$S SentinelOne Q1 2027 Earnings Conference Call

Hello and welcome to the SentinelOne Q1 FY2027 earnings conference call. We ask that you please hold all questions until the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect your call. I will now turn the call over to Sart Nazir, Vice President of Investor Relations.

Good afternoon everyone and welcome to SentinelOne's earnings call for the first quarter of fiscal year 27, which ended April 30, 2026. With us today are Tomer Weingarten, CEO, and Sonali Parikh, CFO. Our press release and an earnings presentation were issued earlier today and are posted on the investor relations section of our website. This call and accompanying slides are being broadcast live via webcast, and a replay will be available on our website shortly after the call.

Before we begin, I would like to remind you that during today's call, we'll be making forward-looking statements about financial performance and future events, including our guidance for the fiscal second quarter and full fiscal year 2027, 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 results or events could differ materially. Please refer to the documents we file from time to time with the SEC, in particular our quarterly reports on Form 10-Q and annual report on Form 10-K. 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 why actual results may differ materially from those anticipated even if new information becomes available in the future.

During this call, we will discuss non-GAAP financial measures, and all comparisons made are year-over-year unless otherwise noted. 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 earnings presentation. 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, gains on strategic investments, impact of the previously announced ITA tax settlement, and income tax provision which cannot be determined at this time and are therefore not reconciled. Please refer to the documents we file from time to time with the SEC. And with that, let me turn the call over to Tomer Weingarten, CEO of SentinelOne.

Thank you, Tomer, and thanks everyone for joining us today. 60 days in as CFO of SentinelOne, and the conviction that brought me here has only deepened. Q1 was a strong quarter, and it reflects what I've seen firsthand: a platform that is genuinely best-in-class, a business model with meaningful operating leverage ahead of us, and a market at an inflection point. AI is fundamentally expanding the attack surface, creating new security categories, accelerating customer urgency, and opening growth vectors that are still in their earliest stages. SentinelOne is built for exactly this moment. Now, let's review the details of our Q1 fiscal 27 financial performance and our guidance for Q2 and the full fiscal year 27. As a reminder, all comparisons are year-over-year, and financial measures discussed here are non-GAAP unless otherwise noted.

Q1 was a solid quarter for SentinelOne. Our revenue growth accelerated sequentially, growing 21% year-over-year to $277 million. Our international markets revenue grew 25% and represented 39% of total revenue, demonstrating strong international demand and a growing global footprint. In Q1, our total ARR growth accelerated to 23%, and we added $44 million in net new ARR, which comfortably exceeded our expectations. This record net new ARR growth of 55% was driven by new logo acquisition and broader platform adoption within our existing customer base.

Our move up market continues to yield excellent results. Our ARR per customer reached a new company record, led by strong momentum at the top end of the market, where our cohort of customers with ARR of $100,000 or more grew 17% year-over-year. Our gross retention rate, or GRR, across our customer base remains stable, underscoring the mission-critical nature of the Singularity platform. For customers spending $100,000 or more in ARR, our dollar-based net retention rate, or NRR, improved both sequentially and year-over-year, driven by continued success in multi-product platform adoption. We're increasingly landing premier logos, providing us with a highly durable runway for long-term growth. Overall, we are maintaining a balanced split between new logo acquisition and existing customer expansion. Given our scale and relative market share, this focus allows us to increase our market share with significant future expansion potential. This performance clearly reflects the value customers realize from our Singularity platform and our continued success in driving multi-product expansion and stickier customers.

Now turning to profitability, we continue to maintain a strong gross margin profile, highlighting healthy platform unit economics and scale efficiencies. In Q1, our operating margin of 4% exceeded our expectations and represented an improvement of approximately 550 basis points year-over-year. Our earnings per share of 4 cents also exceeded our expectations and represented an improvement of 83% year-over-year. We are sustaining a top-tier growth profile while rapidly expanding our profitability. Most importantly, we are driving this structural operating leverage without compromising our relentless pace of innovation. On a trailing 12-month basis, our adjusted free cash flow margin was 6.5%, representing an improvement of about 440 basis points year-over-year. We've put the company on a path to sustainable positive free cash flow growth, which underscores our commitment to durable profitable growth at scale.

