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spk08: Good afternoon. Thank you for attending today's Sentinel 1 Q3 2022 earnings conference call. My name is Selena and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Doug Clark, Head of Investor Relations at Sentinel 1. Please go ahead.
spk10: Good afternoon, everyone, and welcome to SentinelOne's earnings call for the third quarter of fiscal year 2022, ended October 31st. With us today are Tomer Weingarten, CEO, Nick Warner, COO, and Dave Bernhardt, CFO. Our press release and the shareholder letter were issued earlier today and are posted on our website. This call is being broadcast live via webcast, and following the call, an audio replay will be available on our investor relations section of our website. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements regarding future events and financial performance, including our guidance for the fourth fiscal quarter and full fiscal year 2022, as well as certain long-term financial targets. We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, in particular our S-1 and our quarterly report 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, unless otherwise stated, we will discuss non-GAAP financial measures. These non-GAAP financial measures were not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results 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. The financial outlook that we provided today excludes stock-based compensation expense, employer payroll tax on employee stock transactions, and an amortization expense of acquired intangible assets, 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.
spk01: Good afternoon, everyone, and thank you for joining our fiscal third quarter earnings call. This was another excellent quarter, and I'm extremely proud of the entire SentinelOne team. Our ARR growth accelerated to 131% year-over-year in the third quarter, our third consecutive quarter of triple-digit growth. We continue to scale our business on the back of leading endpoint protection, machine-speed EDR, XDR innovation, and our powerful partner-supported go-to-market strategy. The demand environment remains incredibly strong. Before digging deeper into the details of our quarterly performance and results, I'd like to share some perspectives on the cybersecurity landscape. I'd encourage you all to also look at our shareholder letter we have on our investor relations website, which provides a lot more detail. We're still early in the generational shift in cybersecurity led by the ongoing digital transformation of the enterprise. There are millions of cyber attacks inflicting trillions of dollars in damages every year. This is unacceptable and a growing risk to enterprises across the world. The increasing number of attacks and sophistication clearly shows that enterprises must deploy best-of-breed solutions that enable them to stay one step ahead of attackers. Take the current state of ransomware. Attackers have shifted from simply holding operations hostage to actual data compromise and exfiltration, infiltrating both legacy and unprotected devices. That's where Central One comes in. We pioneered the world's first purpose-built AI-powered XDR platform to make cybersecurity defense truly autonomous, from the endpoint and beyond. We believe it's essential to protect all parts of the enterprise estate, such as unknown devices, cloud workloads, and the data itself. We focus on data to provide enhanced visibility and advanced analytics. We protect our customers in real time at machine speed, empowering human operators with the speed, scale, and precision of technology. Our approach is resonating with our customers. We received the highest overall rating in the 2021 Gartner Voice of the Customer Report for endpoint protection platforms, where 97% of reviewers would recommend the Sentinel-1 Singularity XDR platform. I'm very proud of the work we all do to keep our customers secure, engaged, and delighted. We focus on putting our customers first. Let's turn the discussion to how we're executing. During our IPO earlier this year, we outlined five key aspects to our growth strategy. Our third quarter results demonstrate success and progress against each of these. First, we continue to innovate and enhance our cybersecurity and data platform. Automation is a top priority for Sentinel-1. Machine speed automation can help counter instantaneous cyber attacks and enable under-resourced IT teams. Last quarter, we introduced Storyline Active Response, or STAR, for customized dynamic detection and response rules. This quarter, we began offering remote script orchestration, or RSO, to instantly investigate and triage threats on multiple endpoints across entire organizations remotely. Together, these two capabilities deliver increased level of automation, as well as help enterprises consolidate legacy workflows and tooling with the Singularity XDR platform. I want to dig more deeply into RSO. We designed RSO to transform endpoint management for incidence response providers and enterprises. we're offering complete remote control and orchestration across endpoints. It's a scalable way for security providers to not only detect and respond with existing endpoints, but also manage and control the entire deployed footprint. It's like having a security analyst on every single endpoint at all times. Our customers and partners are already realizing the benefits of the advanced capabilities of RSO. One of our incident response partners said RSO helps eliminate time-consuming efforts to collect and consolidate forensics data and rapidly contain attacks, enabling us to minimize adversary impact. On the customer side, the Fortune 500 wholesale company added RSO to help automate threat hunting capabilities, making Sentinel-1 more powerful and integral to their security posture. In addition to automation, we believe a true XDR platform must be a comprehensive and open platform that provides visibility, protection, and response across the entire enterprise