Q3 2022 SentinelOne Inc Earnings Call
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Any forward looking statements that might be made during today's call are subject to the risks and uncertainties that are noted in the safe Harbor statement and the call will be governed by that language.
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From America.
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Welcome.
Thank you for joining us.
Software.
We're just trying to hang our lives.
Transform many industries.
Today, we will improve our disruptive deal with those things can be.
We are not opening the way for sure.
Yeah.
We want to reinvent the notion.
Of designing engineering and operating costs.
Our strategy is.
Connect the outerwear and the soft close cycle and create a product that can evolve naturally on regularly.
This approach we've made always fresh.
Value IR allow customers up here.
And of course, we will.
Want to own a broader scope of this health care value chain.
Let's dive into our strategy with our CEO Alex have alright.
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Thank you Ian.
Good morning, and good afternoon, ladies and gentlemen, welcome.
Welcome.
Atlantis software.
I Trust that you and your families are well.
Take care.
I think we appreciate your time and interest.
Got it.
Thank you again for that.
Oh first strategy is one of the key building blocks.
Auxilium is overall, it's about that.
Together with our EV strategy presented in July will be the most sustainable mobility for our customers.
Well he is changing nickels.
Vehicles have become an integral part of the customers visit for life itself.
Software defined features constant.
Constantly updated over the air.
In alignment with this.
Mission.
Powered by our diversity, we need the way the world move.
We will present today is now in full execution mode at full speed.
Software journey.
We are committed.
Deliver the best experience for all customers.
With three all new AI powered technology platform whereby in 2024.
With a particular focus on.
Connectivity.
With our brands with new platform software features.
Improving over the year.
Customer experience with a purposeful cockpit an insurer.
And immersive experience in connection with the business.
Supported by AI.
And autonomous driving.
It will last.
Basketball.
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We will also support our EPS about <unk> being deployed over our or physical.
And we bought by.
So we will further magnify the DNA of our iconic.
Iconic brands, creating a unique experience with each of our customers in the fastest and most cost efficient way.
Software will improve our business model.
Disconnecting hardware from software cycle.
Shifting the center of gravity of our business.
<unk> extended the top box.
We are already well million connected car and.
And we will reach 34 million.
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Sure.
Well rich or bidding.
So 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.
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 and the security industry Q4 is.
The most active quarter, we expect to have very strong Q4 in terms of where our pipeline is that were deals in the flow.
Are sitting right now.
And so I think your assessment is accurate.
And I think I mean.
With just the guidance.
As guided in Q4, we feel very confident in where our revenue is going to be so as you would expect we know that seasonality and thats why youre seeing us.
With the tailwind and the momentum we've had right now you're also seeing us increase the guidance for Q4 and the full year.
So with the expansion of the distribution.
Incident response at the end of <unk> 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 sales force contribution going into <unk>, given you looked like you significantly beating internal targets. Therefore.
Obviously, Brian.
And salesforce compensation.
Push in the fourth quarter.
Now the way that we really view it as 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 MSP or incident response ecosystems. They work in conjunction with our own central one sellers. So in the case.
Let's take an example within the IR space.
And incident response partner, we will deploy our technology platform to <unk>.
Uncover mitigate and eliminate and active threat within the customer environment at that same time, our sales motion kicks off and especially if you are talking enterprise size deals our own sales force can be deployed within that account to assist in our 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 the same sort of waiting holds true where within larger enterprise deals are.
Our great team of San Juan Sellers can and do get involved is needed in those deals and often.
They're in their shoulder to shoulder with our partners, but what it really means for US is its 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.
Essentially.
Engaging and building these force multipliers around the world of Channel partners MSP folks as well as incident response companies all working in conjunction with Sentinel won.
To help improve security for companies around the world.
So less than normal seasonality than would be the case given the expansion of the distribution. Thanks.
Great answers.
Okay.
Yes.
Thank you Mr Henderson.
Your next question comes from Brent Thill with Jefferies. Please proceed.
Hey, guys you have Joe on for Brent really appreciate the question, it's great to hear that <unk> from MFS PS grew 300% year over year I guess, how much of total IRR is from the MSP channel and then what is the real differentiator. There is an awareness the non competition pricing or is there a technology differentiation.
Yes, hi, there. So we don't breakout MSP numbers, but I can definitely speak to the technological advantages that sent them. One 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 our managed service platform works with hundreds of thousands of customers under one central tenant. So center, one is really leading that set of capabilities in the space. We also.
