Q2 2024 SentinelOne Inc Earnings Call
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Good afternoon.
You for attending today's Sentinel won Q2 fiscal year 'twenty four earnings Conference call. My name is cole and I'll be the moderator for todays call 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 one on your telephone keypad.
I'd now like to turn the conference over to our host Doug Clark. Please go ahead.
Good afternoon, everyone and welcome to the Central one's earnings call for the second quarter of fiscal year 'twenty four ended July 31.
With us today are tomer, Weingarten, CEO and Dave Bernhardt CFO .
Our press release and a shareholder letter were issued earlier today and are posted on the Investor Relations section of our website.
This call is being broadcast live via webcast and an audio replay will be available on our website. After the call concludes.
Before we begin I would like to remind you that during today's call, we'll be making forward looking statements about future events and financial performance, including our guidance for the third fiscal quarter and full fiscal year 'twenty four 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 events.
Our results could differ materially.
Please refer to the documents we file from time to time with the SEC in particular, our annual report on Form 10-K, and our quarterly reports 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.
Sept 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 we will discuss non-GAAP financial measures unless otherwise stated these non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.
A reconciliation of the 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.
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 and gains on strategic investments, 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 a sensible one.
Good afternoon, everyone and thank you for joining our fiscal second quarter earnings call.
We reported strong second quarter results and exceeded our expectations on all key metrics, including revenue gross margin and operating margin were also raising our outlook for revenue and margins for the fiscal year 'twenty four.
I'm proud of their resilience dedication and execution of our teams. Our performance also reflects the progress, we're making towards enhancing business processes operations and cost discipline.
We pioneered the world's first purpose built AI powered service security platform to deliver autonomous defense for the enterprise.
We view this as the industry through the first ever autonomous AI agent with a fully integrated data and security platform and self healing capabilities.
Establishing global and transformative approach to cyber security, a unified data security platform across attack vectors.
Once again, we are leading the industry by incorporating generative AI into cyber security through appropriately Supercharging security operations.
Superior technology as the foundation of how we hope our partners and our customers build more resilient enterprises with streamlined operations less product complexity best in class security and a leading return on investment.
Our competitive success is a direct result of our innovation and technology leadership.
We're in the early innings, we're taking market share and mindshare of a massive 100 billion dollar addressable market right for disruption.
As always please read our shareholder letter published on the Investor Relations website, which provides more detail.
Let's review the details of our second quarter performance, which exceeded our top and bottom line expectations.
<unk> grew by 47% year over year to $612 million, reflecting net new IRR or $49 million in the quarter. Our gross margin reached a new record of 77%.
Since our IPO just two years ago, we've expanded our gross margin by more than 20 percentage points.
Operating within our long term gross margin target range. This important achievement reflects the scalability of our business model driven by our strong unit economics and price discipline.
We're making significant progress in improving our operating and free cash flow margins, we proactively streamlined our cost structure to ensure our path to profitability. Our operating margin expanded by 34 percentage points, driven by higher scale and cost discipline.
We've delivered margin improvement it is staggering pace Q2 marked our eighth consecutive quarter of more than 25 percentage points of year over year operating margin expansion.
We also highlight the remarkable improvement we've made to our free cash flow profile, delivering 55 percentage points of expansion compared to just a year ago.
The level of margin improvement, we're delivering is a rarity among public companies.
With strong liquidity of more than a $1 billion in cash and equivalents. We will build on this progress we are confident in achieving positive free cash flow in the second half of our next fiscal year.
Looking beyond key financial matrix, our competitive differentiation and superior plus where value is resonating with customers.
We continue to win a significant majority of competitive evaluations are win rates remained strong including against large nextgen competitors are.
Our single platform architecture helps enterprises consolidate spend point products and causes.
We are addressing their most important needs to enterprises, reducing complexity streamlining operating efficiency and delivering better security all through AI and automation.
I'm, especially pleased with the positive feedback from our customers.
As captured by Gartner peer insights hundreds of customers provided favorable feedback on the singularity platform.
We achieved top tier ranking not only edr, but also an MBR in cloud workload protection categories outperforming even the largest vendors in this space.
As evidenced by these results our technology delivers on our promise to our customers in.
In Q2, we added about 700, new customers and our total customer base now exceeds 11000 <unk>.
Remember that this number does not include the customers served by our MSP partners. So it is understated, especially as more enterprises turned to <unk> for a minute security services.
Customers with more than $100000 in IRR grew 37% year over year much faster than our total customer growth.
And customers with more than $1 million in IRR grew even faster.
Our momentum with large enterprises in platform adoption continues to drive higher IRR per customer.
In Q2, we secured in many large customer wins across U S. Federal agencies to global health care companies and technology pioneers spending both endpoint and cloud footprints are.
Our singular platform helps enterprises simplify cyber security by consolidating multiple vendors in this jointed platforms. Let me highlight two examples.
First a large enterprise selected our unified platform to replace a total of seven different security vendors, including the two largest endpoint vendors. The security team at this enterprise was grappling with the challenge of managing multiple solutions and consoles.