landscape. Customers have been asking us to provide mobile protection to complement our leading protection capabilities. And just this week, we announced Singularity Mobile. Sentinel-1 customers can now manage mobile device security alongside endpoint, cloud workloads, and IoT devices. Singularity Mobile brings behavioral AI-driven machine speed protection, detection, and response directly to iOS, Android, and Chrome OS devices. Putting this all together, we were recently recognized as a strong performer in the Forrester New Wave Extended Detection and Response Providers Report. Forrester highlighted that Sentinel-1 Singularity XDR platform is the best fit for companies that want customizability and to grow into XDR. We were also named Best Innovator in SC Labs' annual report. The second part of our strategy is to protect more enterprises every day. In Q3, our ARR grew by 131% year over year, and our revenue was up 128%. Our business is performing exceptionally well. We added over 600 new customers sequentially. We grew our total customer count by over 75% to over 6,000 compared to a year ago. Customers with ARR over $100,000 grew 140%, and we continue to see a growing mix of large enterprises within our business. In addition to expanding our global presence through direct sales teams, our channel remains a source of scalable growth and differentiation. With our partner-friendly approach, we're succeeding by further expanding our scale with incidence response and managed security service provider partners. Nick will touch on this in more detail later on. Third, we're unlocking further product adoption within our existing customer base. In the fiscal third quarter, our net retention rate reached 130%, a new record for our company. This growth was driven by strong license expansion, platform upgrades, and customer adoption of our new capabilities. We're early in our module strategy, but we're seeing great customer interest and adoption. Our emerging products, such as Ranger IoT, Cloud Workflow Protection, and data capabilities are all growing at impressive triple-digit rates. In particular, our cloud workload protection product delivered the highest growth during the quarter, a testament to the demand for our real-time runtime protection for cloud workloads and containerized environments. In one case, a leading book publisher selected SentinelOne for cloud workload protection because of its ease of use, simplicity of deployment, and having a true EDR in one console to manage their cloud-native Windows, Linux, and Kubernetes environments. The fourth element of our growth strategy is to further expand our global footprint. Revenue from international markets grew 159% year-over-year. International markets now represent 33% of our total revenue, up from 29% a year ago. As an example, in Q3, we secured a European conglomerate by replacing over 20 different antivirus products. This shows how our platform can help with vendor consolidation while also delivering leading performance. We're growing our sales coverage and channel presence in international markets. Last quarter, we talked about opening a new R&D center in the Czech Republic, and I'm excited that we're hiring great talent in this region. These initiatives will continue to strengthen our international presence. Fifth and last, we're well-positioned to expand our total addressable market through both acquisitions and strategic investments. We further strengthened our leadership team with the appointment of Rob Salvagno to lead corporate development. As we consider acquisitions, we evaluate prospects that align with our product, customer, and strategic market opportunities. Over time, we intend to use these opportunities to extend the reach of our XDR platform into adjacencies that complement our offerings. Our strategy also involves making minority investments. we recently made two strategic investments in early funding rounds for Laminar and Torque, companies that align with our approach to automation and APIs. Investments in emerging technologies will allow us to constantly enhance the SentinelOne platform in areas that may be of future interest to us. These investments reflect our long-term commitment to innovation, automation, and securing data wherever it resides with a front-row seat into cutting-edge cybersecurity technologies. Finally, As part of our XDR roadmap, Scalar is performing extremely well, and it's continued to grow year over year and quarter over quarter. Scalar is integrated into our technology backbone, and we're using it to redefine XDR. At the same time, we're onboarding all new customers on our revamped backend seamlessly. We've begun migrating select existing customers. By using Scalar, our customers are enjoying faster performance and advanced analytics capabilities. Before I turn the call over to Nick, I want to discuss our people and our culture. Our true competitive advantage comes from the employees of SentinelOne. We've invested in talent across sales, marketing, engineering, and corporate functions while cultivating an inclusive and diverse workplace. We've grown rapidly in the past year, and our number of employees has gone from 600 to about 1,100. This has been no small feat, and we're continuing to grow and expanding the team. We work very hard to foster a productive and inclusive culture, and our efforts are showing up in results. As part of the 2021 Great Places to Work certification, 96% of responses from employees said Sentinel-1 is a great place to work. We received several other awards during the quarter that recognized our workplace culture. With the combination of our differentiated technology and dedicated team, we're helping our customers stay ahead of adversaries, prevent breaches, and autonomously respond to innovation. We're helping our customers reimagine cybersecurity. I'm excited about what we can do from here. Thank you to all Sentinels and our customers and our partners. With that, I will turn the call over to Nick Warner, our Chief Operating Officer.
