Good afternoon. Thank you for attending the SentinelOne First Quarter Fiscal Year 2025 Earnings Conference Call. My name is Cameron, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. I would now like to pass the conference over to your host, Doug Clark, Vice President of Investor Relations. You may proceed.

Good afternoon, everyone, and welcome to SentinelOne's earnings call for the first quarter in fiscal year '25 which ended April 30th. With us today are Tomer Weingarten, CEO, and Dave Bernhardt, CFO. Our press release and the shareholder letter were issued earlier today and are posted on the Investor Relations section of our website. This call is being broadcast live via webcast and an audio replay will be available on our website after the call concludes. Before we begin, I would like to remind you that during today's call, we'll be making forward-looking statements about future events and financial performance, including our guidance for the second fiscal quarter and our full fiscal year '25 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 events or results could differ materially. Please refer to the documents that we file from time-to-time with the SEC in particular our annual report on Form 10-K and our quarterly reports on Form 10-Q. 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 actual results could differ materially from those anticipated in the forward-looking statements even if new information becomes available in the future. During this call, we will discuss non-GAAP financial measures unless otherwise stated. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the 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 shareholder letter. 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, and gains and losses on strategic investments, which cannot be determined at this time and are therefore not reconciled in today's press release. And with that, let me turn the call over to Tomer Weingarten, CEO of SentinelOne.

Good afternoon, everyone, and thank you for joining our fiscal first quarter earnings call. Our first quarter performance surpassed our revenue, gross margin and operating margin expectations. Once again, we delivered industry-leading revenue growth and margin expansion. Revenue grew 40% year-over-year, distinguishing SentinelOne as one of the fastest-growing companies in the public markets. Our gross margin increased back to a record high of 79% and Q1 marked the 11th consecutive quarter with more than 25 points of operating margin expansion, which we believe is also one of the most sustained and significant margin improvement stories in public markets. I'm pleased to share that we achieved a positive free cash flow margin for the first time in the company's history, an incredible milestone. We delivered on our commitment to generate positive free cash flow, well ahead of our prior target. In Q1, we achieved a Rule of 58 on a free cash flow basis, generating a substantial positive 18% free cash flow margin. We also achieved our first quarter of breakeven earnings per share. This shows an impressive combination of growth, operating leverage and cash management. I'm proud of our teams for leading us to this remarkable achievement. These results reflect the strong demand of SentinelOne's autonomous cybersecurity platform, unit economics and scalability of our business model. Our pace of innovation and AI-driven autonomous security are setting new benchmarks across the industry. In Q1 alone, we amplified our cloud security offering with full CNAPP integration, introduced the first-of-its-kind AI security system through Purple AI and dramatically enhanced the security experience by launching the new Singularity Operations Center. Our industry-leading growth and margin expansion shows an extraordinary financial profile. Still, we have the opportunity to enhance our go-to-market execution and evolve related processes to support increasing scale and diverse growth. I'll share…

Thank you, Tomer, and thank you, everyone, again for joining. This afternoon, I'll discuss our quarterly financial performance and provide additional context regarding our guidance for Q2 and fiscal year '25. As a reminder, all comparisons are year-over-year and financial measures discussed here are non-GAAP unless otherwise noted. Our first quarter results not only met but exceeded our revenue and margin expectations, reinforcing our position as an industry leader in revenue growth and margin expansion. We also delivered our first ever quarter of breakeven EPS, a significant milestone on our path to sustained profitability. Revenue grew 40% to $186 million in the first quarter. Our growth was also balanced across geographies. Revenue from international markets grew 44%, representing 37% of quarterly revenue. Our Q1 revenue also benefited from a strong contribution of PinnacleOne, our recently launched and technology-enabled cyber strategy and risk management practice. PinnacleOne helps governments, companies, management teams and boards evaluate and fortify their security framework above and beyond any single product or solution. This is more important than ever in the modern threat landscape. Total ARR grew 35% to $762 million in Q1 as we continue to drive a healthy mix of new customers and existing customer expansion across businesses of all sizes. As we enter the new year, the macroeconomic uncertainty and tighter financial conditions have continued to pressure enterprise spending. We are still operating in a high interest rate and a high inflation environment, which continues to impact new budgets and expansionary spending. Simultaneously, as Tomer mentioned, we're in the process of revamping our go-to-market under our new CRO. Combined, these dynamics impacted our ARR in Q1, which is also our seasonally smallest quarter of the year. While we expect macroeconomic challenges to persist, our go-to-market enhancements and technology leadership positions us well for future…

[Operator Instructions] The first question is from the line of Brian Essex with JPMorgan. You may proceed.