Following hands on experience the customer selected our singularity platform for Edr with five additional modules to autonomous protection and a single console, we deliver better security and a superior customer experience.
In another multi million dollar win from the quarter, a global health care enterprise selected central one unified platform to integrate multiple security ecosystem products and bring them together, replacing the close guarding approach of their incumbent vendor the customer valued central was open platform that unites security data and actions future proof.
<unk> their enterprise security posture.
Our platform approach continues to be a source of growth through expansion driving a net retention rate of more than 115% as a reminder, our inner arent now includes legacy products from the acquisition of the Tivo networks a year ago.
The inclusion of Opdivo and macro driven budgetary constraints are impacting our near term expansion rate. We believe this is temporary over the long term, we see significant platform expansion potential based on high customer retention rates expanding product categories and early stage adoption from our installed base.
Alright of our expansion was driven by continued licenses and module adoption singularity cloud remained our fastest growing solution in Q2, followed by strong contributions from singularity data Lake Vigilance MTR and Ranger.
Overall module adoption remains a meaningful opportunity for growth and we are beginning to see opportunities for large security data deals and another massive market opportunity that is ripe for disruption.
Our platform solutions beyond endpoint continued to drive more than a third of our quarterly bookings in Q2, illustrating the diversity of our business mix.
Onto our partner ecosystem.
We achieved another quarter of standout growth with our MSP partners in Q2.
Businesses are increasingly turning to managed security to elevate protection address cyber security talent shortages is better align cost structures.
Spite recent macro related industry headwinds the demand for many security remains strong.
Our large partners continue to expand your business with central won two additional licenses and modules and a multi million dollar deal from the quarter, we quadrupled our business with the fast growing MSP partner compared to just a year ago from the beginning we've built our business by enabling our partners instead of competing with them our differentiated platform capability.
Such as multi tenancy automation and remote management makes sense and one is foundational platform for Emmis Sps who are building their practices on top of our technology.
All of our strategic partners Bax eight recently recognized central was significant impact with its bax eight most valuable vendor award.
We're still in the early innings of a massive business expansion opportunity with our MSP partners.
Overall, our quarterly performance reflects strong execution by our teams our proactive efforts to enhance operational efficiencies are showing measurable improvements we've expedited our deal closed processes and cash collections worldwide growing the average deal size over the last few years, our product portfolio has evolved from endpoint to a broad security platform.
Endpoint cloud identity and data Similarly, our go to market framework is evolving towards the full enterprise wide security platform.
The actions we've undertaken are yielding positive results did theres always more work to be done.
As we continue our journey towards surpassing $1 billion, an IRR and achieving profitability. Our focus remained on continuously sharpening our execution from training and enablement to support and services. We are in a terrific position to disrupt the $100 billion security and data market opportunity and we are raising our full year growth in margin guidance to reflect the stronger outlook and better X.
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Let's turn the discussion to the market environment and the wave of secular tailwind behind cyber security.
Global macroeconomic conditions in the broader demand environment remained consistent with the trends we discussed last quarter enterprises continue to rightsize their security investments based on near term budget constraints, we have seen a proliferation of cyber incident, new software vulnerabilities and an uptick in the use of AI based attack methods.
Moving cyber threat landscape and sophistication of modern attacks have exposed the shortcomings of key cyber security vendors and reinforce the structural importance with AI powered autonomous scalable security.
In a recent cyber incident linked to China attackers gained access to user authentication opening the door to a range of Microsoft applications and services. In addition to the vulnerability Microsoft defender defend the hackers are able to use the stolen Keith <unk> government and corporate accounts.
No surprise, Microsoft solutions are known to be riddled with vulnerabilities, which are accompanied by cyber security that has been repeatedly breached.
Homemakers and security experts are questioning the significant shortcomings of Microsoft Cyber security and are asking for an investigation into the company's security practices.
<unk> incidents such as this underscored that inadequate and legacy security solutions are exposing enterprises from enormous cost business disruptions and brand reputation concerns <unk>.
Recently, several securities in executive and board level priority as governments begin to require high level of oversight and disclosure.
The U S Securities and Exchange Commission established new rules to require public company through regularly disclose matters related to cyber security risks and to report material cyber security incidents.
All of this once again shines a spotlight on the structural importance, we're blazing fast and AI driven cyber security platform as well as the collection and retention of all enterprise log data.
In today's evolving threat landscape point solutions are falling out of favor security vendors that focus on a narrow set of data sources for attack vectors are unable to furnish comprehensive and cost effective protection.
Customers are seeking to consolidate not only their security vendors, but also the security causal and data in order to gain a unified view of the enterprise security landscape.
Enterprises need a special X security approach centered on all enterprise data to prevent attacks.
Our autonomous technology brings this vision to life with a unified AI based security analytics platform that seamlessly aggregate and connect data from all security products to deliver enterprise wide visibility in a single streamline technology and interface.
We eliminate the need to operate disjointed platforms is it tax move beyond a single surface. It is imperative to tie together telemetry logs from key security products Singularity data Lake is the only unified platform on the market that is able to bring together full fidelity logs and visibility from all key sources for <unk>.
<unk> security like E Mail security identity access management, firewalls, SaaS providers and others.