So have unique capabilities like.
RSO or remote script orchestration really lends itself to having an automated way for folks.
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.
<unk> decision that <unk> made.
A few years ago as we're 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 are talking about having a.
A long lasting business relationships that founded on trust and cooperation.
Cooperation.
Okay that was really helpful. And then maybe just staying with you. If you could just talk through your hiring plans.
And then maybe how many incremental sales reps, we expect going forward and any update on total quota carrying reps.
Yes, 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're looking 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.
Our sustained growth in the international markets, where you are 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.
Yes.
Just like to add that.
To reach the career and looking through all of these different ecosystem.
This is Steve <unk>.
And now international becomes a real differentiator for us I mean, we're using.
A good way all of these partnership equities teams to really on low parts of the Tam that we view some of the other vendors concretely reach and that gives us a very sustainable advantage as we can.
On local growth over time.
It makes a lot of sense. Thanks.
Thank you.
The next question comes from Brian Essex with Goldman Sachs. Please proceed.
Hi, good afternoon, and thank you for taking the question.
I was wondering if maybe you could touch on the.
Great.
Gration scaler, but what are the dynamics of.
That migration impact it has on revenue for customers that adopt and how far through your installed base are you with that migration.
Yes.
To us it's a very gradual approach that we're taking I mean, we kind of split it into a all new customers already on boarded on the scalar back end and that just creates.
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 we're basically any customer that has to be migrates can be migrated.
Moreover, we're taking this.
New approach to Xdr detour and looking over time, where we're actually offering better capabilities for each and every customer that uses the scalar backend is your own backend right now that creates another avenue for us to continue and monetize over time as you are probably well aware.
Our approach to it could be argued and opened one and we're starting to allow our customers to ingest data from any other product. They have indirectly system and you can imagine that doesn't really monetize 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 our capabilities of the entire market is seeing I think our approach is different and I think we're looking at a singular consulate singular platform that can ingest the data. Unlike most of the other vendors that are really coming in with <unk> R&D. Other so to us I mean, it's just us.
Graduate execution for Auryxia roadmap it comes intend them with our migration of customers.
Got it that's Super helpful. And then maybe to follow up we'll take element staffing analysis question and maybe.
Approach, new logos seasonality it looks like over the past few years <unk> has been.
A lighter seasonally lighter quarter for new logo adds maybe if you could.
Sure.
Past that.
That dynamic a little bit and help us understand the mix of customers. It looks like you had nice we went up into larger enterprise deals <unk> per customer is certainly drilling really nice so thats great to see but maybe just how youre approaching.
The customer mix that you are bringing on board and how we should think about logo adds going forward.
Yes.
I think you stated it well we're really the most important element of our customer mix is at 140% growth of customers over $100000 of IRR.
And I think if you pair that to what tumor it said where.
The vast vast majority of customers new customers in particular are going with singularity complete inherently.
Inherently that means they are utilizing the singularity in center, one 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 exciting is increased module adoption and attachment at.
Time of sale for new customers and that's.
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 that thank you.
Thank you Mr. Edson.
Next question comes from Patrick Colville, Whats going to bank. Please proceed.
Alright. Thank you so much for taking my question.
I guess one of the questions I wanted to ask you.
We get a lot of investors.
How far through the.
<unk>.
Placement of anti virus.
December 2021, invest a little bit of Mcafee.
Mantech and these companies lax.
Is that kind of process now largely complete.
I guess help us frame.
That opportunity what's left of it.
I think it's safe to assume that it is 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.
But we've had an incumbent vendor and Denise so, they're obviously still they're dilutive to <unk>.
Or the vast majority of what we deal with when we go into environments.
But even if we take a very conservative view that the overall Tam I think it's safe to assume that about over 50% of it is still in the hands of the incumbents looking at our pipeline for Q4 in 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.
Other compounds it and it's something that the incumbent vendors never had tool for Scott.
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.
It accounted go into call. It high nineties, we see an incumbent vendor so we don't see that tapering.
Tapering away anytime soon.
Great. Thank you so much.
Thank you Mr Caulfield.
The next question comes from Gray Powell with <unk>.
Please proceed.
Great. Thanks for taking the question.
Congratulations on the good results.
So yes, a couple on my side, maybe just to start off.
I just want to follow up on scalar in 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.
Yes, that's correct.
Alright that was easy.
And then my other question just be so.
You highlighted that emerging products like Ranger cloud workload 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 could you give us a sense as to like the mix of new sale.