Hi, good afternoon -- yeah, hi. Thank you. Good afternoon. Thank you for taking the question. Tomer. Just like -- I guess, first question for you is wanted to really kind of dig into the macro, and apologies, I missed some of the first introductory comments, but wanted to really understand what happened from a macro perspective and an execution perspective that you didn't see last quarter. In other words, what changed this quarter to lead you to kind of trim the guidance for the full year? And I have a follow-up.

First, we definitely see some of the same factors that we've seen in previous quarters. So I don't think a lot is changing. We guided revenue. We beat revenue. So all in all, we feel we got a good grasp on most macro factors. I think you're still seeing for us a seasonally small quarter or the smallest quarter we have, and you're seeing timing of large deals, you're seeing sizes of different deals change throughout the quarter. That I think is kind of the full extent of what we see from kind of the macro pressure. I do think that for us internally, execution-wise, I mean, our go-to-market is constantly evolving. We're improving our renewal process. We're improving our marketing process. We're improving our enablement. All of that is also taking shape very, very nicely. But with that, it does add some level of transition in our operations, and that's what we're factoring in. It's less than a 1% adjustment to the year, and we feel that's kind of needed at this point. But all in all, again, really strong performance, keeping the year kind of an industry-leading growth. I mean, we feel pretty good about it.

The next question is from the line of Adam Tindle with Raymond James. You may proceed.

All right, thanks. Good afternoon. Tomer, I just want to acknowledge, obviously, business is doing well on profitability, generating positive free cash flow, and you have over $1 billion of cash. So a little bit of a devil's advocate question here. If I think about the fastest areas growing in the industry, data, cloud and AI, you have meaningful products that you're outlining that are very differentiated. Why not invest more in sales and marketing behind these areas to accelerate growth? Or another way to ask is what are you going to do with the buildup of cash, given this positive trajectory? And how do you and the Board justify that as the right path versus perhaps investing even more heavily in sales and marketing behind those platforms to accelerate growth? Thanks.

Absolutely. For us, it's all about growth, but with that, we have made a commitment to be profitable. At the same time, I think what happened this quarter for us, which is something that we've been working on for quite a while, which is turning into a cash flow generating machine, basically gives us that license to go back and invest in the business. So what happened this quarter is exactly what we wanted to see. It was extremely positive. Now, that gives us, I think, the ability to understand where we want to invest, how much we want to invest, as we keep that same trajectory towards profitability and continuing to generate as much free cash flow as we can throughout the year. So I would say this quarter for us really unlocked how much we can invest and how aggressively we can go. And yes, there's no question that we're leaning into growth. We mentioned we're opening more innovation centers around AI. We think the way that people procure software in the future, even in the next couple of years, is going to change. And I think we want to make sure we address that. So we're balancing all of that while we also transition our go-to-market. And that's why we definitely don't want to get ahead of our skis and we're balancing all of this to get -- to the envelope that we have committed to.

The next question is from the line of Hamza Fodderwala with Morgan Stanley. You may proceed.

Hey, good afternoon, and thank you for taking my question. Dave, you talked about reflecting some improvement in net new ARR in the back half of your guidance based on new products and some of the go-to-market improvements that you're expecting under the new CRO. I'm curious, to what extent have you factored in the potential for some go-to-market disruption? When you do bring sales changes, that is a risk. So I'm wondering to what extent you thought about handicapping that in your guidance for at least the next couple of quarters. Thank you.

Thanks, Hamza. We guide to what we have line of sight to. So, as Tomer discussed, we're factoring in macro conditions, the go-to-market transition and the ramp of new products. Obviously, we have the full CNAPP offering happening in the second half. We're early in the stages of AI sales to customers which are both very positive and building tremendous pipeline. We know that the second half pipeline is a lot stronger than the first half and we're addressing execution dynamics and the new products being offered. I think that [Technical Difficulty] just in general, there's going to be go-to-market enhancements as Michael builds out this team. So you take that, you take the heavier mix of large enterprise sales in Q -- in the second half and then you take on the increased contribution from the newer products. And I think we're all just very positive on the second half.