Frost <unk> Sullivan recently ranked central one is the <unk>.
Dr growth Index leader ahead of all the security vendors evaluated.
I am proud of our leading AI based technology and the innovations, we're bringing to customers.
Our newly launched vulnerability management solution Ranger insights is another example of how we're hoping customers eliminate disparate tools in a single platform.
Ranger insights conics too closely tied elements of cyber security application of mobility identification and endpoint mitigation, which were disconnected until now CRM ranked ranger insights as the number one in their list of cooler security products unveiled a blackout 2023.
We also introduced a new cloud data security product line, which offers threat detection for customers using cloud storage vendors like Amazon is three and network storage providers such as net up.
On top of delivering industry, leading workload protection, we're expanding our cloud security product suite to include capabilities like cloud vulnerability management to asset discovery and visibility, making singularity cloud one of the broadest CNET platforms, who have end to end functionality from runtime protection to data security.
Last but not least building upon our success in delivering best in class total security, we're extending our lead by bringing generative AI security professionals.
Peripheral AI transform security operations by Supercharging users to control all aspects of enterprise security from visibility to response with unmatched speed and efficiency. This is much more than a sidecar assistant it can upgrade any security analyst to superhuman levels. We expect this to be a significant source of expansion and growth in the future.
At the Black Hat conference earlier this month thousands of visitors eagerly discovery capabilities are appropriately and engaging immersive interactive insole product demos.
The best way for companies to prevent cyber attacks is to leverage the best security and central one deliveries that.
Our innovations and holistic approach to cyber security puts us in a strong position for long term growth across multiple large addressable markets, including endpoint cloud identity and data <unk>.
In closing I extend my gratitude to our incredible team. Despite a persistently challenging macro environment central's across the world Rose to the occasion addressing critical enterprise needs with the most disruptive technology on the market.
Also thank our valued customers partners and shareholders for their support and trust.
We remain focused on the long term opportunity in maximizing our business potential with that I will turn the call over to Dave Bernhardt, Our Chief Financial Officer.
Thank you tomer today, I'll discuss our quarterly financials and provide additional context about our guidance for Q3 and fiscal year 'twenty four.
As a reminder, all comparisons are year over year and all margins discussed are non-GAAP unless otherwise noted.
Our second quarter results exceeded our expectations across the board.
We delivered high top line growth and substantial margin expansion revs.
Revenue grew 46% in the second quarter, and our IRR grew 47% to $612 million.
We added net new IRR of $49 million in the quarter.
<unk> strong sequential growth of 17%.
Our growth was also balanced across geographies with higher growth in Europe and Asia revenue.
Revenue from international markets grew 57% representing 36% of revenue.
We continue to achieve a healthy mix of new customers and existing customer expansion. In addition, our momentum with large enterprises Smbs and MSP partners remains strong which continues to fuel our solid base of long term growth.
As a result, our <unk> per customer increased both sequentially and year over year, reflecting strong momentum with large enterprises and broader platform adoption.
We're taking market share from incumbent and next Gen vendors and our second quarter performance signifies our competitive strength in enterprise demand for best in class Cyber security.
Before turning to our constant margins I'd like to provide an update related to the <unk> adjustment, we announced in Q1.
After conducting a comprehensive review, we implemented robust controls improved processes and enhanced our our reporting structure and.
In addition, we partnered with a big four accounting firm to objectively validate our processes and controls.
Our systems are fully Remediated and were glad this issue is behind us.
Looking beyond the top line growth our gross margin reached a new record of 77% in Q2, reflecting a year over year increase of five percentage points. Just two years after setting our long term gross margin target of 75% to 80% at the IPO.
We're already operating well within that range.
We're seeing continued benefits from economies of scale data processing efficiencies and cross sell from adjacent solutions and our pricing remains healthy.
We have taken a highly differentiated approach to unifying our security and data architecture into a single platform, which delivers real value for us and our customers.
Our record gross margin demonstrates the success of our land and expand strategy and platform unit economics, where we collect data once and enable more and more capabilities powered by our proprietary fully integrated security data Lake.
We also delivered substantial operating margin improvement expanding over 34 percentage points year over year to negative 22%.
As market conditions evolve, we became even more selective about our investments and took important steps to align our cost structure, including our previously announced workforce optimization.
The efforts we have made are paying off on a dollar basis, we reduced our operating losses by over 40 percentage points. In Q2, we also significantly reduced our free cash outflow from $67 million in Q2 of last year. So just $15 million this quarter, which reflects an outstanding free cash flow margin improvement of 55 percentage points. This is.
The result of our proactive efforts to improve working capital and effective cost management.
To further demonstrate this our total cash and equivalents and investments balance reduced by only $2 million in Q2, and only $5 million year to date in fiscal 'twenty four.
In short our losses and cash burn have rapidly narrowed and we are steadily marching towards positive free cash flow and profitability.
Moving to our guidance for Q3, and the full fiscal year 'twenty four.
We expect global economic conditions in the broader demand environment to remain consistent with the trends we discussed last quarter as enterprises continue to rightsize their security investments based on near term budget constraints ease.
