scaling and platform availability, dependence on AWS and channel partners, cybersecurity and product-performance failures, and privacy and regulatory obligations.
BlackBerry/Cylance litigation involving trade-secret and related claims remained pending in several jurisdictions; the company had recorded no loss accrual, stating that an unfavorable outcome was not considered probable or reasonably estimable. Separately, IBM sent a May 2021 letter alleging infringement of three patents; no suit had been filed, and SentinelOne said it believed it had defenses. The filing also notes a dual-class structure: Class B shares carry 20 votes each, and insiders and other pre-IPO holders collectively controlled approximately 70% of voting power as of October 31.
Important facts for investors to verify
- Whether fast revenue and ARR growth continues to translate into improving gross margin, operating cash use, and a path to profitability.
- The sustainability and composition of retention and expansion metrics, and the dependence on channel partners, including major-partner concentration.
- Scalyr integration, acquisition-related benefits, and the eventual accounting allocation of purchase consideration.
- The scale and future impact of stock-based compensation and ongoing equity dilution.
- Developments in BlackBerry/Cylance and IBM matters, and any changes to contingent liabilities or exposure.
- Cash deployment, future financing needs, and the implications of concentrated voting control.