SentinelOne : Second Quarter 2025 Shareholder Letter

Published: 2024-08-27 16:13:03 ET S

Q2 FY2025

Letter to Shareholders

August 27, 2024

Table of Contents

To Our Shareholders

Technology Highlights

Go-To-Market Highlights

Q2 FY2025 Financials

Guidance

Closing

Q2 FY2025 Letter to Shareholders

01 To Our Shareholders

Our Q2 results once again demonstrate high growth with substantial margin improvement. We exceeded our expectations on all key metrics, including ARR, revenue, gross margin, and operating margin. Our teams executed well, and we maintained our industry leading revenue growth and set new company records for GAAP and non-GAAP gross, operating, and net income margin. Importantly, we achieved a significant profitability milestone-ourfirst-ever quarter of positive non-GAAP net income and earnings per share, a tremendous achievement.

In Q2, revenue grew 33% year-over-year (y/y) to $199 million, and Annualized Recurring Revenue (ARR) grew 32% y/y to $806 million. Our Q2 net new ARR outperformed our expectation by a double-digit percentage. And, we continue to expect new business growth trends to improve in the second half of the year. Based on our business and go-to-market momentum, we're also raising our revenue guidance for the fiscal year '25. Our pace and progress toward profitability remains best-in-class. We delivered a record-high GAAP and non- GAAP gross margin of 75% and 80%, respectively, with our non-GAAP operating margin nearing break-even. In parallel, we achieved our first ever quarter of positive non-GAAP net income and earnings per share. These results show the scalability of our business model and the potential for continued operating leverage.

Demand in Q2 was broad based. We continue to lead with best-in-class technology, transparency, and trust. We're securing an increasing number of businesses of all sizes and geographies, from the largest global enterprises to smaller businesses through our partnerships with MSSPs. Customers with more than $100,000 in ARR grew 24% y/y, and customers with more than $1 million in ARR grew even faster, reaching another company record. Platform expansion rates remain healthy and consistent with recent trends. Our platform adoption and success with larger enterprises continues to drive higher ARR per customer, which increased by a double-digit percentage y/y to a record high in Q2. We're succeeding with our strategy to drive a higher portion of our business mix through new customer growth. Long term, this will open doors for significant future expansion across our customer base.

Among platform solutions, endpoint remains a significant growth driver for our business, and we continue to gain market share. According to the IDC Worldwide Modern Endpoint Security Market Shares 2023 report, SentinelOne grew at the fastest pace among the top 10 vendors in 2023. We expect this momentum to con- tinue, especially as we expand strategic partnerships to bring SentinelOne to more businesses and endpoints than ever before. In addition, our emerging solutions like Data, Purple AI, and Cloud continued to outpace the overall company growth rate in Q2. For instance, Purple AI is proving to be truly transformative and we're seeing great customer traction. Within months after general availability, Purple AI adoption has surpassed our expectations and contributed to Q2 outperformance. As one of the industry's most advanced generative AI security solutions, Purple AI unifies, accelerates, and simplifies security operations. Customers are seeing real productivity gains with 80% faster threat hunting and investigations.

Overall, our Q2 performance showcases strong execution and significant progress on the go-to-market initiatives outlined last quarter. We've brought in proven leaders, and-we're optimizing our processes and expanding our market presence. Our progress on these initiatives is yielding positive results, which is evidenced by stronger new business generation, competitive win rates, and growth outlook. In Q2, we made significant progress in elevating our market presence and creating new strategic routes to market. We're expanding the scale and scope of SentinelOne across the cyber ecosystem including incident response providers, cyber insurance providers, managed security service providers (MSSPs), and so much more.

SENTINELONE

Q2 FY2025 Letter to Shareholders

Little has changed in recent months from a macro economic perspective, yet a lot has changed in the cyber- security industry. These are unprecedented times-the frequency, complexity, and costs of cyberattacks are reaching new heights. At the same time, the performance shortcomings of other market offerings are becoming visible to the public. In just the last few months, we've seen high-profile breaches and system failures from the top two endpoint market share vendors. These incidents are extremely disruptive for the millions of people and thousands of businesses who expect reliability from their security providers. Our top priority during this time has been to support our customers and enterprises around the world-providing resources and having objective conversations about technology.

The latest global IT outage highlights the significance of platform architectures, process controls, and building resilient security operations. The scale and disruption caused by this incident is a stark reminder of the risks posed by vendor concentration. The cost of protection should never exceed the consequences of a breach. This was an avoidable incident that was born out of risk-prone software deployment practices and a fragile product architecture. In the cybersecurity industry, we share a fundamental goal: to deliver protection and reliability. Partners and customers expect us to deliver on this promise.