Complementing this strong performance, our remaining performance obligations growth accelerated to 30% in Q1. Our total RPO reached a record $1.5 billion in Q1, a clear validation of the trust we've established with our customers and our commitment to innovation. We ended the year with a robust balance sheet, including $812 million in cash, cash equivalents, and investments, and no debt. Looking ahead, SentinelOne is well positioned at the intersection of AI, data, and cybersecurity to lead the industry into the next era of autonomous defense. Capitalizing on this opportunity requires us to evolve our operating model and the way we work. As Tomer discussed, we are implementing a workforce optimization initiative impacting approximately 8% of our workforce. We are harnessing productivity gains to increase our agility and to invest in...

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found at the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen based on your place in the queue. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We will wait one moment to allow the queue to form. Our first question will come from Meta Marshall with Morgan Stanley. You may now unmute your audio and ask your question.

And congrats on the quarter and the acceleration in Q1. From an opportunity standpoint, are you seeing a pickup in core endpoint as customers try to address technical debt? And how are you balancing selling them the full Singularity portfolio at initial sale versus upselling them later?

Thank you. Our next question comes from Brett Zelnik with Deutsche Bank. Please go ahead.

Thank you so much. Tomer, I think we'd all like to hear your thoughts on the extent Mythos, Daybreak, and just the broader pace of AI innovation might be impacting customer spending behavior. The extent to which it's in some cases maybe accelerating or perhaps even slowing down or even expanding budgets. Any color is helpful and as well why you're well positioned to capture what's ahead.

Thank you. Our next question comes from Brian Essex with JP Morgan. Please unmute your line and go ahead.

Great. Good afternoon. Thank you for taking the question and nice to see the acceleration and better profitability outlook. Maybe Tomer for you. I would love to get some color on the reduction in force that you announced. Where were the cuts made? Any changes to the sales organization? And I get the productivity, the AI-driven productivity enhancements that you noted, but would love to maybe just connect the dots in terms of where the adjustments were made. How many to the sales org and maybe the outlook for sales productivity and growth the rest of the year.

Thank you. Our next question comes from Joseph Gallo with Jefferies. Please go ahead.

Hey, thank you for the question. As a follow-up to that, should we expect any sales disruption particularly in Q2? And as a part of that, certainly great to see the improvement in margins. Can you just talk a little bit more about your comfortability that you can capture this massive opportunity and not sacrifice the durability of growth?

Yeah. So thanks for the question and we are really delighted with the margin progression that we showed this quarter and obviously it's through the upgrade to the operating margin guide for the full year. And I think the short answer is we don't see growth and margin expansion as a trade-off. In this case, the investments that actually drive durable growth that Tomer was talking about in AI security, data, cloud, the labs are exactly where we're reinvesting. So we're removing organizational complexity that was actually slowing us down and redeploying it into the highest return and highest conviction opportunities that we see in the business. And I think the evidence that we can do both is actually already in the Q1 numbers. So this quarter we delivered record net new ARR, up 55% year-over-year, while simultaneously expanding operating margin by 550 basis points. So I think that's really our platform model working at scale. And when I look forward, the demand signals give me real confidence. So RPO again at a record $1.5 billion, growing 30%. Net retention expanding in our $100,000 plus cohort, that's both sequentially and year-over-year to above 110. Some of our products like Prompt ARR nearly doubling again. I think these are all leading indicators of durable growth. So, I think you're going to see both durable growth and sequential and annual operating margin expansion. We really feel like we can deliver on both.

Thank you. Our next question comes from Shaul Eyal at TD Cowen. Please go ahead.

Thank you. Question to Sonali. So now being there a couple of months, have your initiatives you would like to undertake changed or how do you see opportunities to build upon the operating leverage you guys are seeing?