spk02: Thank you, Tomer, and welcome, everyone. Our go-to-market flywheel of sales and marketing, channel, and technology partners resulted in another outstanding quarterly performance across the board. Strong demand for a Singularity XDR platform is evident by our third quarter results. Our customers are clearly choosing SentinelOne as a partner and technology of choice. In Q3, we reported an impressive ARR growth of 131%, reaching $237 million compared to last year. This growth was driven by a healthy combination of new customer additions, existing customer renewals, and upsells. Today, we are protecting over 6,000 customers through our Singularity XDR platform. That's total customer growth of more than 75%, or almost 2,500 more customers compared to last year. Our focus on automation, Speed and accuracy is critical to any enterprise. In fact, all enterprises. I want to be clear, this is a competitive market. The environment has not changed. Yet we've maintained incredibly strong win rates in all competitive situations against legacy and next-gen vendors. With every new quarter, we're protecting more and more mission-critical businesses around the world. In Q3, we added a leading global financial exchange in a seven-figure multi-year agreement. This was a true platform win. They selected SentinelOne for endpoints, cloud workload protection, remote script orchestration, and data applications. It's telling that we're getting so much attention by our competitors, which speaks to the traction we're having in the market. We're winning more and more customers, and our growth rates speak for themselves. What enterprises need is automated security, not repackaged legacy AV and crowd powered protection. Our mission is to elevate security for our customers through a relentless focus on innovation. And our customers are happy with 97% gross retention rate and the highest score in Gartner's voice of the customer survey. That's hundreds of customer reviews, and that speaks volumes compared to any single customer example. Let me take a step back and share some details around our customer and business mix. We grew customers with ARR over $100,000 by 140% versus last year. Our business mix from customers with ARR over $100,000 continues to grow, driven by our success with larger enterprises, strategic channel partners, and increasing module adoption. In addition to protecting new larger customers, we're seeing strong retention and expansion within our existing customer base. Gross retention rates remained consistent with prior quarters. Our net retention rate was 130% this quarter, a new record for our company. This record NRR was driven by license expansion, platform tier upsells, and adoption of emerging capabilities. In Q3, two of our Fortune 10 customers renewed with multi-year deals. and both expanded their use of the Singularity platform, adding modules such as Ranger and remote script orchestration. I'd like to talk more about our channel partners. Our partner ecosystem helps magnify our market access and significantly extends our reach and efficiency. We do not compete with our partners. Instead, we equip them with industry-leading capabilities like multi-tenancy and open APIs. In fact, we're expanding our partner ecosystem, and this is driving significant growth for us. Let me double-click on our managed security service provider partnerships as an example. MSSPs provide outsourced monitoring and management of security devices and systems. Our growing and highly scalable partnerships with MSSPs give us robust mid-market and large enterprise coverage. Together, we have fueled significant new customer and business growth over the past several quarters. We're proud to partner with companies like Enable, AT&T, Pax8, Continuum, Kroll, and many others to demonstrate the momentum we're seeing in our third fiscal quarter ARR from our MSSP channel increased by 300% year over year. In addition to MSSPs, our incident response partners leverage the SentinelOne platform for their breach response services, making us an integral part of their capabilities. Last quarter, we talked about our commitment to support even more IR partners through our Singularity platform. In Q3, we built upon that progress and further expanded our network of IR partners. We added KPMG as a global go-to-market partner for incident response and proactive cybersecurity services. Our growing network of IR partners continues to help secure businesses. As an example, during the quarter, we won a large airline customer in Asia through one of our IR partners. Finally, I'd like to share how we're putting our customers and partners first. We recently hosted our first ever customer conference called 1UP. Participation and response has been incredibly positive. We've also hosted partner conferences throughout the Americas and EMEA. Our goal is to educate on our latest innovations and continue to build on our momentum. Over the last few quarters we've also received great feedback on our accreditation programs we added continuing education courses to complement our accreditation programs. These courses keep our partners up to date on new capabilities and modules which in turn support our growing scale and platform reach. We had around 2000 accreditations in June 2021. We've made amazing progress since then and now have surpassed over 6,000 accreditations across our sales and pre-sales courses through the end of November. This tremendous improvement illustrates the growing attention we're seeing in the channel. I'm proud to work with our global team of relentless sentinels every day. I'm excited about our future. We will continue to deliver on our vision with focus on execution and listening to our customers. Thank you again for joining us. And let me turn it over to Dave Bernhardt, our CFO.
spk07: Nick, Tomer, thank you. And thank you all for joining us today. I'll touch on the financial highlights from the quarter and then provide additional context around our guidance for Q4 and fiscal year 2022. After we will open the call to your questions. Our third quarter results exceeded expectations across the board. Our revenue and ARR growth both accelerated in the quarter. Our performance strength was broad-based, coming from a healthy mix of new customers and existing customer expansion. It also balanced across geographies and customer sizes. We achieved revenue of $56 million, increasing 128% year-over-year, and delivered ARR of $237 million, with growth accelerating to 131% over the same period. Turning to our costs and margins. Our non-GAAP gross margin in Q3 was 67%. This was up 9% year-over-year and up 5% quarter-over-quarter. The biggest benefits are coming from our increasing scale and business expansion, including modest benefits from module and platform upsell. Costs associated with the migration of existing customers to our scalar backend were minimal in Q3. This contributed to the gross margin upside relative to our prior expectations. I want to provide more detail here. Scalar is a critical part of our XDR roadmap and future innovation, giving us enhanced data storage and ingestion capabilities. We are balancing our product roadmap with our migration of existing customers. We will follow the optimal cadence for our customers and our business. In Q3, we took a more measured approach to migrations, which had less of an impact to