Q1 2026 SentinelOne Inc Earnings Call
Hello, and welcome to the Sentinel won Q1, FY 2026 earnings Conference call.
We ask that you. Please hold all questions until the completion of the formal remarks at which time, you'll be given instructions for the question and answer session.
As a reminder, this conference is being recorded today.
If you have any objections. Please disconnect at this time.
I will now turn the call over to Doug Clark, Vice President Investor Relations.
Speaker Change: Good afternoon, everyone and welcome to center the one's earnings call for the first quarter of fiscal year 2026, which ended April 32025.
Speaker Change: With us today are Thomas Weingarten, CEO, and Barbara Larson CFO, our press release and an earnings presentation were issued earlier today and are posted on the Investor Relations section of our website.
Speaker Change: This call and accompanying slides are being broadcast live via webcast and a replay will be available on our website. After the call concludes.
Speaker Change: 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 second fiscal quarter and full fiscal year 2026, as well as long term financial targets. We caution you that such statements reflect our best judgment based on factors currently.
Speaker Change: Known to us and that our actual events or results could differ materially. Please.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 that call. It may not reflect current or accurate information.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: A reconciliation of the GAAP and non-GAAP results other than with respect to our non financial outlook is provided in today's press release and in our earnings presentation.
Speaker Change: 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 unemployed stock transactions amortization expense of acquired intangible assets.
Speaker Change: Acquisition related compensation costs restructuring charges gains on strategic investments and income tax provision, which cannot be determined at this time and are therefore not reconciled in today's press release.
Speaker Change: And with that let me turn the call over to Tomer Weingarten CEO of central one.
Speaker Change: Good afternoon, everyone and thank you for joining our fiscal first quarter earnings call. Our Q1 performance exceeded our revenue growth expectations, and we continue to deliver strong year over year margin improvement and cash generation, we delivered revenue growth of 23% alongside record free cash flow margin of 20% demonstrating talk to your growth and operating leverage.
Speaker Change: As we approach $1 billion in scale and sustained profitability incredible milestone.
Speaker Change: We continued to solidify our position as a technology leader across key growth categories, AI cloud data and endpoint. Our singularity platform is setting new benchmarks across the industry for AI powered cyber security delivering industry, leading performance and operational resilience.
Speaker Change: Let's first turn to discussion to our latest platform innovations and customer momentum with our land and expand platform strategy, we're predicting more enterprises than ever before in Q1, we continued to expand our customer base and drill platform adoption across AI cloud data and endpoints, we're increasing our market share in each of these.
Speaker Change: <unk> for instance, properly achieved triple digit year over year growth in quarterly bookings underscoring strong market demand and momentum.
Speaker Change: It also achieved an attach rate that exceeded 25% across subscriptions sold in the quarter, demonstrating a strong start to the year and accelerating customer adoption of our AI security solution. In Q1, we also introduced the unified cloud security suite.
Speaker Change: Bringing together cloud workload and runtime prediction cloud security posture management cloud detection and response cloud data security cloud identity, and AI security posture management into a single fully integrated solution powered by AI and our modern data analytics package.
Speaker Change: We are delivering cloud security that is designed for real time defense and operations. In this most recent launch makes it more accessible and easier to deploy than ever before we are seeing strong traction among cloud security opportunities with fortune 500, industrial leader with seeking to modernize its cloud security posture.
Speaker Change: This customer wanted to eliminate coverage gaps lift by the incumbent solution and looked at similar ones seen up for robust AI driven approach our singularity cloud security suite seamlessly met their complex requirements and exceeded product performance expectations, what set us apart with the strength of our cloud security offering is one of the value.
Speaker Change: Our unified platform that delivers comprehensive prediction.
Speaker Change: I'm also pleased to share that our data solutions surpassed $100 million.
Speaker Change: In Q1.