Even with this as the market backdrop, we're raising our revenue and margin expectations for fiscal year 'twenty for.
Our teams are executing well our win rates remain strong and we are delivering operating leverage.
In Q3, we expect revenue of about $156 million, reflecting growth of 35% year over year based on this year. We expect Q3 net new IRR to be comparable to Q2 levels, which is consistent with the typical seasonality and still comes on top of our Q2 outperformance.
For the full year, we expect revenue of about $605 million, reflecting growth of 43% in fiscal year 'twenty for the $10 million increase compared to the prior midpoint of $595 million.
Based on this view, we expect full year <unk> to grow in the high 30% range, adding about $195 million and net new IRR in fiscal year 'twenty for.
This is a higher growth rate compared to our prior expectation of mid 30%.
Based on our go to market and pipeline momentum, we feel confident in our ability to deliver against our Q3 and our stronger full year growth targets importantly, we're seeing durability in new business generation and the trajectory of growth rates. We are encouraged by increasing platform adoption and competitive position offering diverse and meaningful growth opportunities for years to come.
Yeah.
Turning to the outlook for margins, we expect Q3 gross margin of about 76%, implying a year over year increase of more than four percentage points on a constant currency basis. Our Q3 gross margin expectation is consistent with Q2.
So for the full year, we are raising our gross margin guidance to 76% up about four percentage points year over year, and up 150 basis points when compared to our prior guided midpoint of 74, 5%.
We've taken a major step forward as a company by achieving our long term gross margin target range and expect continued benefits from increasing scale and data efficiencies inherent in our business model to drive higher gross margins over time.
Finally for operating margin, we expect negative 22% in Q3, implying an improvement of more than 20 percentage points year over year for the full year, we are raising our guidance for operating margin to about negative 25% up two percentage points compared to the prior midpoint and at the better end of our previous annual guidance.
This implies a notable improvement of more than 24 percentage points compared to fiscal year 'twenty three.
We've made significant.
<unk> investments in innovation and talent development over the past few years. This gives us ample runway to deliver against our product roadmap and growth targets.
We also expect continued benefits from cost management initiatives and operating leverage of our business. We have a very strong balance sheet with more than $1 billion in cash cash equivalents and investments and no debt.
This provides durability flexibility and an independent path to generating positive cash flows.
Our goal is to optimize top line growth with consistent margin improvement.
On our journey to achieving profitability, we don't intend to sacrifice growth or market share.
Our investment approach will remain highly selective and focused on key areas of competitive strength, we're delivering industry, leading margin improvement and steadily approaching positive free cash flow generation, we remain steadfast on our path to achieving profitability in fiscal year 'twenty five.
Thank you all for joining today, we will now take questions. Operator, Please open up the line.
We will now begin the Q&A session.
If you'd like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you'd like to remove that question. Please press star followed by <unk>.
Again to ask a question. Please press star one we'll pause here briefly ask questions are registered.
Our first question is from Ray Mcdonald with Guggenheim Securities. Your line is now open.
Great. Thanks for taking the question.
Tom or Kevin.
Congratulations on a good quarter here and what seems to be an improvement, but I think the question on a lot of investors' minds here is the reports that center, one is seeking or at least evaluating strategic alternatives.
Can you comment on that process and then separately can you comment on the partnership or the termination of the partnership with with with.
When that was first announced I think there was some excitement not only from investors, but also from your.
Your field.
<unk> in the channel. So just curious how youre thinking about those two things and how youre thinking about your own roadmap and cloud security now that you.
<unk> terminated that partnership.
We don't comment on rumors or speculation, but let me be clear I mean, our focus is on building an independent company for the long term.
We are delivering substantial growth and margin improvement and most importantly.
We have the best technology, and a clear strategic roadmap to disrupt a 100 billion dollar market with a potential to multiply our current market share in the coming years. I think also our teams are executing well competitive positioning remains incredibly strong do we delivered excellent results all in all.
I think you're just seeing is being laser focused on delivering the best innovation. We can the best protection, we can for our customers maximizing our business potential. We believe we can do that the best as possible as a public independent transparent company.
That is as clear as I can be.
On go with.
Thing.
If you kind of bundle upon the acquisition rumors and all that stuff I mean again not going to comment on that but it's all pure speculation on their part and far from facts. So.
It's again, a head scratcher to me.
If we kind of pivot to the partnership we did not terminate the partnership I think Thats again, misconstrued, we actually canceled a reseller agreement the reselling agreement. So we still partner with which we feel will work with them on the field level.
We still think there is some form of complementary technology, there and we're focused on delivering customer outcomes. So when customers want to use which will support the technical integration is still there.
It's a nice little start up even though we like working with them.
But again in terms of the reselling agreement, we didn't see any contribution from that we didn't feel like that's something that is.
Fulfilled on there and so we decided to terminate our cloud native application platform.
It is growing I think in a stellar pace. We're definitely ahead of our targets, we just announced cloud data security.
A major expansion to our workload protection.
No platform, that's part of that overall CNET envelope, and we want ourselves to be focused on our own capabilities and I think that's natural and we're also seeing tremendous traction in that market, obviously triple digit growth for our cloud business year over year for a few good quarters now in a couple of years now is obviously.