margin. We anticipate migrating more customers in Q4 and the first half of next year. That said, when I look at our Q3 growth margin of 67% and how far we've come in just the past few quarters, I see dividends of scale and efficiency in our model. Looking at the rest of our P&L, we're investing for growth and achieved triple-digit growth rates in ARR and revenue again this quarter. Our non-GAAP operating margin was negative 69%. We're continuing to make strategic investments that enhance our product and scale our go-to-market. Even still, this is a significant improvement from negative 102% in the year-ago quarter and also from negative 98% last quarter, showcasing the potential for leverage throughout our business model. We remain in investment mode in the near term, which is the right strategy given the vast opportunity in front of us. Now for our outlook for Q4 and the full fiscal year. In Q4, we expect revenue of $60 to $61 million, reflecting growth of between 101% to 104% year-over-year. We're raising our full-year revenue guidance from $199 to $200 million. This implies full-year growth of 115% at the midpoint. The structural tailwinds of digital transformation, hybrid work environments, and an evolving yet persistent threat environment are here to stay. We're executing extremely well. Our product innovation, increased brand awareness, and scaling go-to-market are giving us favorable opportunities to engage with existing and prospective customers. We expect Q4 non-GAAP gross margin to be between 62% to 63% and full year non-GAAP gross margin to be between 61% to 62%. Our Q4 guidance implies a minimum of 8% non-GAAP gross margin expansion year over year, as we're benefiting from increasing scale, improved cloud hosting agreements, and processing efficiency gains. Our guidance also reflects the migration of existing customers to Scalar, which we expect will continue into the first half of next year. Finally, for non-GAAP operating margin, we expect negative 83 to 80% in Q4 and negative 91 to 90% for the full year. We see tremendous opportunity for growth and the investments we're making today will put us in the position to succeed for the long term. Additionally, as a reminder, our IPO lockup expires and best adoptions and outstanding shares can be traded starting December 9th, 2021. This is a continuation of late September's 15% lockup expiration. In closing, Q3 was another excellent quarter with strong execution company-wide, and we're expecting that momentum to continue into the end of our fiscal year. I want to thank you all for attending our earnings call. Operator, can you please open up the lines for questions? Thank you.
spk08: Absolutely. If you would like to ask a question, please press star-fold by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star-fold by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from Saket Kalia with Barclays. Please proceed.
spk04: OK, great. Hey, guys. Thank you for taking my questions here. Appreciate it. Tomer, maybe just to start with you, can you just touch a little bit on the mix of customers on different packages? You know, clearly beyond winning new customers here, you've talked about the higher value opportunity with higher value packages. Can you just touch on where we stand there and how you feel about that going forward?
spk01: Of course, yeah. The vast majority of what we sold this quarter was the complete package. I think that we're seeing just overall standardization on the complete platform. People are opting for our complete EDR package. I think what I can also say on top of that is just increased adoption of our cloud modules. We're just seeing increased demand for cloud workload protection. And given that our platform is one of the best-of-breed platforms right now in the market, It's something that we're seeing more and more. On top of that, I'd add that with COMPLETE, we also have about 10 expensatory modules. Data retention is one of them, and that is something that we're also seeing more and more adoption of. So, you know, to kind of sum it up, I think COMPLETE and EDR is becoming the standard for us going forward, and on top of that are the expansion modules that we're providing to the market.
spk04: Got it. Got it. That's very helpful, Tomer. dave maybe maybe for you um you know you talked a little bit about the scalar migration and understand i mean there you know there's some timing there's some timing uh considerations around that and uh but it was great to see that the gross margin expansion in the quarter how do you think about the the long-term gross margin benefit after completing the the migration to scalar does that make sense
spk07: Yeah, sure. You know, I think what you're seeing a bit is kind of a new baseline that we have, you know, on a go-forward basis. You know, Scalar was not as much of a migration this quarter as we had originally expected. You know, we told you guys, I think, during the IPO roadshow and as well last quarter, that that transition is about a 4% hit to cost of goods sold in that period. You know, so I think what you're seeing now is really the benefit from – you know, the business expansion, the benefits of scale, the higher revenue. You know, we're seeing the efficiencies, you know, from the scalar product for our own, you know, our own back end. And then you're also seeing, you know, some of the benefits of the cross-sell and the AWS renegotiation we've done. So, all of that is, you know, great tailwinds for us going into the future. You know, I think... We haven't changed anything in regards to our long-term goal, which is in the 75% to 80-plus percent. Being at 67 when we were substantially lower than that a year ago, you're already seeing great strides from everything we're doing to execute against that. So I see this to be depressed for a couple quarters as we finish this migration, and then I think we'll be back in this range and operate for improved margins from that going forward.
spk05: very helpful thanks guys thank you mr kalia the next question comes from alec henderson with meet him please proceed much um i was hoping you could talk a little bit about your thoughts on i i know when you're growing at the pace you're at uh it's difficult to talk to but uh seasonality and particularly given the sales organization going into your fiscal fourth quarter here and then going into the seasonally, I would assume, somewhat weaker fiscal first quarter. So can you talk a little bit about how the seasonality might be impacting your thoughts on growth and whether we should be factoring that into our assessment of the next couple of quarters?
spk02: Sure, good question. Q4 is our strongest quarter. I think that that has been the case historically. I think if you look at broader buying trends in the security industry, Q4 is the most active quarter. expect to have very strong Q4 in terms of where our pipeline is at, where deals in the flow are sitting right now. And so I think your assessment is accurate.
spk07: And I think we echo that a bit with just the guidance. You know, us guiding Q4, we feel very confident in where our revenue is going to be. So as you would expect, you know, we know that seasonality, and that's why you're seeing us, you know, with the tailwinds and the momentum we've had right now, you're also seeing us increase the guidance for Q4 and the full year.