<unk> that are coming from emerging products. Thanks.
Yes.
The difficulty is faster than the macro growth rate of the business and cloud is definitely the leading product line there.
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 are seeing the attach rates for those on the rise our MBR service that we launched about a year ago is now really starting to gain.
<unk> scale. So all in all we kind of see this as additional growth vectors into business that will help carry our growth rate into into the years to come.
Alright, great. Thank you very much.
Thank you Mr Powell.
The next question comes from Andrew Nowinski with Wells Fargo. Please go ahead.
Sure.
Alright, Thank you for taking the questions I'll start with the vigilant service. So can you just.
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 vigilant.
Yes digital for us something that we started.
Selling about a year year and a half ago.
About a third of enterprise customers.
<unk>.
Vigilance today over the first the first few peers, we actually got two new tiers that have been added to individually service, we're seeing adoption for those as well.
Okay.
And then as it relates to net new <unk>.
It's increased triple digits for the last three quarters.
As we think about how to model Q4 can you just talk about.
Higher sales capacity compares to last year and what other factors might influence.
The year over year growth in net and we are.
I think firstly 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.
To us, we're just continuing and scaling of our business.
Unlocking more capacity on the show side, while we're expanding our partner ecosystem.
To us I mean, we are continuing that's against slide wheel effect that Nick was talking about.
We're just continuing our growth you've seen our guidance for for Q4 and for the year.
That's very sustainable.
Okay. Thanks.
Thank you Mr Nolan ski.
The next question comes from Hamzah <unk> with Morgan Stanley. Please go ahead.
Hey, guys. Thanks for taking my question.
Dave I just wanted to follow up on earlier question that was that I think last quarter, you mentioned something like 10% of the net.
There are.
Came from securing cloud workloads and Iot.
Is that right and do you have an updated metric there at all I mean, probably doesn't change much quarter to quarter, but just curious.
Yes.
Cloud still remains.
Our fastest growing module.
About 10% of endpoints are covered by cloud.
And servers.
It has been our fastest growing module for some time in a class of the piece of the business I think that we think will expand greatly in the future.
We anticipate that at some point it will be similar size to the endpoint market.
And when we look at all of our emerging products together well.
Well over 10% contribution for every given quarter and we definitely see Doug on the rise so to US I mean, when you kind of look at the emerging we look at we look at data Iot and cloud and again all of those are just showing great great progress.
Got it.
Yes.
It could be a lot of focus on the.
The growth algorithm for the top line between new logos.
Average revenue per customer.
Going forward, how should we think about that should that be.
More weighted on air or per customer I know based on my math.
Right now it's about 40000.
Our per customer across our base, how do you think about that going to 50 or maybe even 100000 over time.
Yes, I mean, obviously.
We've seen module expansion as we've seen customers take step ups from core to control or control to complete.
Being higher price points from customers. So I'd anticipate that that will continue.
And as well as you know we're.
Obviously, bringing in new customers that are of substantial size. So I think you'll see continued growth from us in both sectors.
We're excited about about.
Our guidance and where we continue to think we will execute to in the future.
Got it thank you.
Thank you Mr. Fougere Wala. The next question comes from Roger Blade with UBS. Please proceed.
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 and endpoint protection purchase decisions.
Yes, we do.
Definitely see it.
In new logo motion I think even more than what we concentrate on the retention and up sell side its differently.
Mainstream awareness that you now need basically the same type of protection that you have new years ahead on the endpoints in server side no. One for your cloud cloud workloads in run time, it's actually also a very different competitive sets that we see on the cloud workload side, where the vendor that we need.
Most often in cloud workload protection opportunities are going to be Palo Alto networks, and fluke startups. It does.
<unk> impact, what we kind of quarterly drilling cycle between selling endpoint and cloud in kingdom, even though we also address cloud only opportunities with our cloud workload protection platform. It's regarded as one of the leading offerings in this space right now so to US again cloud just represents a very exciting.
New opportunity, we've been working on Linux servers, Linux environments, which is really kind of an expectation of what youre seeing right now in the <unk> platform and we've devised a complete cloud native platform to address that opportunity and is showing great traction right now.
Perfect. Thanks, a lot.
Thank you Mr. Boyd.
The next question comes from Charles <unk>.
Joe with Cowen <unk> co. Please proceed.
Thank you good afternoon, congrats on the strong results and guidance.
Tomer I have the product related question.
You're thinking the R&D platform is being integrated with Microsoft Azure active directory, where.