Giving us a lot of confidence that we can continue and grow that and we're continuing to develop our own native capabilities.
Doug.
Okay.
Our next question is from Rob Owens with Piper Sandler Your line is now open.
Great. Thanks for taking my question I wanted to drill down a little bit into retention rates and I know there was commentary in the shareholder letter letter excuse me around the Tivo legacy products. So if you could just kind of clarify what exactly those are and we still expect the 120 level to be a floor.
As we move forward or could you see additional pressure. Thanks.
Yes, I think what youre seeing.
What would the net retention rate is something thats industry wide I don't think it's.
Unique to us I think we do.
We do see our own natural retention rates still being incredibly high even in light of macro factors of generally causing customers to be much more prudent about their spend and their timing also of expansion of Tivo legacy product as you can imagine with any acquisition there is some degree.
Customer churn and that happens typically for the older product lines identity security, obviously is the shining sport.
Continuously grow that it's a big contributor to all revenue outside of endpoint, but.
But things like disruption, which is very very interesting industry specific.
Are things that sometimes we don't put all the focus on continuing.
Continuing to support the specific customers that you have these legacy products, but we're much more focused on identity security active directory assessment. All these more forward looking products that came with that acquisition and obviously are today integrated into our platform.
Our next question is from Brian Essex with Jpmorgan. Your line is now open.
Hi, great. Thank you and good afternoon, and thank you for taking the question and congrats on a much better result, this quarter.
Tom I was wondering if you could talk about a little bit.
Going a little bit more on the competitive environment I think you previously talked about.
Or at least have commented on win rates relative to both Microsoft and crowd strike is any any changes in the competitive environment and then kind of adjacent to that question. How do you think about growth in sales and marketing expenses you have this.
Mendes.
Market opportunity ahead of you in Europe .
Obviously balancing investment in sales and marketing market penetration, but also youre delivering some pretty impressive margin expansion in the process. So those two segments would be really helpful to better understand.
Our competitive position I think is improving I mean, we're seeing no meaningful differentiation on the technology front.
He likes to make all sorts of statements about how unified your platform is or isn't where the only platform out there that actually delivers on that promise.
I think that to us that becomes more and more meaningful as customers are looking to gain enterprise wide visibility and they wanted to do it they want to do it with one so do you want to do it with one language. They wanted to do it with one interface that is not what our competitors are selling into the market I think if you want to talk about.
Competitors.
Lets also talk about the blatant misrepresentations they had their earnings call made so clearly I think it's it's unbelievable that you see them pulling out or implying that you know we are a point product company. When it is clear to see that we are the broadest platform out there when they call themselves a unified platform, but.
Two distinctly distinctively different platforms to consoles two languages through product lines.
Overt misrepresentation and Thats confuses customers I think it just.
Just shocking to see that when they say that the only generative AI company to demo generative AI.
<unk> shows that's also a blatant lie.
Obviously, we've been differed to demo that there are other vendors that a demo that everybody's giving like demos, we actually gave hands on live demos. So could we talk about the competition I think it's important to separate fact from hold these.
Rumors and speculations in recent presentations and our competitive positioning our technology is true I think thats what customers are getting into their hence that's the reason we win that's what we do.
Continuing to grow market share.
Got it very helpful. Thank you.
Our next question is from Alex Henderson with Needham. Your line is now open.
Sure.
Great. Thank you so much.
Yes.
Nice rebound in the quarter.
Clearly.
If you'd listen I'm sure you did to the crowd strike presence.
Presentation.
Delineated the scale in some of the growth rates around some of their products and I was hoping maybe.
You could.
Take a page out of their book.
And give us some of the some granularity around.
Some of these key products that you call out whether it be the cloud product.
The Ranger.
Take care.
Category.
Thanks.
I think I think at our scale I mean, we're not deploying that we're ready to disclose that I think we're giving you.
Good indications as to what part of our portfolio is growing we're giving you an indication that more than 30% of our revenue contribution is coming from outside of endpoint. We give me an indication that we gave last quarter.
<unk> is growing incredibly fast triple digits year over year represents well over 20% of quarterly ACB is on average if you kind of look at the rear view mirror. The last 12 months. So all in all the things that can give you some sense.
Also think that for us.
Data analytics and security data leg the singularity, Italy. These capabilities are just coming on line in.
And they are coming online pretty fast so hopefully as we gain a little bit more scale I.
I think we'll be able to disclose much more how we look at our business, but right now obviously, where we just focus on growing as fast as we can between these core Tam that we identified are strategic to our growth.
Our next question is from Andrew Nowinski with Wells Fargo. Your line is now open.
Alright, Thank you Amit and congrats on a nice quarter nice rebound so I wanted to ask about.
Net new IRR, maybe particularly in the guidance for Q3 I understand the year over year decline in Q2, given the tough comp you had from last year.
But if you if you think about all the positive trends you guys described here today.
Why wouldn't you.
You expect maybe more growth out of <unk> in Q3, given that the macro really hasnt changed it hasn't gotten worse or better I guess on that.