spk05: So with the expansion of the distribution, the incident response, the MSSPs, all the other players that are driving your product, Does that tell us that we should be a little bit more cautious on the direct Salesforce contribution going into 1Q, given you look like you're significantly beating internal targets? Therefore, obviously, risers and Salesforce compensation push in the fourth quarter.
spk02: Now, the way that we really view it is it's all part of the flywheel, and that flywheel is picking up momentum by the quarter. And, in fact, if you look at our MSSP or incident response ecosystems, they work in conjunction with our own Sentinel-1 sellers. So in the case of – let's take an example within the IR space – An incident response partner will deploy our technology platform to uncover, mitigate, and eliminate an active threat within the customer environment. At that same time, a sales motion kicks off And especially if you're talking enterprise-side deals, our own sales force can be deployed within that account to assist in pricing, closing the deal, et cetera. So it's really selling in cooperation with incident response partners. As it relates to our managed service providers, Many of those customers are in the mid-market. A lot of them are in the large enterprise. And I think that the same sort of weighting holds true where within larger enterprise deals are Our great team of Sentinel-1 sellers can and do get involved as needed in those deals, and often they're in their shoulder-to-shoulder with our partners. But what it really means for us is it's lead gen. It's really improving the quality of leads. And it's giving us really this flywheel and gear effect in terms of coverage because we're essentially, you know, engaging and building these force multipliers around the world of channel partners, MSSP folks, as well as incident response companies, all working in conjunction with Sentinel-1 to help improve security for companies around the world.
spk05: So less than normal seasonality then would be the case given the expansion of the distribution. Thanks. That's great answers.
spk08: Thank you, Mr. Henderson. The next question comes from Brent Bill with Jefferies. Please proceed.
spk06: Hey, guys. You have a Joe on for Brent. Really appreciate the question. It's great to hear that ARR from MSPs grew 300% year over year. How much of total ARR is from the MSSP channel, and then what is the real differentiator there? Is it awareness, the non-competition, pricing, or is there a technology differentiation?
spk02: Yeah, hi there. So, we don't break out MSSP numbers, but I can definitely speak to the technological advantages that Sentinel-1 Singularity Platform has, as well as, really, I think, our go-to-market culture, which is very different. So, talking about technological advantages, we have unique capabilities, like true multi-tenancy, and that's incredibly important if you think about the way a managed service platform works with hundreds or thousands of customers under one central tenant. So Sentinel-1 is really leading that set of capabilities in the space. We also have unique capabilities like RSO or remote script orchestration really lends itself to having an automated way for folks at the managed service provider level to take meaningful real-time action on each and every machine. And then switching gears over to sort of go-to-market differences, you know, a fundamental decision that Sentinel-1 made A few years ago, as we were building out our go-to-market motion, was really philosophically we decided to have a posture of enablement and not competition. So we don't compete with our managed service providers. We don't compete with our incident response partners. And that really means everything when you're talking about having a long-lasting business relationship that's founded on trust and cooperation.
spk06: That was really helpful, Nick. And then maybe just staying with you, could you just talk through your hiring plans? Maybe how many incremental sales reps we expect going forward and any update on total quota-carrying reps?
spk02: Yeah, we're not disclosing exact numbers in terms of hiring, but as you can imagine, we're really still investing in the business as we continue to enjoy tremendous growth. And so we're really going to continue hiring across the board, whether or not you look in sales, sales engineering channel, both in the U.S. as well as outside the U.S. I mean, I think it's pretty remarkable if you look at our sustained growth in the international markets. where you're looking at 159% growth, and now today international represents a third of our global revenue. And so we're going to continue to invest, and we're really investing in people around the world.
spk01: Yeah, I'd just like to add that, you know, the reach that we're unlocking throughout all these different ecosystems, you know, via MSSPs, IRs, and now international, I mean, that becomes a real differentiator for us. I mean, we're using in a good way all of these partnership ecosystems to really unlock parts of the TAM that we feel, you know, some of the other vendors can't really reach, and that gives us, you know, a very sustainable advantage as we kind of unlock growth over time. Makes a lot of sense.
spk06: Thanks.
spk08: Thank you. The next question comes from Brian Essence with Goldman Sachs. Please proceed.
spk14: Hi, good afternoon, and thank you for taking the question. I was wondering if maybe you could touch on the rate of migration to Scalar. What are the dynamics of that migration and the impact that it has on revenue for customers that adopt? And how far through your install base are you with that migration?
spk01: Yeah. You know, to us, it's a very gradual approach that we're taking. I mean, we kind of split it in two. A, all new customers are already onboarded on the Scalar backend, and that just creates, you know, a new cost-saving element for us. as we look into the future when we look at the existing customer base it's a very elective approach that we're taking where basically any customer that asks to be migrate can be migrated but moreover you know we're taking this new approach to xdr that we're unlocking over time where we're actually offering better capabilities for each and every customer that uses the scalar back end as their own back end right now That creates another avenue for us to continue and monetize over time. As you're probably well aware, our approach to XDR is an open one, and we're starting to allow our customers to ingest data from any other product they have in their ecosystem. And you can imagine that that will be monetized by actually monitoring data ingestion and while allowing these customers to take that data, put it in, and retain it for longer, it will again create better economies for scale for us and again more avenues to monetize. We are seeing, I think, increased demand for XDR capabilities as the entire market is seeing. I think our approach is different, and I think we're looking at a singular console, a singular platform that can ingest those data, unlike most of the other vendors that are really coming in with EDR on one end and XDR on the other. So to us, I mean, it's just this gradual execution for our XDR roadmap that comes in tandem with our migration of customers.