Speaker Change: On <unk> opportunities and large fortune 500 retailer faced significant challenges around soaring splunk costs operational inefficiencies and the complexity of managing multiple logging platforms singularity directly addressed these challenges by simplifying operations lowering costs and providing a unified intelligent security experience.
Speaker Change: This win underscores the momentum of our <unk> offering and the increasing preference for a modern AI driven cloud native data solution.
Speaker Change: Among endpoint opportunities, a leading fortune 500 financial institution, who solar dated multiple security vendors by switching to central one reducing overhead and improving performance our unified platform and autonomous security we're clear differentiators.
Speaker Change: Overall, our success with large enterprises in platform adoption continues to drive higher <unk> per customer, which reached a new record in Q1.
Speaker Change: In addition to growing our presence with the largest enterprises in the world. We continue to see strong growth in the mid market, we maintained healthy expansion rates with our existing customer base.
Speaker Change: Turning to our partner ecosystem, we're constantly deepening engagement, especially among our strategic relationships.
Speaker Change: Is AI driven threads grew more sophisticated both our partners and our customers are increasingly turning to autonomous security solutions that reduce response time, while delivering real time machine speed prediction.
Speaker Change: To further support this shift we're making it easier for our partners and customers who access our platform in Q1, we launched partner one and entirely re imagined program for Msp's incident, responders Vars and technology partners.
Speaker Change: It features a streamlined structure performance based incentives and customize enablement resources.
Speaker Change: The launch of a partner one will enable us to reach more customers increased flexibility and reinforce our role in the broader cyber security ecosystem in.
Speaker Change: In the public sector with demonstrating technology leadership and opening new opportunities last year, we achieved <unk> pirate organization for endpoint and AI soon I am pleased to say that earlier. This month, we achieved <unk> pi authorization for purple seen up and hyper automation across the singular platform appropriately.
Speaker Change: <unk> is now the first and only cyber security <unk> AI solution approved for U S government organizations.
Speaker Change: This milestone is an important competitive differentiator and reflects our deep strategic commitment to safeguarding the U S government's most sensitive environments.
Speaker Change: Cyber security is national security, while near term uncertainty around federal budget to location and spending persists, our broader pipeline and opportunity set remains strong.
Speaker Change: In fact, we closed a seven figure renewal and expansion deal with a large federal agency in early Q2, we continued to grow our presence in deferral space do deal timelines may vary in the near term.
Speaker Change: We're actively partnering with federal state and local agencies, many of which depend on federal funding and engaging with them at the pace aligned to their considerations, we're proud to support our government institutions and improve the country's cyber defenses.
Speaker Change: All of this success stems from our focused innovation strategy and technology leadership. Most recently, we earned prominent recognition across the industry in April Frost <unk> Sullivan named Central won the top performing vendor in both growth and innovation in their 2025 radar for endpoint security.
Speaker Change: Also honored to be recognized DSC Media awards as both the best endpoint security and the best Cloud security.
Speaker Change: These accolades clearly reflect the strength of our singularity platform and the innovation our teams are delivering.
Speaker Change: At RSA, we announced Athena the next evolution of appropriately showcasing our vision to deliver the industry's first true end to end <unk> AI platform for cyber security, it's time to combine the two most powerful forces in the world humans and AI.
Speaker Change: Hi.
Speaker Change: Appropriately I understand context draws connections and ex autonomously with speed and precision.
Speaker Change: We're enabling customers to seamlessly connect to third party data sources Im looking to full potential appropriately I for enterprises, regardless of where they are in their data migration journey.
Speaker Change: Security teams can get faster response times broader coverage and scalable intelligence secaucus.
Speaker Change: With our latest innovations appropriately leverages trillions of security relevant events, resulting in a unique dataset that is continuously tuned refined and optimized in partnership with our elite MTR team and extensive MBR partner network properly ISO to triage now generally available hopes investigate threats orchestrate.
Speaker Change: The strip responses and remediate incidents in seconds.