A key lesson our industry has learned is the importance of product architecture. Understandably, customers and partners are now looking for better platform architectures and building more resilient cyber-defenses. Some of the largest enterprises in the world are now evaluating and appreciating the Singularity platform's breadth and superiority relative to the competitive offerings - and, they are positively surprised. As always, our goal is to minimize security risk and maximize resilience for enterprises while providing optionality to gain leading security capabilities-security and resilience above all else.

As a result, customer interest in our platform and AI-based security has distinctly risen. At SentinelOne, we continue to lead with better technology and customer transparency. Early on, we purpose-built an agent that can simultaneously run dual AI-based detection engines both cloud natively and on-device. We patented behavioral AI for real-time protection on the device, complemented by comprehensive context and triage in the cloud. Redundancy in this context is mission-critical and is not a function of constant software updates. At SentinelOne, we take an open platform ecosystem approach to security to give enterprise flexibility and choice. Most importantly, our platform architecture and behavioral AI-based detection capabilities are patented and unique. When we say autonomous, these are not marketing claims, but a description of how our product works.

We've entered a New Dawn-a stronger SentinelOne in a more complex cyber landscape. As always, our goal remains delivering the leading security and value to customers and partners. Our teams are executing well and our go-to-market is gaining momentum. We have the winning technology, and our competitive position is stronger than ever. Our financial performance remains industry-leading, and we achieved positive net income for the first time. For years, we've led the industry with innovations-and now, we're seeing an expanding interest in SentinelOne's AI-powered autonomous security. With $1.1 billion of cash and equivalents on the balance sheet, we're focused on diverse investment opportunities and new growth avenues for the business. We're optimally positioned to deliver what enterprises need most: leading AI-powered security and resilient cyber-defense.

SENTINELONE

Q2 FY2025 Letter to Shareholders

Q2 FY2025 Highlights

(All metrics are compared to the second quarter of fiscal year 2024, unless otherwise noted)

SentinelLabs operates as an open venue for threat researchers, committed to sharing the latest threat intelligence with a growing community of cyber defenders. By providing novel findings from the world of malware, exploits, advanced persistent threats (APTs), and cybercrime, the SentinelLabs team helps global enterprises and government bodies stay ahead of their adversaries.

Research Highlights

In 2024, SentinelLabs discovered 'AcidPour', a new embedded wiper that expands on the capabilities of AcidRain, being deployed in targeted attacks against Ukrainian critical infrastructure. AcidPour affects a broad range of Linux targets with the added ability to destroy data from RAID arrays and large network storage devices. AcidPour's discovery coincides with devastating attacks on Ukraine's telecommunications sector, attributed by Ukrainian SSCIP to UAC-0165, a suspected Russian military intelligence threat actor. AcidPour's deployment underscores the evolution of cyber operations in wartime towards indiscriminate data destruction and long-term disruptive attacks against both military and civilian infrastructure.

Our tracking of state-sponsored and financial threat actors alike has unveiled notable shifts in the adversary threat landscape. An increasingly disturbing trend of cyberespionage actors using ransomware as a final stage in their operations for the purposes of financial gain, disruption, distraction, misattribution, or removal of evidence, including in attacks against critical infrastructure sectors.

At BlackHat 2024, we announced a new community initiative to tackle the evolving problem of reverse engineering Rust-based malware. Cybercriminals increasingly favor Rust for its cross-platform capabilities and resistance to traditional analysis tools. In collaboration with researchers from Intezer, SentinelLabs launched Project 0xA11C ('Oxalic'), focusing on creating accessible tools and fostering community engagement to counteract this growing threat.

SENTINELONE

Q2 FY2025 Letter to Shareholders

02 Technology Highlights

Unified AI Security Platform Delivers Superior Performance and User Experience

Our pace of innovation and autonomous security approach is setting new industry benchmarks. Early on, we took a distinctly novel product architecture approach to deliver unified data-powered security. SentinelOne purpose-built a security agent that simultaneously runs dual AI-based detection engines both cloud natively and on-device. We patented behavioral AI for real-time protection on the device complemented by comprehensive context and triage in the cloud. This approach has created a new paradigm for automation and protection to combat modern attacks while also enhancing overall enterprise resilience. SentinelOne was once again among thehighest-ratedvendors in the Gartner Peer Insights™ Voice of the Customer for Endpoint Protection Platforms report.

Evolution of Security

Legacy EDR: People Driving Tech

AV/Old Legacy Protection

Cloud Based Monitoring

•

People/expert powered;

Signatures (Antivirus)

technology assisted

•

People powered

•

Data intensive "haystack"

•

Lacks scale and coverage

telemetry

•

Rarely finds advanced

•

Reactive responses.

Complex recovery

attacks

Tech Assisting People

AI on Device + Cloud

Our fully integrated and unified data platform offers leading AI-powered protection, simplicity, and savings for customers. Enterprises benefit from a single, unified data backend that combines data across all enterprise critical surfaces-Endpoint, Cloud, Identities, and any third party source. Every customer, regardless of the size of contract, gets leading autonomous protection and visibility. We are transforming the legacy SIEM market with our modern AI-SIEM-scalable, automated, and fully integrated with leading AI capabilities.