spk14: Got it. That's super helpful. Maybe to follow up, I'll take elements of Zach and Alex's question and maybe approach new logo seasonality. It looks like over the past few years, ReQ has been a seasonally lighter quarter for new logo ads. Maybe if you could unpack that. that dynamic a little bit and and help us understand the mix of customers it looks like you nicely went up into larger enterprise deals air arpa customer is certainly growing really nice so that's great to see but but maybe just how you're approaching um the the customer mix that you're bringing on board and how we should think about logo ads going forward
spk02: Yeah, so, you know, I think you stated it well where really the most important element of our customer mix is that 140% growth of customers over $100,000 of ARR. And I think if you pair that to what Tomer had said where, you know, the vast, vast majority of customers, new customers in particular, are going with Singularity Complete products, you know, inherently that means they're utilizing the Singularity and SentinelOne platform for more, which makes us more sticky, more involved, more touch points within various parts of an enterprise. And I think as part of that also what we're really seeing that's exciting is increased module adoption and attachment at time of sale for new customers. And, you know, that's a very different motion than, say, a year and a half ago, and we're really excited by that. So if you look at overall growth from a high level, it's great. If you look at customer mix becoming increasingly weighted to the enterprise, those signals are also there. And then if you look at the product mix, all of those are trending in the right direction from our perspective. Great. Makes a lot of sense. Thank you.
spk08: Thank you, Mr. Esses. The next question comes from Patrick Colville with Deutsche Bank. Please proceed.
spk00: Thank you so much for taking my question. I guess one of the questions I wanted to ask you, you know, we get it a lot from investors, is how, you know, how far through the displacement of antivirus are we you know as of what december 2021 is there still a lot of mcafee semantic and then these companies left or is that kind of process now largely complete um just kind of i guess help us frame that opportunity or what's left of it
spk01: I think it's safe to assume that it's far from complete. I mean, one data point to point towards that is the fact that pretty much every deal that we closed this quarter and past quarters always had an incumbent vendor in between. They're obviously still there. They're obviously still, you know, are the vast majority of what we deal with when we go into environments. And I think that even if we take a very conservative view at the overall time, I think it's safe to assume that about, you know, over 50% of it is still in the hands of the incumbents. Looking at our pipeline for Q4 and, you know, the out-quarters, that doesn't seem to change. So to us... That cycle is still ongoing. It's a pretty big TAM that we're serving. And obviously, if you look at our mix today, also going into the cloud security opportunity kind of further compounds it, and it's something that the incumbent vendors never had to offer. So that makes the entire buying cycle really more sticky, more inclusive, and just overall more important for the enterprise. So it becomes part of the picture. But again, in almost every account that we go into, quote, high 90s, we see an incumbent vendor. So we don't see that, you know, tapering away anytime soon.
spk00: Great. Thank you so much.
spk08: Thank you, Mr. Colville. The next question comes from Gray Powell with BTIG. Please proceed.
spk16: Great. Thanks for taking the question, and congratulations on the good results. So, yeah, a couple on my side. Maybe just to start off, I just want to follow up on scalar and gross margins. So you beat the Q3 gross margin guidance by a little over eight points. Is it fair to say that roughly four points of that beat was due to the timing of the scalar migration, and then the rest of the upside was just sort of natural leverage in the business model? Yeah, that's correct. All right. That was easy. And then my other question would just be, so you highlighted that emerging products like Ranger, Cloud Workflow Protection, and data capabilities, they all grew well into the triple digits. I guess, can you give more color there? I mean, the entire business grew triple digits. So I'm just curious, like, how much faster are emerging products growing versus the core? Or can you give us a sense as to like the mix of new sales that are coming from emerging products? Thanks.
spk01: Yeah, significantly faster than the macro growth rate of the business. And cloud is definitely the leading product line there. And that's something that we see building over in our pipeline as well. We're starting to actually generate pipeline per product line. So we're seeing major traction in each one of these emerging modules We're seeing the attack rates for those on the rise. Our MDR service that we launched about a year ago is now really starting to gain, you know, complete scale. So all in all, we kind of see this as, you know, additional growth vectors in the business that will help carry our growth rate into, you know, into the years to come.
spk05: All right, great. Thank you very much.
spk08: Thank you, Mr. Powell. The next question comes from Andrew Nowinski with Wells Fargo. Please go ahead.
spk13: All right. Thank you for taking the questions. I want to start with the vigilance service. So can you just give us any color in terms of what the attach rate was of that service to your new deals and how much of a revenue uplift it provides when a customer adds vigilance?