Speaker Change: So generally available is singularity hyper automation combined with appropriately I. This allows enterprises to harnessed no code automated workflow capabilities to execute novel detection rules autonomously.
Speaker Change: For organizations overwhelmed by thousands of daily alerts and menu of operations, our <unk> security innovations empower teams to focus on the most critical threats.
Speaker Change: Let's shift to the broader demand environment and trends, we're seeing in the market demand for cyber security remains strong and resilient given the heightened macro uncertainty in April we observed elongated sales cycles as certain customers paused their spending decisions impacting our Q1 <unk>.
Speaker Change: As a result, we are taking a more measured stance on a full year growth assumptions importantly, we havent seen project cancellations or lost deals and our win rates remains strong we're focused on execution and staying nimble.
Speaker Change: In parallel cyber security is undergoing a fundamental transformation everything from how software has developed or how security is deployed to outcomes are measured is evolving rapidly.
Speaker Change: The software model as we know it is undergoing an AI driven transformation in a world where threats move it machine speed legacy silo tools or complex platform built around static features are no longer effective.
Speaker Change: Going forward servicing could you also requires a new standard one where sulfur adapt to the needs of the business not the other way around in our view the future of cyber security will be powered by integrated data visibility and Aib's prediction.
Speaker Change: And that's what we're building at central one source agnostic unified security platform powered by the industry's most advanced security AI.
Speaker Change: Our goal is to simplify security significantly using AI as.
Speaker Change: As the industry advances, we believe our platform and innovation approach will become increasingly critical for any customer in any deployment model across any environment.
Speaker Change: For years, we've been at the forefront to lead this shift we too have undergone significant shift through platform evolution in recent years now with a platform wide AI centric approach is.
Speaker Change: It is a primary example, non endpoint solutions represent approximately half of our quarterly bookings.
Speaker Change: Going forward, we're making our offerings more flexible and even easier to access adult and deployed we believe this will increase velocity drive broader platform adoption and unlock more value for our customers over time.
Speaker Change: As our offerings evolve so as our go to market going from a product centric sales approach to a platform sales strategy. We've made good progress over the past year and as we look ahead, our training enablement and partnerships will continue to evolve. We are confident these changes will support high growth for years to come in closing I want to <unk>.
Speaker Change: Recognize the incredible teams at central one kudos dynamic environment do drive resilience and commitment power everything we do in particular, our teams are working tirelessly everyday with prospects and customers to deliver leading security across the world I'm also grateful to our customers and partners for the trust, replacing us everyday.
Speaker Change: We started the new fiscal year, delivering top tier growth and improving profitability.
Speaker Change: Future for AI powered securities approaching opportunity is vast and our differentiation is becoming stronger with that I would like to turn the call over to Barbara Larson, Our Chief Financial Officer.
Barbara Larson: Thank you Tamara and thanks to everyone for joining US today, Let's review the details of our Q1 financial performance and our guidance for Q2 and the full fiscal year 2006.
Barbara Larson: As a reminder, all comparisons are year over year and financial measures discussed here are non-GAAP unless otherwise noted.
Barbara Larson: We continue to deliver industry, leading growth and strong margin expansion, our revenue of $229 million exceeded expectations and grew 23%.
Barbara Larson: Revenue from International markets grew 27% and represented 38% of our quarterly revenue as we continue to deliver a balanced growth across geographies.
Barbara Larson: Our total <unk> grew 24% to $948 million as Tomas mentioned macro uncertainty was pronounced in April and impacted our Q1 net new <unk>. This is a dynamic time, but we believe we're well positioned to navigate evolving market conditions, we continue to gain market share.
Tomas: And we're seeing continued success with platform solutions across endpoint cloud data and AI.
Tomas: Customers with IRR of 100000, or <unk>, 22% to 1459.
Tomas: Our average deal size or a per customer expanded double digits year over year, highlighting our platform momentum across all segments of the market.
