SentinelOne, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended October 31, 2022. The filing is unaudited. SentinelOne provides an AI-powered cybersecurity platform and earns substantially all revenue from subscriptions.
Financial performance
| Metric | Quarter ended Oct. 31, 2022 | Prior-year quarter | Nine months ended Oct. 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $115.3 million | $56.0 million | $296.1 million | $139.2 million |
| Gross margin | 64% | 64% | 65% | 59% |
| Operating loss | $104.1 million | $67.4 million | $302.5 million | $196.1 million |
| Net loss | $98.9 million | $68.6 million | $285.0 million | $199.4 million |
| Basic and diluted loss per share | $0.35 | $0.26 | $1.03 | $1.39 |
- Quarterly revenue rose 106% year over year; nine-month revenue rose 113%. Growth reflected customer additions, expansion and upgrades by existing customers, and acquired businesses.
- Quarterly gross margin was flat; nine-month margin improved six percentage points. Operating expenses increased 73% to $178.4 million for the quarter, led by sales and marketing, research and development, and general and administrative spending.
- Stock-based compensation was $45.7 million in the quarter and $118.3 million for nine months, versus $27.4 million and $62.2 million, respectively, in the prior-year periods.
- Nine-month operating cash use was $171.2 million, compared with $90.0 million. Investing cash use was $1.246 billion, largely reflecting investment purchases and the Attivo acquisition; financing provided $19.8 million.
- At October 31, cash and cash equivalents were $210.5 million, short-term investments $490.8 million, and long-term investments $456.7 million. Cash, cash equivalents and short-term investments totaled about $701.3 million, compared with about $1.670 billion at January 31. Restricted cash was $64.1 million. Total liabilities were $532.5 million, including deferred revenue; no debt balance is shown on the balance sheet.
- Deferred revenue was $354.4 million and remaining performance obligations were $517.4 million; the company expected to recognize 83% of remaining obligations over the next 24 months.
Business trends and material changes
- ARR reached $487.4 million, up 106% year over year. Customers with ARR of at least $100,000 increased to 827 from 416, and dollar-based net retention was 134%, versus 130%.
- Customer count exceeded 9,250, compared with more than 6,000 a year earlier. Channel partners accounted for 90% of quarterly revenue; one partner, Exclusive Networks, accounted for 18% in both comparable quarters.
- Attivo Networks was acquired on May 3, 2022, for reported total consideration of $534.8 million, including cash and SentinelOne shares. Attivo contributed $19.1 million of revenue and $25.3 million of net loss from acquisition through October 31. Acquisition-related goodwill was $432.1 million.
- International revenue was 36% of quarterly revenue, versus 33% a year earlier. The company reported unrealized investment losses of $10.9 million for nine months in other comprehensive loss, which it attributed to market-value declines rather than credit factors.
Outlook, risks and unusual items
- The filing provides no quantified revenue or earnings guidance. Management expects operating losses and significant investment in research and development, sales and marketing, and general administration to continue. It said existing cash, cash equivalents and short-term investments should fund working capital and capital expenditures for at least 12 months.
- Management cited longer sales cycles and increased customer cost-consciousness amid macroeconomic uncertainty. Other risks include intense competition, customer and channel-partner dependence, cloud-hosting reliance, cybersecurity incidents or product defects, scaling and integration challenges, and inflation, interest rates and recession risks.
- Attivo acquisition accounting remains preliminary. The acquisition also includes post-combination compensation expected to be recognized through May 2026. A one-time $9.7 million tax benefit related to the acquired intangible assets contributed to the nine-month tax benefit.
- BlackBerry-related litigation remains pending, including cases with trial readiness or trial dates in 2023. SentinelOne said it had not accrued a loss contingency because it had not determined an unfavorable outcome was probable or a loss reasonably estimable.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether ARR, customer growth and 134% net retention translate into durable revenue growth and improved profitability.
- Cash runway and cash-burn trends, considering the decline in cash and short-term investments and continued operating cash outflows.
- Gross-margin trajectory and the cost impact of cloud infrastructure, acquired-asset amortization, and continued hiring and stock-based compensation.
- Attivo integration progress, realized strategic benefits, and any final purchase-accounting adjustments or acquisition-related costs.
- Developments in BlackBerry litigation and any material change to the company’s assessment of potential loss.
- Concentration and execution risks arising from channel partners, including Exclusive Networks, and reliance on third-party cloud hosting.
- Voting control and dilution: Class B shares carried 20 votes per share, and holders of Class B stock controlled approximately 87% of voting power as of October 31, 2022.