spk01: Yeah, you know, vigilance for us, you know, something that we started, you know, selling about a year, year and a half ago, it's about a third of enterprise customers that are adopting vigilance today over the first, you know, the first few tiers. We actually got two new tiers that have been added to the vigilance service. We're seeing adoption for those as well. Okay.
spk13: And then as it relates to net new ARR, it's increased triple digits for the last three quarters. As we think about how to model Q4, can you just talk about how your sales capacity compares to last year and what other factors might influence the year-over-year growth in net new ARR?
spk01: I think it's relatively, you know, very linear for us. I mean, if you look at our business in the last couple of years, our growth has been very, very linear and very much according to our expectation. Really, no matter what happened to the market, you know, to us, we're just continuing and scaling. scaling our business. We're, I think, unlocking more capacity on the sales side while we're expanding our partner ecosystem. So to us, I mean, we are continuing that, again, flywheel effect that Nick was talking about. And, you know, we're just continuing our growth. You've seen our guidance for Q4 and for the year. We feel that's very sustainable.
spk00: Okay, thanks.
spk08: Thank you, Mr. Nowinski. The next question comes from Hamza Fardawalla with Morgan Stanley. Please go ahead.
spk03: Hey, guys. Thanks for taking my question. Dave, I just wanted to follow up on an earlier question that was asked. I think last quarter you mentioned something like 10% of the net new ARR came from securing cloud workloads and IoT. Was that right? And do you have an updated metric there at all? I mean, probably didn't change much quarter to quarter, but just curious.
spk07: You know, cloud still remains, you know, our fastest growing module. You know, about 10% of endpoints are covered by cloud and servers. You know, it has been our fastest growing module for some time. You know, cloud's a piece of the business, I think, that we think will expand greatly in the future. You know, we anticipate that at some point it will be this, you know, similar size to the endpoint market.
spk01: Yeah, and when we look at all of our emerging products together, you know, it's well over 10% contribution for every given quarter, and we definitely see that on the rise. So to us, I mean, when you kind of look at emerging, we look at data, IoT, and cloud, and, again, all of those are just showing great, great progress.
spk03: Got it. And there seems to be a lot of focus on the – the growth algorithm for the top line between new logos and then average revenue per customer. Just going forward, how should we think about that? Should that be more weighted on AR for customer? I know, I mean, based on my math, right now it's about 40,000 AR per customer across your base. How do you think about that going to, you know, 50 or maybe even 100,000 over time?
spk07: Yeah, I mean, obviously, as we've seen module expansion, as we've seen, you know, customers take step-ups from, you know, core to control or control to complete, you know, we're seeing higher price points from customers. So I'd anticipate that that will continue. You know, and as well, you know, we're obviously bringing in new customers that are of substantial size. So I think you'll see, you know, continued growth from us in both vectors. You know, we're excited about that. about our guidance and where we continue to think we'll execute to in the future. Thank you.
spk08: Thank you, Mr. Fadarwala. The next question comes from Roger Boyd with UBS. Please proceed.
spk12: Well, thanks for taking my questions and congrats on the results. Going back to cloud workload protection, can you just talk about how often you're seeing that show up in new logos versus upsell, and to the extent cloud security is becoming a bigger consideration in endpoint protection purchase decisions?
spk01: Yeah, we definitely see it a lot in new logo motion. I think even more than what we concentrate on on the retention and upsell side, it's definitely this, I think, mainstream awareness that you now need basically the same type of protection that you have, you know, years had on the endpoint and server side now onto your cloud workloads in runtime. It's actually also a very different competitive set that we see on the cloud workload side where, you know, the vendors that we meet most often in cloud workload protection opportunities are going to be, you know, Palo Alto Networks and its slew of startups. Yeah. It does impact what we kind of call a joint cycle between selling endpoint and cloud in tandem, even though we also address cloud-only opportunities with our cloud workload protection platform. It's regarded as one of the leading offerings in the space right now. So to us, again, cloud just represents a very exciting new opportunity. You know, we've been working on Linux servers, Linux environments, which is really kind of an adaptation of what you're seeing right now in the Kubernetes platform, and we've devised a complete cloud-native platform to address that opportunity, and it's showing great traction right now. Perfect. Thanks a lot.
spk08: Thank you, Mr. Boyd. The next question comes from Shaul Iwal with Cowen & Co. Please proceed.
spk11: Thank you. Good afternoon. Congrats on the strong results and guidance, guys. Tomer, I have a product-related question. Your Singularity platform is being integrated with Microsoft's Azure Active Directory, where Sentinel-1 provides endpoint and identity solutions, and correct me if I'm wrong, under your conditional policy solution. So, Should I be looking at this integration as Microsoft potentially cannibalizing its own Defender platform in the long term? Can you maybe double click on that specific integration?