Tomas: Remaining performance obligations continue to Reaccelerate and grew 33% to $1 2 billion.
Tomas: In addition to larger deal sizes, we're also seeing customers commit to longer term agreements with that no one con.
Tomas: Contract duration for both new and existing customers expanded year over year in Q1.
Tomas: This is a testament to the trust, we have established with our customers and our commitment to future innovation.
Tomas: Turning to margin, we continue to deliver margin expansion and free cash flow improvement.
Tomas: In Q1, we maintained an industry, leading gross margin of 79% and our operating margin expanded over four percentage points year over year to negative 2%.
Tomas: We also achieved our fourth consecutive quarter of positive net income. This performance was driven by scale cost discipline and our focused investment strategy.
Tomas: I'm, especially pleased with our cash generation.
Tomas: A record, 20% free cash flow margin for the quarter.
Tomas: On a trailing 12 month basis, our free cash flow margin expanded five percentage points.
Tomas: Turning to our guidance for Q2 and fiscal year 'twenty.
Tomas: Our full year outlook reflects Q1 results and the potential impact of a heightened macro uncertainty.
Tomas: That said, we remain encouraged by the continued adoption of our new solutions this shift towards larger more strategic platform deals.
Tomas: Our leadership in AI and the strength of our competitive position.
Tomas: Believe we are well positioned to continue to outpace market growth and create significant long term value.
Tomas: For Q2, we expect revenue of approximately $242 million and growth of 22% driven by a sequential net new <unk> growth that exceed typical Q2 seasonality.
Tomas: For the full year, we now expect revenue of $996 million to $1 billion, one representing 22% growth.
Tomas: Top tier performance, especially against a backdrop of ongoing macro volatility.
Tomas: Turning to our outlook for margin, we expect Q2 gross margin to remain at approximately 79%.
Tomas: We expect full year gross margin to be between 78, five and 79, 5% as we grow our customer and platform base.
Tomas: For operating margin, we expect Q2 to be breakeven.
Tomas: Implying a year over year improvement of approximately 300 basis points.
Tomas: For the full year, we are reiterating our expectation for operating margin to be between positive, 3% and 4% and.
Tomas: An improvement of over 650 basis points at the midpoint compared to fiscal year 'twenty five.
Tomas: In addition, we still expect free cash flow margin to exceed operating margin for the full year by several percentage points.
Tomas: We remain focused on instilling operational discipline and enhancing efficiency across the business.
Tomas: We believe these efforts position us to deliver stronger year over year margin improvement in the second half of fiscal year 2006, while also continuing to reinvest in the business.
Tomas: Our investment approach strikes a thoughtful balance between maximizing long term growth opportunities and maintaining a strong responsible and profitable financial profile.
Tomas: First we continue to invest in transformative innovation, we're committed to advancing the technologies that are redefining the industry.
Tomas: Data cloud and automation recent.
Tomas: Our recent launches like purple AI, Athena hyper automation and our cloud security suite represent a glimpse of what's possible with <unk>.
Tomas: So early and helping our existing customers unlock more value from our platform and we're focused on driving deeper adoption.
Tomas: Second, we're driving profitability and operational efficiency, our investments in AI and automation will continue to drive operational efficiencies.
We've also made solid progress on margin expansion and are taking deliberate steps to build on that momentum.
Tomas: <unk> been actively aligning teams and resources enforcing greater discipline and reinvesting in the highest impact opportunities.
Tomas: We're optimizing our facility footprint and personnel needs and remain focused on sustainable and profitable growth.
Tomas: Bringing this all together we are beginning to generate more meaningful positive free cash flow and in Q1, our cash cash equivalents and investments increased to $1 2 billion.
Tomas: This strong financial position provides us with flexibility to allocate capital in ways that support both growth and shareholder value.
Tomas: In that context, we're announcing a $200 million open ended share repurchase authorization.