Yeah, thanks. So yes, 60 days in, I would say what struck me most coming in was really the strength of the Singularity platform, our product leadership and technology differentiation, and then the significant opportunity in front of us for this category, much of which is just really in the early innings. So I think the operating leverage potential of the business as we scale given our industry-leading gross margins creates this enormous opportunity to create shareholder value and I would say my conviction on that has only increased. So in terms of priorities, first, it's my job to ensure we're allocating our resources and investing in the parts of the business where we feel we see the highest opportunity for growth and ROI. So that's data, cloud, AI security, I think will be massive and you see already our emerging solutions now 50% of our ARR. So it's these areas where we feel like we have real competitive differentiation and a significant market opportunity ahead. I think Prompt is a perfect example of that. Second, continuing to improve on the cost structure. You saw the announcement we made today on restructuring. It's really important that we focus the business. I'm going to be extremely focused on unit economics, driving operational excellence and discipline across the business, particularly in sales and marketing where I see the largest opportunity for productivity improvement. In today's results, you'll already know we've made a lot of progress in sales and marketing. So, if you look at sales and marketing as a percentage of revenue Q1, it came in at 39%, that compares to 47% a year ago. And if you think about our upgraded full-year operating profit guide of 10%, that's 700 basis points of year-over-year improvement. But I think what's most interesting and compelling really is what that implies in terms of where we're going to be exiting Q4. That exit operating margin, that's significantly above the 10% guide. So, we're on a path to deliver multi-quarter, multi-year margin expansion, which you're already beginning to see. And then lastly, I think it's really important that, and Tomer and I are completely aligned on this, we need to put ourselves firmly on the path to Rule of 40, which means not just efficiency, but durability, and I'll be really focused on taking that NRR where we've already seen great progress and improving upon it. And it's not just on the NRR side, on the GRR side, we've seen improved logo retention this quarter and stability. And I think that just underscores the mission-critical nature of our platform. And then finally, I would just say, as one of the few platform providers in cybersecurity, the traction we're seeing with the platform is resulting in larger lands. So our ARR per customer reached a new company record. And also really importantly, and again this is just the platform working, is stickier customers.

Thank you. Our next question comes from John DiFucci with Guggenheim Securities. Please go ahead.

Thank you. Thanks for taking my question and congrats to the whole team for the new addition and it's great to have you, Sonali. Listen, you guys put up really strong ARR this quarter with growth that accelerated. You pointed that out, but it's accelerated for the first time in more than 3 years after 3 years of somewhat moderation, which with the law of large numbers, you'd expect, but frankly, the growth in new ARR, even if you take into account attrition, was even better than it's been in almost four years from our calculations. So you, I know you don't guide to ARR, but you maintained your revenue guidance for the year and I realize it's early, but how should we be thinking about that given I mean that ARR is really the best determinant of future revenue.

Yeah, John, thanks so much for the question and it is great to be here. I'm thrilled to be here on my first earnings call. So, you're absolutely right. We had a great showing on net new ARR this quarter, as you say, record. The growth was driven both by strong new logo additions, but also strong expansion. And great contributions from our emerging products. So, data ARR accelerated in Q1. I already talked about Prompt, but that nearly doubled again in Q1 and our cloud ARR accelerated strongly as well. In terms of the overall guide, we did reiterate the guide and what I would say there is we're still pretty early in the year and we still continue to expect positive net new ARR growth for fiscal '27. In terms of the actual revenue contribution on the guide, we did see a fairly backend loaded quarter with some of those larger deals and as a larger proportion of our bookings are from larger deals. I think we'll expect to see a bit more of that backend loading and that's why you're seeing that from a timing perspective, but we still are feeling really confident around net new ARR for the year.

That makes total sense, totally. And I was only going to ask one question, I don't believe it. The second one would have been the linearity but you read my mind. Thank you.

Our next question comes from Fatima Bulani with Citi. Please unmute your line and go ahead. Please unmute your line. We will come back to you at a later point. Our next question comes from Shrenik Khatri with Baird. Please unmute your line and ask your question.

Hey guys, this is Zach Schneider on for Shrenik. Thanks for taking the question. So maybe one on capital allocation. Now with $800 million plus in cash, path towards $100 million plus in free cash flow generation, no debt. You guys have, it seems, much more flexibility than you've had historically. So maybe how should we think about capital allocation going forward? And are there any changes there in strategy or priorities?