Thank you.
Sure, we just exceeded our Q2 net new IRR expectation by double digits.
Raised our Q3 net new air our outlook and we raised the full.
<unk> growth to the high thirties.
I think the way to think about it we're just being thoughtful about macro stabilization, which is still evolving.
And I think we just believe that being prudent is the right approach in rvs.
Our next question is from Gabriella gorgeous with Goldman Sachs. Your line is now open.
Good afternoon. Thank you Omar I wanted to ask a question on <unk>.
Back you're getting from customers trying the new product.
What are the one key.
Coming out of it as trials in Kansas and next one or two features that customers want in the product and how youre thinking about the pricing model over the medium term. Thank you.
Yes. The first question is always what's the pricing and I think that's consistently what we're doing for them and we're starting to share.
Most accuracy, we'd say, we're testing pricing with these customers. So I don't have kind of flushed out pricing model to give you just see it but it's definitely something that we're kind.
Kind of processing right now I think in terms of their request and that is key is.
We continue and push purple to be an overarching enterprise wide algorithm versus being focused just on endpoint data or just one cloud data and that once again comes back to the level of differentiation that you see what our platform today.
When you think about some of these AI capabilities. When you think about the scale you can achieve with AI. You. Obviously you want to start stitching together all these disparate products all of these siloed ecosystem vendors into one cohesive fabric that can also allow you to in some cases consolidate the way some of these products.
But in some other cases these present with these products are still going to be there, but do you want to make sure that something more intelligent and driving demand that you can orchestrate action. So people want us to do it on an enterprise scale people want us to do it in a highly autonomous manner and in a highly actionable manner. They don't want more suggestion.
They don't towards more chat boards, they want predictive algorithms that can allow them in real time to react to what youre seeing enterprise wide and I think that's exactly how we're developing purple that's exactly the first iterations of this product and all in all it looks very promising.
Our next question is from Charles <unk> with TD Cowen. Your line is now open.
Thank you good afternoon, guys good to see that bounce back.
Dave a question for you can you discuss gross margin.
The improvement vaccine does athene.
What are you seeing in terms of ASP pressures.
Yes, obviously, theres not ASP pressures or we wouldn't be setting record gross margins.
I guess I'll start with that we had record gross margin this quarter of 77%.
I think thats the benefit of our increasing scale the data processing efficiencies and a module cross sell which we also expect will continue over time.
So I think we're proud of the gain we've had in gross margin and just don't seem to be seeing the asps issues.
Other competitors may be seeing.
Yeah.
Our next question is from Patrick Colville with Scotiabank. Your line is now open.
Alright. Thank you so much to taking my question so.
This quarter the operating margin improvement was really impressive.
In my model so.
You beat this quarter lifted fiscal 'twenty margin by two points, but that means in my model, if I'm calculating it correctly, but my action <unk> number come down operating margin. So like why would that be one question and then how should we think about.
Kind of like long term guidance for.
Fiscal 'twenty five.
Golar to reach operating margin profitability next year.
So we raised our full year EBIT margin like you said by two points at the midpoint, it's the better end of our annual guidance.
Now we are focused on that instead of 25% to 29% loss rate, we're focused on the 25%.
We believe that's meaningful we are on track for 25 points or about 25 points of operating margin improvement this year.
I think one of the things, we're seeing coming off a strong two <unk>.
It is also should we be investing into some things, where we're seeing benefits. So our second half is it.
Expecting some of that.
And we're able to do all of that and improve the guidance for the year to the better and if anything we were expecting for the year at the start so we're proud of this guidance.
He is going to balance our investments in growth with with our commitment to achieving profitability and our goal remains unchanged for next year.
But we will be guiding that.
Future.
Our next question is from Adam Tindle with Raymond James Your line is now open.
Okay. Thanks hope to get a two parter and Dave first a clarification on NR with the Tivo piece is there any way that you could potentially help us quantify so that we could strip that piece out I'm just curious what the underlying trends would have looked like for the health of the business ex that and then <unk> as a follow up I know we kind of.
On the subject, but curious.
Cloud security is obviously one of your fastest growing areas. It sounds like you're still committed to that partnership but honestly why.
That that piece of the business is growing so rapidly you have got a broad platform, where do they fit in and what do you honestly, what do you need them for thanks.
Okay.
I'll start our NRI on an organic basis would have been 120%. So it's still at the expectations that we've set forth in prior earnings call. So.
The 5% decrement was purely a tivo.
I'll, let <unk> answer the other question.
One way is.
I thought I kind of said it's really.
What the customer enrollments and obviously, they've got a nice little set of customers kind of in the fortune 100.
We want to make sure we support them some of them are our customers two we want to make sure. We delivered the best experience. So when a customer wants to use with <unk>.
By all means and we will be there to support it when a customer wants something more holistic obviously, we will serve our own I think there's also a big difference between what they can serve which is highly limited to public cloud, where if you look at our platform and our workload protection, we cater to folks from on Prem.
Jim environments in server and workload environments that might be on premise all the way to private cloud and then to public cloud. So it's also slightly different use case, but I think what you can kind of gather about central one is that we're we're very partner friendly no matter, who the partner is.