Just to add to that, I mean, 40% contribution for emerging product really starts to paint the picture to what the platform opportunity is for the company. And obviously, that requires also a change in our sales DNA and in many other derivative aspects of it. So we're absolutely cognizant of that. I think we're balancing that with the strength of the new ramping products. But with that, again, that go-to-market transitory effect will take hold in the next few quarters, I think more than any other point and that's what we're balancing. So both factors kind of negate each other and we felt like we need to slightly tick down the revenue projections. But all in all, I mean, extremely strong growth. We still feel good about the year. And as Dave mentioned, I mean, transition will continue to happen. Evolution will continue to happen. This is not a stagnant market by any degree. And we embraced that and SentinelOne has executed through change for many, many years. And that's not going to change. I mean, it's a very dynamic market.

The next question is from the line of Shaul Eyal with TD Cowen. You may proceed.

Thank you. Hi, good afternoon. Thank you for taking my question. Tomer or Dave, was there any business that slipped towards the end of April that already booked back over the course of the past four weeks?

We have some, but it's really normal course of business. I mean at this point, there is constantly deals that book into the next quarter. Nothing significant, nothing challenging in terms of like what we needed for the quarter. It's all just really normal dynamic. But the answer is yes.

The next question is from the line of Trevor Walsh with Citizens JMP. You may proceed.

Great, thanks all for taking my question. Tomer, you mentioned that fairly quick integration of PingSafe. So just curious around the dynamics of kind of was that just more internal efforts to get it going faster? And could you maybe share on top of that what the -- some level of what the uplift looks like for kind of selling into that CNAPP sector, beyond kind of what you're already doing with workload protection and kind of the stuff that was already on the truck, as it were. Thanks.

Integration was mostly planned. We got a massively talented R&D force, and that only gets stronger with the PingSafe acquisition. I think that for us, it was always about delivering a unified experience for the customer. You've heard that talk about that quite a bit. So keeping true to what the value should be when you're using these platforms is really what guide us as we think about integration. The uplift is substantial. I mean, we had one leg of cloud security with workload protection. Now we got the other leg. So you can think about it as really doubling the opportunity for us. And obviously, as you look at our customer base, it's very underpenetrated with cloud security. As you look at some of the forward looking opportunities, even with different endpoint incumbency, we're still able to go in and demonstrate superiority in the cloud security footprint. So all in all, a highly strategic motion for us. PingSafe is a great technology, and it's just going to make our entire cloud security suite stronger.

The next question is from the line of Peter Weed with Bernstein. You may proceed.

Thank you. I think there may have been some kind of separate performance, if you look maybe at your enterprise versus SMB, and we've been hearing in the market some headwinds around that. Can you give us some color on the performance in each of those categories separately? And I guess a lot of the work you're doing in go-to-market is to kind of drive performance, particularly in enterprise. When might we see some inflection from kind of the investment that you're making there?

Generally, I think you're seeing kind of a continuum of improvement towards more and larger enterprise-based deals. In terms of headwinds, I think in this type of market, you kind of see pockets of headwinds all across the board. So I wouldn't call out any specific dynamic. At the end of the day for us. I mean, we're definitely strong in the SMB market and mid-market. For us, it's really developing more and more that enterprise muscle. I think we've proven that again this quarter, again, 30% growth with large customers. Last quarter, another 30% growth with large customers. So all in all, this is tracking to where we want to be. And the nature of the offerings that are coming up online for us in the second half of the year are more enterprise-oriented to begin with. So for us, I mean, I don't know if it's going to be kind of a full infliction. I would really assume more of growth across in parallel to all of these different segments of [Technical Difficulty] The products that we build are so intuitive to use that they're great for the SMB. They're great for mid-market. They're great for partners. They're great for service providers, and they're great for large enterprises who are looking for just better efficacy, more simplification, getting more from what they have in their environments. And that's exactly what we're delivering.

The next question is from the line of Tal Liani with Bank of America. You may proceed.

Tal, you may be on mute.

Here we go. Can you hear me now?

Yes.

Good. Perfect. So I'm taking a step back. I want to -- your ARR growth of 35% is great. On any matrix it's great. But when I look at the space, the space is growing. There are only two legit players in the space, and the company that is substantially larger than you is growing the same rate. Which means there is a problem with your ability to grow in relative terms, despite your small size. And the question is, what -- why can't you outgrow your bigger competitor? Is this an issue of product portfolio, your more limited product portfolio or is this an issue of focus on SMB or go-to-market? When you analyze your performance, how can you do better given your smaller size in the market? Thanks.