Yeah, sure. Thanks for the question. So yeah, we feel really good about where the balance sheet is, a very robust balance sheet. I think our capital allocation priorities really haven't changed. So we will continue to focus on organic investments that drive our growth. We will consider inorganic investments, but I would say there's a fairly high bar there. So it would be very selective and would need to be extremely strategic. And then finally, we absolutely will use our strong balance sheet and free cash flow to give us the flexibility and capacity to be able to opportunistically repurchase our shares given the long-term potential of our business and so long as we believe it's a positive ROI initiative, which certainly at current levels we would. So I would say our capital allocation policy is dynamic and opportunistic and again we will do our best to take advantage of any dislocations in the market and also maintain a strong cash position to support our innovation and strategic initiatives from here.

Great. Thank you. Our next question comes from Richard Poland with Wells Fargo. Please go ahead.

Yeah, thanks for taking the question. I guess if you just think about the balance of the reinvestment that you're making, I think you quantified it somewhere in the range of $45 million in annualized savings from the reduction. I guess as we think about how that flows through to investments and just kind of how you're calibrating, how much drops to the bottom line versus how much gets put back into things like AI, can you help us, I guess, just contextualize that the rest of the year?

Yeah. So, why don't I start with that? So for the full year, we're now guiding to about 700 basis points of year-over-year operating margin improvement. And as I said earlier, that would imply exiting at an operating margin significantly above that 10%. And we also talked about the desire to balance growth and profitability. And we felt strongly that there were areas where we had high conviction around parts of the market and products where we wanted to reinvest some of those savings. So we talked about AI security, we talked about cloud data. We really feel like those are the right opportunities to go after right now from an ROI perspective. And we feel like we'll be able to deliver both durable growth and operating margin expansion and still be able to, again, upgrade that operating margin from where we were a couple of months ago.

Great. Thank you both. Our next question comes from Roger Boyd with UBS. Please go ahead.

Awesome. Thanks for the question. Tomer, we continue to hear really strong feedback from the channel on Prompt security and it seems like it's already becoming a pretty material contributor to ARR. Can you talk about what you're seeing with Prompt as maybe the tip of the spear for new engagements and have you seen Prompt lead to bigger platform deals including competitive displacements in endpoint or data lake?

Thanks very much. Our final question of today comes from Fatima Bulani with Citi. Please go ahead.

Oh, good afternoon. Thank you so much for taking my questions and being patient with me today. Sonali, this one is for you and nice to see you on board here. Just looking at the deferred revenue and billings performance. I know you don't manage the business to billings, but just as we sort of look at the deferred revenue cadence, was there anything atypical or different here that happened just as we noted some weaker seasonality and some of the growth metrics on the deferred revenue side? And maybe tying it back to some of your commentary with respect to net retention rate maybe outside of the 100k ARR cohort and on some of the gross retention rate comments you alluded to earlier. I would love any incremental color on why maybe we saw that come out seasonally weaker than prior periods.

Yeah, sure. So on billings, I would say there's nothing specific to call out other than the fact that this metric can move around a bit just due to the timing of invoicing. So we tend to focus and we actually run the business much more around net new ARR as our key operating metric where obviously we saw a record number this quarter. In terms of GRR, we saw continued stability. It's actually, when I first arrived here, of course, I was looking through all the metrics. It's actually been stable for many, many, many quarters. And I remember seeing that and thinking that's an extremely strong sign just in terms of the stickiness and mission criticality of our platform. Like when we win a customer, they stay with us. I think up to now where we've seen some impact on net retention has been on the expansion side of things and I think we saw positive traction there with some of our larger customers this quarter which helped to drive net retention up and that's something I said in Tomer's question around priorities, it's something that I'm really focused on and when I look at some of the signals as we look forward to coming quarters, that's a metric that I expect to continue to improve and again that's what gives me confidence on the full-year guide as well is that will be a key support, that improving net retention rate, because of course every point we improve on net retention helps, it creates a tailwind on revenue.

Thank you. I appreciate that. Thank you. We have now reached the end of our allotted time for questions. I will turn the call back over to Mr. Weingarten for closing remarks.