We are guided by what customers want to do.
We will always stand by that and we will always support customers. So in <unk>, which is another great partner of ours from many other partners that we have so there is no reason for us not to partner with them.
Our next question is from Joshua Tilton with Wolfe Research. Your line is now open.
Hi, This is Patrick on for Josh.
So you mentioned last quarter. After the adjustments that revenue is the revenue to our correlation should be tighter moving forward, but if you look at that historical delta actually ticked up a bit here in <unk> from <unk>.
Closer to what we saw last year.
Did you see some strength to come back and that consumption part of the business and then has anything changed from last quarter with how you factor that consumption part.
Thanks.
I'd say, we're still very closely aligned I think revenue increase year over year was 47% in the IRR was 46%.
Yes.
That's pretty close so.
We expect that to continue to be aligned for the rest of the year.
I guess I meant.
Our next question is from Secchi Calia with Barclays. Your line is now open.
Okay, Great Hey, guys. Thanks for having me on the call Tom or I kind of a two part question for you. If I may the first one is on the competitive environment.
I know, we talked about about the other the other endpoint player out there, but I wanted to ask specifically on Microsoft one of the things that came out on another conference call was maybe youre starting to see customers questions.
The real price the real underlying price of micro Microsoft defender do you agree with that are you hearing that from customers. That's the first part the second part of the question is more of an industry question on <unk>.
There are endpoint players that have seen after a firewall players that have seen up and then there are the individual vendors that have seen that.
Do you have from customers on their preference to buy from one category versus another is there a natural is there a natural.
I don't know tendency to buy from from an endpoint or a firewall vendor or is that still something thats being.
Determined.
So on Microsoft.
We definitely see more customers.
Starting to understand.
The lack of price transparency.
As is.
This is causing them to actually overpay for what they would actually get from another vendor at a lower price point I mean, if you bundle together their workload pricing the logging pricing to service pricing all of that together comes up to a pretty hefty price tag if youre going with Microsoft and I think we can all agree move to best of breed security.
So we're definitely seeing more of that I think there is a slight dynamic change there.
Didn't pull any of that right now transformative or thesis changing I think is just.
Starting two critical I think if you coupled that with the fact that.
Not only Microsoft is not the cheapest solution. Microsoft also doesn't really care as much about customers just just under sheer scale right.
We're talking about.
Complete different level of support if you are going with a standalone cyber security provider like are like us.
All of our peers.
Just getting a completely different level of service and that is something that is.
We're also starting to resonate with customers out there and lastly, I think it's just the complexity.
Microsoft has a lot of different ingredients and what they call security.
It's not one platform.
A bundle of solutions and I think that also matters significantly.
If we wanted to touch on was seen up I think your observation is 100% correct and I think that.
<unk>.
Lot of folks gravitating towards the Standalone seen up vendors on the back of just great T Y I think theres no deep IP.
<unk> seen that.
Inventory tag graphics utilization like all these things that's north AI that smooth deep IP and I think that's where you're seeing this commoditization, where everybody is coming up with their own capabilities to achieve that and I think it really is what flavor that the customer wants to grow it and once again.
We're flexible I mean, if you want to get that out of US we will definitely build the best.
The best platform that we can but if you'd rather have a different flavor, that's fine too we're focusing with theirs.
There is deep technology and workload protection runtime protection. This is where you can actually in a meaningfully differentiate this is non commoditize. This is where our years of research supporting Linux environment. Its containerized environments, you'll bringing best of breed telemetry Vista will be performed.
That's where it matters and that's where we win the most and that's why that remains our focus as we build these other capabilities to get to this holistic approach to cloud security book with once again, you'll get different flavors of customers, you're going to get fewer public cloud customers, you're going to get private cloud customers.
Get on Prem workload customers.
It's not one size fits all and some of these standalone offerings. They are not really relevant in any other setting other than a public cloud city.
Our next question is from Trevor Walsh with JMP Securities. Your line is now open.
Great. Thanks for taking my question.
On the subject of the Ranger insights that you announced earlier in the months can you just walk us through maybe what kind of <unk> our first.
Type of how they're operating.
Initially vis vis kind of other players in that vulnerability management, Nathan and kind of where youre looking to maybe go with that product and kind of what the opportunity looks like kind of 612 months. Thanks.
Yes, great great traction already I think it's something that we converted and built with customers and it's focused on identifying vulnerabilities prioritize them going abilities.
Allowing you to gain full context, only vulnerabilities together with endpoint data in one same place and given that most of the liability is actually lie on endpoints and servers.
It really is a very very natural place for it to live together.
Now, we're working on adding more and more remediation capabilities that can inform you once you're getting for I'm going to have an ability you can automatically remediated. So I think for a lot of these vendors right now in that space using all kinds of scanning tools and you need to deploy another agent and sometimes you need an incumbent.
Vendor that adds just another overhead on the machine with us I mean, if you're an existing customer you are just getting if it's already there and I think the most important partners.
<unk> done in a complete continuous manner. So this is not a one time skin type of a thing it's a continuous profiling wary of your environment and we can highlight all these vulnerabilities the movement the de pop up and we can offer up remediation the moment that something pokes up so to me it's a.