I don't see any problem with our growth. I think the only thing that's the balance here is how much we can invest. And a company that strives for profitability, obviously is constrained by how much it can invest. I mean, we had $1.1 billion of cash in our bank last quarter and the quarter prior and this quarter as well. So obviously, we're somewhat electively constrained but how -- by how much power we put behind our go-to-market. With that, we treat this as an opportunity to become more and more and more efficient. And that's what you're seeing us do. We're doing more with less, and that's our focus right now. That's what we said we're going to do this year. We're not going to chase to outgrow anybody. We're building the best technology, and we're building a very, very effective go-to-market machine when the time is right. And as I mentioned, this quarter has been a great indication for us to start moving away and investing back into our business. I mean, that's our focus. And lastly, to me, the number one thing this company wakes up and thinks about is how we stop breaches and keep our customers safe. I think that's what we're doing every single day. I think the promises of other vendors in this space might prove to be a bit lax. So I wouldn't put this all on just the chase after growth and how aggressive your marketing can be. You need to grow in a responsible way. You need to keep your customers safe. You need to make sure for a company like us, at our scale, that you can also achieve the profitability target that we set out to achieve. And that's the entire picture that we're looking at. Still again, industry-leading growth, I think we're incredibly proud of our growth profile. Ending up this quarter with 40% growth and basically breakeven or 18% positive free cash flow as a Rule of 58 company. I think this is a tremendous profile.

Next question is from the line of Eric Heath with KeyBanc Capital Markets. You may proceed.

Hi, thanks for taking the question. I guess just to follow on some of those comments, Tomer and Dave, I mean, it's good to see the reiteration of the margin guide, but I just -- I guess just given the competitive nature of the market and some of the go-to-market changes and continuing to have strong growth targets for this year, just curious how you're thinking about the confidence to support that growth and product innovation while maintaining what's fairly modest OpEx growth. And then a second one, if I could just, I don't know if we got great granularity on some of the go-to-market changes. So I'd love to hear some more details on what some of those changes you're instituting are. Thank you.

Growth for us is again something that's very elective. We feel really good about our ability to continue and grow. Under this investment envelope, we're not in a chase to invest in marketing. We feel like you need to grow smarter. You don't need to grow necessarily in a more expensive way. If anything, I think that the lack of technology superiority by some of the other vendors in the space leads them to lead with marketing and leads them to saturate the space with marketing messaging that may be is far ahead of where the product are actually in reality. So for us, I mean, this dynamic is no different and we continue to out execute them with technology. For me, focusing on the core areas; data, Purple, which is kind of our AI offering, obviously, and cloud is the right way to go instead of diluting across a multitude of different modules that dilutes your R&D, dilutes your focus. We just find more effective ways to grow in this market. This is still a very difficult macro environment. I wouldn't advise that customers out there are looking to spend so much at this point in time. So for us, it's really about taking it quarter-by-quarter, assessing our investments and then deciding where do we want to put more firepower. And that has been the philosophy from the start of this year. So far, I think we're on the right path and we're excited for the second half of the year.

The next question is from the line of Joshua Tilton. Apologies.

I just want to touch on the go-to-market question. We kind of called out -- obviously, we're bringing in new leadership, sales DNA, expanding the platform, selling motion, onboarding more partners, striking new partnerships, moving to more modern enablement, enabling our partners, putting systems to automate quoting for our partners. So we're scaling our go-to-market significantly. We always had the reach and the partnerships. Now it's about making them more effective, which I think is a common theme across everything we're doing this year.

The next question is from the line of Joshua Tilton with Wolfe Research. You may proceed.

Hey guys, thanks for taking my questions. Also jumping around tonight, and there's a fire alarm going off in my office. So I apologize if this was mentioned already. But I guess what I'm just trying to understand is you're talking us to believe in confidence in the second half. Is there anything that you can give us to kind of increase investor comfort around the visibility you have? Because from our perspective, we were given guidance 90 days ago and the quarter kind of shook out a little bit worse than expected. So where does the confidence in the visibility a few quarters out from now come from when it's been kind of difficult to guide just 90 days in advance? And then the second part of my question is just there's a lot of talk at the end of the prepared remarks about how you guys were thinking about profitability, lenses and rule statuses. And I'm just trying to understand as we go forward, are you going to continue the margin expansion story that we see today? Are you guys going to put the brakes on that? How should we think about the pace of margin expansion in the future relative to the like amazing and outstanding pace that you've delivered over the last few quarters? Thank you.

