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SentinelOne (S -0.56%)
Q2 2025 Earnings Call
Aug 27, 2024, 5:00 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good afternoon. Welcome to the SentinelOne second quarter earnings conference call. My name is Cameron, and I will moderate today’s session. Please note that all lines will be muted during the presentation and opened for questions at the conclusion.
I would now like to introduce your host, Doug Clark, Vice President of Investor Relations. You may proceed.
Doug Clark — Vice President, Investor Relations
Good afternoon, everyone. Thank you for joining us for SentinelOne’s earnings call for the second quarter of fiscal year 2025, which concluded on July 31, 2024. With me are Tomer Weingarten, our CEO, and Dave Bernhardt, CFO. A press release and shareholder letter were released earlier today and are available on our website. This call is being streamed live and will have an audio replay accessible on our website afterward.
Before we begin, I’d like to remind participants that today’s call will include forward-looking statements regarding future events and financial results, which are subject to risks and uncertainties. For a thorough review of these risk factors, please refer to our SEC filings, including our Form 10-K and Form 10-Q reports. Forward-looking statements made during this call are based on our knowledge as of today, and we have no obligation to update them unless required by law. We will discuss non-GAAP financial measures unless noted otherwise, with reconciliations provided in our press materials.
Now, I’ll hand it over to Tomer Weingarten, our CEO.
Tomer Weingarten — Chief Executive Officer
Thank you, Doug, and good afternoon, everyone. I appreciate you being part of our fiscal second-quarter earnings call. We are pleased to report robust results that exceeded expectations across key metrics such as ARR, revenue, gross margin, and operating margin. Performance was solid throughout the quarter, and we set new records for gross, operating, and net income margins.
A highlight this quarter is our achievement of positive net income and earnings per share for the first time in our company’s history. This milestone is a testament to the incredible work of our dedicated team. Additionally, our net new ARR grew significantly, exceeding expectations by a double-digit margin, and business growth trends are projected to improve in the latter half of the year. Correspondingly, we are adjusting our revenue guidance upward for fiscal year ’25.
Our technology is foundational in assisting our partners and clients in fostering resilient enterprises. SentinelOne stands at the forefront of the industry with advanced AI-driven security solutions and unparalleled transparency. We empower mission-critical businesses globally with both our technology and engineering practices.
As I mentioned in previous discussions, a larger brand does not inherently mean stronger security. A weak platform can create risks that lead to catastrophic failures, as highlighted by the recent breaches at major players like Microsoft and the historic IT outage attributed to our competitor, CrowdStrike. Such integrities should not only serve as a lesson but also shape our industry’s future approach.
Through our patented behavioral AI security architecture, SentinelOne avoids the pitfalls characteristic of traditional antivirus solutions. This capability enables our platform to deliver autonomous security without tedious updates or configuration changes. Self-management of deployment processes allows our customers to retain control, ultimately enhancing operational resilience.
Now let’s delve into our second-quarter performance, which outpaced our expectations for both the top and bottom lines. Our revenue for the quarter rose by 33% year over year, with annual recurring revenue (ARR) growing by 32%. In terms of net new ARR, we increased 16% sequentially, thanks mainly to new business wins.
Furthermore, our operating margin is nearing breakeven, and we set a record this quarter for gross margins, achieving 80%. Our customer base continues to broaden, encompassing businesses from various sectors with robust growth in our top-tier clients. In essence, our endpoint segment continues to be a key growth engine for SentinelOne, contributing significantly to our market share gains.
According to IDC’s worldwide report, SentinelOne recorded the fastest growth among the leading endpoint vendors in 2023, a trajectory we expect to maintain as we strengthen strategic alliances aimed at expanding our reach.
Our emerging solutions, including Data, Purple AI, and Cloud, also illustrated remarkable growth, outpacing overall company growth rates. Purple AI, now widely adopted, enhances operational efficiency and threat detection with an impressive acceleration in productivity for our customers.
Moreover, our ongoing innovation continues to reshape cybersecurity, delivering cutting-edge capabilities that simplify security management and improve outcomes.