Very natural expansion.
It's a great little Tam that we can now also serve.
$5 billion to $7 billion.
And it's just again something that we believe will streamline operations significantly for a lot of customers out there do you do one last thing I want to say about this is that it's also highly strategic for our MSP segment. The MSP partners are always looking for ways to get to bidder hygiene to pet.
<unk> customer machines, and by allowing them to use the same remote manager platform that they're using today, our central one singularity platform to know also cover vulnerabilities, we're aligned for extreme cost efficiency for them and obviously an avenue for expansion so strategic on both fronts and we're very very proud.
Launching.
Vulnerability management into into our endpoint management suite.
Our next question is from Jonathan Ho with William Blair. Your line is now open.
Hi, Good afternoon, just wanted to understand a little bit better if you could give us some more detail around the significant improvement around your sales execution and performance. So I guess my question is what's made the most difference and where are we in terms of those improvements.
Further opportunities ahead as well thank you.
We're always working to improve to us.
Never ends.
I think just better scrutiny bidder.
Better training better enablement bidder pipeline sourcing better interaction with our channel.
All of that I think funnel two to just better execution, some technical elements like contract execution.
All of that has been streamlined better systems in place I mean, we've done a lot in the course of 90 days to elevate our performance and still a lot remains to be done I think we were only going to get better from here Demoing. The important part is that we got great seller DNA.
In our sales force.
We have worked to diversify our salesforce, we're now selling into four different distinct terms, we wanted sellers with cloud DNA, we werent sellers with.
Data DNA, we're now building those disciplines and that obviously allows us to.
Treat all these adjacent growth opportunities.
In such a tailored manner and that creates I think just better execution better win rates better conversion rates.
Our pipeline so all in all again continued work, but I think we're doing all the right things.
Our next question is from Mike Walkley with Canaccord Genuity. Your line is now open.
Hi, guys. Good afternoon and extend your on for Mike. Thanks for taking my question. So you called out another standout quarter.
Your MSP partners.
Wanted to see if you could provide some color on sort of what's resonating in this part of your business are especially as it pertains to some of your newer emerging module as you guys highlighted.
Absolutely.
I think first and foremost is still the core elements of our platform the ability to manage multiple sometimes thousands of customers in one single click console is still a very unique capability in this space. So as our MSP partners is going to look to grow we'll look to add more customers there.
You can do it with ease they can do it with confidence.
And obviously they are well trained on our platform to date. So the elements of Autonation and Manageability are first and foremost I think while we have that strong footprint in the MSP.
<unk> the other elements of what we do like MBR, which they're adopting now in reselling to their customer base is also a nice expansion opportunity for us where a lot of partners want even more tailored security for their customers and they're leveraging our own MTR services as a REIT.
So to their partner base cloud security is coming online for some of these.
Some of these partners again covering server environments, we've actually tapped to a lot of server environments and the top dose so far with endpoints licenses. We're now converting goes into server licenses. If you kind of think about the Ranger and Ranger insights module they already been on boarded on Ranger.
Which allows them for asset discovery, we're seeing traction with that Ranger insights will capital of debt even further.
Portability management is a very natural extension to what they do so all in all with the MSP environment I would say the opportunity is twofold. It's the modules. There is no question that we are still underpenetrated, but at the same time, we'll also underpenetrated on licenses seat counts and number of endpoints and a lot of our MSP.
Partners still have a huge potential in their state and we're working with them everyday to expand our footprint.
Make sure that there is competitive as it can be.
Our last question is from Eric <unk> with Keybanc. Your line is now open.
Great. Thanks for taking my question and squeezing men.
So I'm not that enjoys in our buying.
Back in April that was impressive.
I wanted to ask you about your thoughts on timing for that to become available and then coming back to the <unk> question.
Curious if there's any change in the way youre thinking about either adding or not adding.
PM or application security capabilities to that platform. Thanks.
Yes, glad you enjoyed peripheral AI.
We're not sharing right now the exact launch date it will be next year.
We're definitely baked into this with customers so.
So stay tuned we will share more.
As time progresses, but when the <unk> stuff.
We haven't really changed the way we think about we always wanted to have and always we're always working on broad base cleanup capabilities that include <unk> as well and that Hasnt changed I think the only thing that changes that were actually a bit more.
Advance in our roadmap.
<unk> than we initially expected and that's a good sign.
Once again, we launched data security, which is another part of that scene that spectrum.
And it's a very unique capabilities in AI driven.
Approach to detect threats on storage like history, and even on Prem storage like net up there is nobody else in the market doing that so all in all I mean, we're always focusing first on the more differentiated parts of the platform versus going through the commodity.
But at some point I think we'll have the full spectrum of capabilities and right now again, given our traction we're not in rush.
Do any of that it sounds like there is any mandatory requirement to have all of these components baked in together.
Evidenced by our success into market.
We are out of time and I will now pass the call back to the management team for any closing remarks.
Thank you everybody I appreciate your time today and I want to again congratulate all <unk> for their performance this quarter.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.