First, I hope everybody is safe. Second, we have guide to revenue and beat on revenue. To us, everything we're doing here is just expanding. I think the range that we're giving, folks, given what we're seeing from the macro, given what we're seeing from our own execution and our ability to mitigate these factors. So I believe we're actually taking a safer approach by giving you just a better range to what we have a line of sight to. And that has been our philosophy, will continue to be our philosophy. And again, ARR could be just a different measure for us from revenue, given that there's a lot that goes into revenue that doesn't go for ARR for us. And lastly, if you zoom out and you look at every single year for SentinelOne, has resulted in outperformance of the market, better revenue growth, better margin improvement than pretty much every other company in the market. And specifically, when we look at the second half of the year, we're looking at very robust pipeline. We're looking at pipeline that's diversified across endpoint, data, cloud, Purple, more adjacent modules, a better executing sales team, more scrutiny to our deals, more and better cross-sell and upsell dynamics. So all of those give us a lot of confidence. With that, obviously, we talked about the other factors going in and that's why again, we're opening up the range. The entire adjustment here is about less than a percent. So I wouldn't read too much into it.

Yeah, I would add to that, really what we want to do is we want to be a Rule of 40 company and we're going to work to achieve that. That's our goal. That's our investment philosophy. Everything we're doing to is drive to that strategic initiative.

The next question is from the line of Rudy Kessinger with D.A. Davidson. You may proceed.

Hey, thanks for taking my question. I don't believe it was in the Shareholder Letter. Just what was net retention, TTM net retention? I know you said business continues to skew more towards new versus existing, but could you share that figure?

Yeah. Thanks, Rudy. We remain in expansionary territory, so we're north of 110%. That's continuing the focus on new customer acquisition, still in very good relationship and upsell to existing customers as well. So we're pretty proud of remaining in expansionary territory as we continue to grow at the scale we are.

The next question is from the line of Fatima Boolani with Citi. You may proceed.

Thank you for taking my questions, Tomer, I was hoping you could comment with more granularity, kind of getting down to the brass tacks with respect to the go-to-market organization. So what I mean by that is, clearly you are very optimistic about the pipeline and your ability to prosecute the pipeline, but the only inference we can draw is that there is some sort of a productivity delta or disparity. So wondering if you can kind of talk us through that as it relates to overall go-to-market sales capacity productivity levels, and if you can talk to attrition, whether voluntary or involuntary, under the auspices of the new CRO. So just maybe a little bit more granularity from a sales capacity, productivity and attrition input standpoint. Thank you.

For both productivity and participation, I would say, I mean, we're definitely seeing these metrics on the rise, which is very, very encouraging. That comes hand in hand with our emerging product team basically being rebuilt over the course of the last 12 months. We mentioned new leadership in place for emerging products, seasoned, bringing their own team, bringing new partners on board. I mean, that part of our business is now about 40%. So obviously that has very positive impact as to our growth trajectory. Sales attrition, it's always going to be there, and it's nothing that's unique to SentinelOne. We continue and hone in on the talent that we need. We continue to uplevel. If you kind of see some of this, hey, there's attrition, it's going to be there. Right? It's part of doing business. It's part of growing the sales force. It's part of changing DNA. It's part of going after different aspects of the market and selling to different people in the enterprise. So all in all, I think that what you're saying is just normal GTN transition. Some of the folks that we let go, we repurposed to other parts of the business. We invest more and more into the most yielding parts of our business. All of that is positive. Does it come sometimes with some involuntary attrition? Yeah. I mean, that's also part of business. None of that to us is alarming, and all of that is positive.

The next question is from the line of John DiFucci with Guggenheim.

Hello. Thank you for taking my question. Question is for Tomer. Tomer, you said that enterprise demand remains strong, and there's been a lot of discussion on that. But can you talk about demand in the SMB to mid-market and any changes to that more recently? Because that seems to be an area where we're starting to see some softness elsewhere. Thanks.

We're seeing strength across the board. I think that generally -- as I mentioned, there's going to be some pockets of tailwinds every -- in every part of this market. Some areas in SMB are softer than others. So yes, you can claim there's some softness in SMB, but also some softness in some other parts of enterprise. I think in a normalized view, we can't really call out any one specific area of our business that is experiencing some different dynamics in a, I think in a material way. So all in all, I think both statements are right. There is some softness, but at the same time, we don't view it as material. We kind of feel it's more skewed across the board. And that's what we kind of call out as just a more difficult macro. And that's something that we just kind of work through, improve our execution, move to parts of the market that are just better yielding and focus our investments there.

Unfortunately, there is no more time remaining. I'll pass it back to the management team for closing remarks.

Thank you everybody for joining our call today.

That concludes the SentinelOne first quarter fiscal year 2025 earnings conference call. Thank you for your participation and enjoy the rest of your day.