We are committed to expanding our platform and reinforcing our market differentiation. Our competitive edge remains strong as we win evaluations against both next-gen and legacy vendors. Some significant customer wins this quarter highlight the value of our offerings, including partnerships with large enterprises and expansions across various solutions.
Looking forward, we maintain optimism regarding our growth trajectory. For Q3, we anticipate revenue reaching approximately $209.5 million, reflecting a 28% growth year over year. For the full fiscal year, our revenue expectation is around $815 million, a 31% increase year over year.
With this positive outlook, I will now pass the call to our CFO, Dave Bernhardt, for further financial insights.
Dave Bernhardt — Chief Financial Officer
Thank you, Tomer. As highlighted, our second quarter ended strong, with revenue growth of 33% at $199 million, supported by a balanced performance across international markets and robust contributions from new and existing customers. Total ARR is up 32% to $806 million, further aided by an exceptional addition of $44 million in net new ARR this quarter.
As we look at trends, our emphasis on new product deployments is driving net new ARR, alongside consistent expansion from existing clients. Our gross margin hit a record 80%, showcasing our value-oriented strategy’s success.
Regarding guidance for Q3 and fiscal year ’25, we remain confident in our growth trajectory, expecting a 28% year-over-year revenue increase due to continued strong pipeline development and new product contributions.
Before I open the line for questions, I want to underscore that our strategic investments position us well to capitalize on market opportunities while sustaining profitability. Our commitment to expanding our presence in the cybersecurity landscape continues to yield productive results.
Operator, we are now ready to take questions.
Questions & Answers:
Operator
We will now begin the question-and-answer session. [Operator instructions] The first question is from Gabriela Borges with Goldman Sachs. You may proceed.
Gabriela Borges — Analyst
Good afternoon, thank you. Tomer, could you elaborate on the architectural strengths you mentioned, particularly regarding system updates and kernel access? How does this affect your client discussions? What are your observations regarding dual sourcing in the market?
Tomer Weingarten — Chief Executive Officer
Thank you for your question, Gabriela. The recent IT outage highlighted the importance of robust platform architecture, significantly impacting numerous customers. At SentinelOne, we do not rely heavily on updates, maintaining a stable architecture with reduced kernel dependencies. This approach gels well with our customers, especially those reevaluating their security frameworks following recent events. The industry’s focus on security resilience is shifting, leading to rising interest in dual sourcing strategies from a greater segment of customers.
Gabriela Borges — Analyst
Thank you for the clarification.
Operator
The next question is from Brian Essex with JPMorgan. You may proceed.
Brian Essex — Analyst
Thanks for taking my question, Tomer. Could you provide insights into how the recent CrowdStrike outage is influencing your pipeline and customer discussions?
Tomer Weingarten — Chief Executive Officer
We are witnessing strong momentum as many customers reassess their current security stack. While some have already transitioned to SentinelOne, many are still in evaluation stages. The ongoing adjustments are paving the way for potential long-term relationships built on trust, enabled by our technological strengths.
Operator
The next question is from Hamza Fodderwala with Morgan Stanley. You may proceed.
Hamza Fodderwala — Analyst
Thanks for the insights. Can you comment on the improvement in your go-to-market execution following the transition in leadership?
Tomer Weingarten — Chief Executive Officer
We are confident in the advancements within our go-to-market strategies. The improved sales processes and team alignment have resulted in enhanced pipeline retention and win rates, setting a solid foundation for future growth.
Operator
The next question is from Saket Kalia with Barclays. You may proceed.
Saket Kalia — Analyst
Thanks for taking my question, Dave. Could you clarify how you envision net new ARR growth for the rest of the year? Do you see any incremental advantages from the CrowdStrike situation?
Dave Bernhardt — Chief Financial Officer
We anticipate a steady improvement in net new ARR growth in the latter half of the year. Although the events may provide some potential growth opportunities, our guidance isn’t significantly based on them; we remain focused on our internal strengths and momentum.
Operator
The next question is from Shrenik Kothari with Baird. You may proceed.