We're also seeing tremendous customer interest and adoption of our transformative Purple AI capabilities. Purple's generative AI capabilities are a major competitive advantage, and we have a clear time-to-market lead. Purple AI is natively integrated across our entire platform. Purple touches every aspect of managing se- curity, and has the ability to see and manage all security events, including those of competing products. Purple alleviates the challenges of machine speed response, talent shortage, alert fatigue, and enhances analyst productivity-all while autonomously securing the enterprise. The difference is vast.

SENTINELONE

Q2 FY2025 Letter to Shareholders

We're constantly pushing the envelope with Purple AI. In Q2, we launched Alert Summaries. These provide AI-generated contextual summaries of alerts so analysts can easily view and understand the details and scope of their alerts across their environment.

Auto-Generated Alert Summary by Purple AI

Award-Winning Cloud Security: Industry Leadership and Expansion

We continue to expand our Cloud Security product offerings, which now provide extensive and highly performant runtime protection and posture management solutions.

Singularity Cloud Security has been recognized as market leading across CNAPP, CSPM, and CWPP by G2, the world's largest and most trusted software marketplace. The platform earned more than 240 awards as part of the firm's recently published 2024 Summer Grid Reports, and was the only CNAPP product to earn a 4.9 out of 5 rating based on opinions from real users.

In Q2, we made our Cloud Security Posture Management (CSPM) solution available worldwide. We also launched Cloud Infrastructure Entitlement Management (CIEM) to help organizations manage and control access rights to cloud resources. With this offering, customers can leverage the leading cloud native application protection platform (CNAPP) to detect risky and over-privileged human and machine identities, pinpoint toxic permission combinations and curtail risk from privilege escalations with greater speed and efficiency.

SENTINELONE

Q2 FY2025 Letter to Shareholders

03 Go-To-Market Highlights

We continued to scale our business through our leading AI-powered Singularity Platform and our partner-supportedgo-to-market. We maintained strong momentum with large enterprises and strategic partners. Our growth also was balanced across geographies, and our vast channel ecosystem continues to magnify our reach and drive platform adoption.

In Q2, we began making significant strides to elevate our market presence and create new strategic routes to market. We're expanding the scale and scope of SentinelOne across the cyber ecosystem. All of this is just the beginning of a new growth chapter for us. We're positioning SentinelOne for long-term success in a hundred billion-dollar plus security and data market opportunity.

SENTINELONE

Q2 FY2025 Letter to Shareholders

Customer Growth

Our customer growth in Q2 was broad-based across businesses of all sizes and geographies. Our momentum with large enterprises remains strong, as our customers with ARR of $100,000 or more grew 24% y/y to 1,233. Customers with more than $1 million in ARR grew even faster, reaching another company record. Similarly, our ARR per customer continued to grow by a double-digit percentage y/y, reflecting broader platform adoption and success with large enterprises

$100K+ ARR Customers

at quarter end

24%

1,233

994

Q2'24

Q2'25

Platform Adoption and Expansion

New and existing customers are adopting more of the Singularity Platform. Traction with our platform capabilities is leading to new growth channels and diversifying our business mix. Our emerging solutions like Data, AI, and Cloud continued to outpace the overall company growth rate in Q2. For instance, Purple AI is proving to be truly transformative and we're seeing great customer traction.

Retention and expansion remained resilient across our customer base, comfortably in expansion territory. Similar to last quarter, a larger portion of our business mix was driven by new customer additions in the quar- ter, which we believe will open doors for significant expansion over time.

SENTINELONE

Q2 FY2025 Letter to Shareholders

04 Q2 FY2025 Financials

Our Q2 performance was driven by strong demand from new and existing customers, as well as large and mid-sized enterprises seeking to modernize their cybersecurity. We exceeded our top and bottom line expec- tations, driven by increased scale and operational efficiencies.

Revenue & Annualized Recurring Revenue (ARR)

Revenue grew 33% y/y to $199 million in Q2. International revenue represented 37% of total revenue, reflecting growth of 36% y/y.

ARR grew 32% y/y to $806 million at the end of Q2. Our ARR growth encompassed broad-based contributions from new customer additions, existing customer renewals, and upsells.

Annualized Recurring Revenue

$ million, year over year growth

Revenue

$ million, year over year growth

32%

$724 $762

$664

$612

$806

$164

$149

33%

$174

$199

$186

Q2'24

Q3'24

Q4'24

Q1'25

Q2'25

Q2'24

Q3'24

Q4'24

Q1'25

Q2'25

SENTINELONE

Q2 FY2025 Letter to Shareholders

Disclaimer

SentinelOne Inc. published this content on 27 August 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on August 27, 2024 at 20:12:54 UTC.