Tomas: Decision reflects our confidence in the long term trajectory of the business and our view that our current stock price does not fully reflect our underlying fundamentals our future potential.
Tomas: This program gives us the ability to act opportunistically in the market reduced dilution over time and continue investing in innovation and strategic priorities, all while maintaining a strong balance sheet.
Tomas: We continue to scale the company on a foundation of strong fundamentals expanding margins and significant long term growth potential. Thank you all for joining US today, we will now take questions. Operator, Please open up the line.
Tomas: Thank you.
Speaker Change: At this time, if you would like to ask a question. Please click on the right hand button, which can be found on the black at the bottom of your screen.
Speaker Change: Until you attend you will receive a message on your screen from the host, allowing you to talk and then you will hear your name called please.
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Speaker Change: Audio and ask your question.
Speaker Change: As a reminder, we were allowing analysts one question today.
Speaker Change: One moment to allow the Q2 form.
Speaker Change: Our first question comes from Jerry Gallo with Jefferies. You May know, Amit your audio and ask your question.
Jerry Gallo: Hey, guys. Thanks for the question.
Jerry Gallo: Can you just talk a little bit more about incremental IRR in the quarter you were expecting net new <unk> to grow this year.
Jerry Gallo: Down materially in <unk>, I mean was there more churn than expected from deceptions wasn't a few large deals that slipped.
Jerry Gallo: <unk>, maybe just what gives you confidence that this is macro and not competitive. Thank you.
Jerry Gallo: Thank you for the question.
Jerry Gallo: First of all I think we're already seeing improved trends in may and we totally expect year over year and a few of our growth in Q2 to improve relative to Q1.
Jerry Gallo: Will imply well above seasonal growth in Q2 compared to last year. So we believe that this was mostly isolated to kind of a Q1 dynamic if you may.
Jerry Gallo: It is more around slip deals than anything else, we've not seen any type of elevated churn. So a lot of what we've seen and observed in Q1 goes back to just more macro volatility than I think anybody expected.
Jerry Gallo: If we kind of think about the second half pricing in a more holistic way.
Jerry Gallo: You've returned these engagements we see demand is still strong and pipelines are strong. So what does that just points us again to fundamentals being intact.
Jerry Gallo: And I'll just add in terms of disruption in your question there on churn that came in in line with our expectations.
Speaker Change: Our next question comes from Brent Zelnick with Deutsche Bank UBS go ahead with your question.
Speaker Change: Great. Thank you so much Barbara My question is for you I just wanted to better understand your guidance assumptions.
Speaker Change: And does the incremental conservatism assumes the April trends persist throughout the year and just related to that what did you see in May and I don't believe in your in your guidance you have given us any update for <unk>.
Speaker Change: But with the revenue cut on the full year should we also assume that the $200 million plus or minus target no longer stands. Thanks.
Speaker Change: Yeah. Thanks, Brad I appreciate the question so.
Speaker Change: Just in terms of the broader piece I would say our outlook is reflecting underlying kind of new business growth as we move through.
Speaker Change: Here, we definitely are seeing improved trends in may compared to what we saw in April.
Speaker Change: We're also trying to be thoughtful about the environment and the potential that there might be further unexpected external disruption so trying to capture that all in our expectations for FY 'twenty six.
Speaker Change: As you noted.
Speaker Change: Our revenue guide, we did decrease that five one.
Speaker Change: 1%.
Scott: Can I assume that Scott.
Scott: That means our internal expectations around that new layout came down quite a bit as well.
Speaker Change: Our next question comes from gap you have in the borders with Goldman Sachs. Please go ahead with your question.
Speaker Change: Hi, Good afternoon. Thank you Tamara and Barbara I was hoping you can give us more specific commentary on what customers were telling you what the slipped deals we understand the general macro uncertainty, but our customers, saying for example that they expect to have more certainty later in the year are you expecting the slip deals to close in the July quarter or is that perhaps going to take.
Speaker Change: <unk> help us marry the broad economic commentary to the specifics of them one commentary.