spk01: Yeah, sure thing. And I think to us, obviously, providing for conditional access in this zero-trust world is a much-needed ingredient for a lot of these enterprises out there. And you kind of see what other vendors are also doing in this space around identity protection. And what we found is that their offerings are incredibly narrow and ones that we can actually deliver to the customer by just integrating directly with the identity providers. Now, it just happens to be that one of these identity providers is Microsoft, and Microsoft is also obviously a competitor in this space, but I wouldn't say that one really touches the other. For us, it's just a great way to deliver more value for our customers without the need to really, you know, attach another module or provide another capability, but really just giving them out-of-the-box integration for conditional access, which is actually something that our competitors are charging for. So to us, just again, just a great way to address a much-needed capability in this space. in a completely native way by directly integrating with Microsoft. Another integration would be with the other identity providers. That's coming soon. All in all, once again, a seamless way to deal with zero trust.
spk11: Understood. Thank you so much. That's it on my end.
spk08: Thank you, Mr. Yao. The next question comes from Rob Owens with Piper Sandler. Please proceed.
spk15: Good afternoon, and thanks for taking my question. I was wondering if you could touch a little bit just around the linearity of the quarter and how it played out. I wanted to drill down into the extension receivables and Dave's billing is outstanding. Is this a function of larger customers moving up market, or is this a more normalized range here that we should expect it to remain in? Thanks.
spk07: Yeah, I don't think there's anything that, you know, that we're forecasting differently. You know, I think that there are larger customers, which we anticipate will continue. So, you know, we'll see the benefit there. But I think it's also just, you know, we're getting better at operating a business. So I anticipate that those numbers would be similar.
spk13: All right. Thank you.
spk08: Thank you, Mr. Owens. The next question comes from Tal Liani with Bank of America. Please proceed.
spk09: Hi, guys. I want to go back to something you said on the prepared remarks. You mentioned that there is competition with both new and existing kind of antivirus players. And if you look in the last year, if you look at the competitive landscape, Do you see any significant change in pricing or aggressiveness of other players? There are some concerns that the pricing environment is deteriorating on the basic product or the initial footprint, and I'm wondering if this is something you're actually seeing in the market or that's more just high-level concerns.
spk02: We're not seeing that. And, in fact, year over year, our prices, our land prices are rising. And, you know, that's a function of product enhancements, the innovation that we show our customers, as well as our module attach rate. And, you know, really, Sentinel-1 competes and wins because of the differentiation of our data and AI-driven technology. in this space with enterprise buyers no customer selects a security vendor based solely on pricing that just doesn't happen and so i think what we're really seeing is a combination of a few factors one folks are relying on and going to the best technology that provides an automated and easy to deploy solution the second thing is We have a number of highly interesting modules that customers are consuming. And the third is the services that we're protecting. are increasing so if you look at what we just announced with singularity mobile that opens up an enormous amount of adjacent surfaces for us to protect if you think about what tomer talked about with cloud workload protection combined with the already vast number of only legacy protected devices in the enterprise really there is an amazing amount of opportunity for us both within new customers but also existing customers to continue to grow our ASP and our price per node. So we are not seeing that. We'll see within any given account there could be one-off price pressures, but in terms of macro trends, we're really not seeing that.
spk01: Overall, what I'd just like to kind of add to what Nick said is that it's becoming increasingly hard to do any type of Apple-to-Apple comparison in this market just because of the number of moving pieces, different modules, different offerings that each and every vendor offers. to the market um so so i think it's something that is highly dependent on the deal composure for any given deal um and again if you put a layer on top of it a consumption usage usage-based module that we'll start introducing as well um and we're already introducing introducing with our data retention modules that becomes even harder um to really slice and dice and figure out exactly but to the next point i mean our ppn is on the rise and all in all we're very pleased with our progression um with new lands and the price points there and thomer is there initially when you went public some distributors uh or resellers were saying that your price level is lower than that of crowd strike
spk09: Is this still the case? Are you winning also on price, or because of what you just said, we can't compare pricing levels?
spk01: Yeah, I think it was never the case. I don't know if it's no longer the case. Again, the way that we price is the fair system that we found to monetize our platform. I think it's very competitive. I think in certain cases, you'll see it's more expensive than the competition. In some cases, you'll see the competition actually coming in and discounting deeply to try and win against us. I think the dynamics in our market are very account and sales cycle dependent. As a whole, again, if you look at our entire business, PPN is on the rise. We like our price point. Look at our margin. I mean, that would not have been possible without a very healthy price point for our offering. So to us, I mean, it's incredibly healthy.
spk02: One thing I would add is commonly our public company peer competitor force bundles in a myriad of human-powered services into their deals. And so often when folks are looking for an overall outcome of better visibility, better protection, and if they're comparing apples to apples, Well, if the other bunch of apples also have some oranges in there, that ends up being a higher landed cost and really a much higher operational cost. So I think one thing that constantly delights our customers is that they're able to get automated technology that doesn't require heavy-handed services to deploy and maintain, and that overall return on their investment is they get higher ROI and they get to that much faster with the Singularity platform.
spk09: Great. Thank you.
spk08: Thank you, Mr. Liani. There are no additional questions registered at this time, so I'll pass the conference over to Tomer Weingarten, CEO, for closing remarks.
spk01: Thank you. And thank you, everybody, for joining us today. And see you next quarter. Thank you.
spk08: That concludes the Sentinel-1 Q3 2022 earnings conference call. Thank you for your participation. You may now disconnect your lines.
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