Shrenik Kothari — Analyst
Can you explain how your partnership with CISA aligns with the federal sector’s needs and its broader growth implications?
Tomer Weingarten — Chief Executive Officer
Our partnership with CISA focuses on securing diverse IT environments effectively. We expect gradual growth as these long-term partnerships unfold, unlocking a significant market potential within the federal sector.
Operator
The next question is from John DiFucci with Guggenheim. You may proceed.
John Difucci — Analyst
Given your recent transition in marketing strategies, how has the CrowdStrike outage affected your approach?
Tomer Weingarten — Chief Executive Officer
We remain consistent in our go-to-market strategy without necessitating specific marketing tactics geared toward competitors following the outage. Our focus continues to be on showcasing our technological advantages and fostering education around those differences.
Operator
The next question is from Rudy Kessinger with D.A. Davidson. You may proceed.
Rudy Kessinger — Analyst
Can you comment on customer transitions from CrowdStrike post-outage, and how significant that impact might be?
Tomer Weingarten — Chief Executive Officer
There is potential interest from customers transitioning to us, but we must allow time for them to evaluate and integrate our solutions. We’re committed to supporting their timelines without pushing aggressive transitions.
Operator
The next question is from Peter Weed with Bernstein. You may proceed.
Peter Weed — Analyst
Can you specify how the growth from new customers factors into your strategy, and how that impacts existing customer expansion?
Tomer Weingarten — Chief Executive Officer
We strive for balanced growth, focusing on both acquiring new customers and expanding our service offerings within our existing client base. Our emerging products are gaining traction and are pivotal in facilitating this dual strategy.
Operator
The next question is from Brad Zelnick with Deutsche Bank. You may proceed.
Brad Zelnick — Analyst
Looking ahead to Microsoft’s upcoming Cyber Summit, what changes do you anticipate from them to prevent extensive outages in the future, and how might that impact your positioning?
Tomer Weingarten — Chief Executive Officer
Microsoft’s ongoing attempts to move away from broad kernel access reflect a broader industry challenge. While it’s positive that the conversation is taking place, the complexity of these changes may create challenges for vendors heavily reliant on kernel access. SentinelOne benefits from a reduced dependence on the kernel, positioning us favorably amid these industry shifts.
Operator
The next question is from Adam Tindle with Raymond James. You may proceed.
Adam Tindle — Analyst
With positive non-GAAP net income achieved, how do you plan to balance growth investments with profitability?
Tomer Weingarten — Chief Executive Officer
We are committed to maintaining profitability while investing in growth. The significant market potential necessitates a thoughtful balance between maximizing growth opportunities while continuing our upward trajectory in financial performance.
Dave Bernhardt — Chief Financial Officer
Overall, our focus remains on delivering a responsible financial profile while capitalizing on the emerging opportunities within the cybersecurity landscape.
Operator
The next question is from Gray Powell with BTIG. You may proceed.
Gray Powell — BTIG — Analyst
Regarding the marketing strategy post-CrowdStrike outage, have you implemented any specific outreach initiatives for potentially affected customers?
Tomer Weingarten — Chief Executive Officer
We are focused on transparency and providing educational resources regarding our platform’s differentiated capabilities rather than executing targeted marketing campaigns aimed at customers of competitors. It’s important to remain grounded in our foundational principles.
Operator
This concludes the question-and-answer session. I would now like to turn the call back to Tomer Weingarten for closing remarks.
Tomer Weingarten — Chief Executive Officer
Thank you all for your participation today. We appreciate your engagement and support as we continue to drive our mission forward.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Doug Clark — Vice President, Investor Relations
Tomer Weingarten — Chief Executive Officer
Dave Bernhardt — Chief Financial Officer
Gabriela Borges — Analyst
Brian Essex — Analyst
Hamza Fodderwala — Analyst
Saket Kalia — Analyst
Shrenik Kothari — Analyst
John DiFucci — Analyst
Rudy Kessinger — Analyst
Peter Weed — Analyst
Brad Zelnick — Analyst
Adam Tindle — Analyst
Gray Powell — Analyst
Source
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