One provide endpoint and identity solutions and correct me if I'm wrong under your conditional policy solution.
Should I be looking at different Gration, Microsoft potentially cannibalizing one defender platform. The long term can you maybe double click on that specific integration.
Yes, sure thing and I think to us so we see providing for conditional access in this zero Trust world.
Much needed new ingredient for a lot of these enterprises out there.
And you can see 100 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 no. It just happens to be that one of these identity providers as Mike.
<unk> and Microsoft There is also we see a competitor in this space, but I wouldn't say that one really touches there.
For us, it's just a great way to deliver more value for our customers, we don't need to really.
<unk>, 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. It's just again, just a great way to address a much needed capability in this space.
On a completely native way by directly integrating with Microsoft and other integration would be with the underwrite entity providers, that's coming soon tolling or once they get a seamless way to deal with zero Trust.
Sure.
Understood. Thank you so much naphtha in mind.
Thank you Mr. Yao.
Our next question comes from Rob Owens with Piper Sandler. Please proceed.
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 and wanted to drill down into the extension receivables days billings 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.
Thanks.
Yes, I don't think theres anything that.
We're forecasting differently.
I think that there are larger customers, which we anticipate will continue so we will see the benefit there, but I think it's also just we're getting better at operating our business.
So I anticipate that those that those numbers would be similar.
Alright, thank you.
Thank you Mr. Allen.
The next question comes from Tao Yang with Bank of America. Please proceed.
Hi, guys.
I wanted to go back to.
Something you said on the prepared remarks.
Remarks, you mentioned that there is competition with both.
New and existing kind of anti virus players.
If you look at the end of last year, if you look at the competitive landscape.
Do you see any significant change in pricing or aggressiveness of other players.
Or the.
There are some concerns that the pricing environment is deteriorating on the basic product.
Or the initial footprint and I am wondering if this is something you're actually seeing in the market or if that's more just a high level of concern.
We're not seeing that and in fact year over year, our prices or land prices are rising and.
That's a function of product enhancements the innovation that we show our customers as well as our module attach rate and.
Really central one competes and wins because of the differentiation of our data and AI driven technology.
In this space with enterprise buyers no customer selects the 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 surfaces that we are protecting our increasing so if you look at what we just announced with singularity.
Mobile that opens up an enormous amount of adjacent surfaces to protect if you think about what tumor 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 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.
Overall, what I'd.
Just like to kind of add to what Nick said.
It is becoming increasingly hard to do any type of vehicle to Apple comparison in this market just because of the number of moving pieces different modules different offerings with each and every vendor into the market.
Think it's something that is highly dependent on the deal composure for any given deal.
And again, if you put a layer on top of it it consumption uses usage base modules that will start introducing as well.
Iridium, introducing with our data retention modules, Doug becomes even harder three slice and dice and figure out exactly but can explain our ppm is under ryzen and all in all we're very pleased with our progression with new lands and the price points there.
And summer is there.
Initially when you went public some distributors.
Our resellers were saying that your price level is lower than that of crowd strike.
Is this is this still the case are you winning also on price or or because of what you. Just said, we can compare pricing levels.
Yes, I think it was never the case I don't know if its no longer the case again the weighted reprice as are the first system that we found to monetize our platform I think it's a very competitive I think in certain cases, you will see some where it is expensive than the competition in some cases.
Youll see the competition actually coming in and discounting deeply to try and win against us.
I think the dynamics in our market are very counting sales cycle dependent visit whole again, if you look at our entire business VPN is on the rise we like our price point look at our margin I mean, Doug Doug with notably impossible without a very healthy price point for our offering.
So to us I mean, it's incredibly healthy.
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 oftentimes when folks are looking for an overall outcome better visibility better protection and if theyre comparing apples to.
Apples.
Well if the other bunch of Apple's also had some oranges in there that ends up being a higher landed costs and really are much higher operational costs. So I think one thing that constantly delights. Our customers is that they are able to get automated technology that doesn't require heavy handed services to deploy and maintain.
And that overall return on their investment they get they get higher ROI and they get to that much faster with the singularity platform.
Great. Thank you.
Okay.
Thank you Mr <unk>.
There are no additional questions registered at this time, so I'll pass the conference over to Tomer Winegarden CEO.
Oh for closing remarks.
Thank you and thank you everybody for joining us today.
You next quarter. Thank you.
That concludes the Sentinel won Q3 2022 earnings conference call. Thank you for your participation you may now disconnect your lines.
Alright.
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Great.
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