Speaker Change: Sure, let's maybe start.
Speaker Change: <unk>.
Speaker Change: Bit more high level, the macro backdrop backdrop changed in Q1, I think for a lot of folks conduct was.
Speaker Change: Fairly unexpected, especially in April which is our largest months smallest quarter. So we observed longer sales cycle and I think some customers basically paused their spending decisions.
Speaker Change: For a few weeks, we have not seen any deal cancellations.
Speaker Change: I think as we look ahead unknowns around.
Speaker Change: Federal purchasing global trade all of that has to present, so we're trying to be mindful and reflect that in our outlook.
Speaker Change: Second and positively we do expect 22% growth this year, it's a top tier growth rate.
Speaker Change: Especially in the challenging environment. So our success with large enterprises platform adoption continued to drive higher IRR per customer that actually reached a new record in Q1. So we are seeing many positive factors, but at the same time.
Speaker Change: Really clear that we're trying to create some more room to be able to digest bidder.
Speaker Change: The potential further disruption.
Speaker Change: This environment is proving to be.
Speaker Change: Very unpredictable on almost a daily or weekly basis. So we're just trying to take a more tapered approach as to our growth expectations. As we mentioned a couple of times trends have definitely improved in may.
Speaker Change: Seeing more and more progression in the enterprise and federal sales.
Speaker Change: Thats definitely encouraging.
Speaker Change: Again, the demand overall is still strong win rates are strong.
Speaker Change: And as you see more platform adoption I think thats, what gives us the confidence that most of the drivers are there disruption is the part that we cannot just predict on our own accord.
Speaker Change: Our next question comes from <unk> Kidron with Oppenheimer <unk> co. Please go ahead with your question.
Kidron: Thanks, I appreciate that color, maybe you could talk about the progression of the.
Speaker Change: Productivity.
Speaker Change: The bundle sale, how is that moving along where would you like to see some more improvement.
Speaker Change: And also with respect to the alligators sales cycles can be a little more specific with respect to region was this just north America or globally and also by vertical or was this a little bit more pronounced in some verticals versus others.
Speaker Change: I'll start with the latter question.
Speaker Change: I think we've seen it all around in different different pockets.
Speaker Change: Currently more pronounced I think in larger deals in India enterprises, but differently globally.
Speaker Change: The market was still very strong for us.
Speaker Change: In the quarter.
Speaker Change: As to what we're seeing out there.
Speaker Change: There is no question.
Speaker Change: When we talk to customers today, the breadth and depth of our platform is significant and we're working to actually make it more flexible and easier for customers to consume more parts of our platform.
Speaker Change: One example of that could be.
Speaker Change: Propylene propylene.
Speaker Change: Appropriately offering once we've introduced starting to our foundation package it immediately drove more and more adoption and the price uplift.
Speaker Change: So as we progress.
Speaker Change: The second half of the year, our ability to deploy complete flexible procurement for our entire platform. We believe is going to drive more adoption over the mortgages that we have our data business crossing 100 million Golar <unk> Thats, a great milestone for us.
Speaker Change: Both of these parts of our business AI plus data.
Speaker Change: Our growing significantly.
Speaker Change: The major drivers of the business and at this point in time, and we believe that will fuel growth.
Speaker Change: For years to come so when you couple all of that and you allow customers to consume any part of your platform I think we're going to start seeing some meaningful accretion.
Speaker Change: Just by changing our bundling structure moving away from a product centric approach and into our class II wide approach.
Speaker Change: Our next question comes from second Calia with Barclays. Please go ahead with your question.
Calia: Okay, Great Hey, guys. Thanks for taking my questions here.
Speaker Change: Tomer, maybe for you maybe just hitting on that on that data point that you made can you just talk a little bit about the Sim market right now it just seems like the velocity of competitive displacements are picking up there for you as well as competitors. So how do you sort of think about that and maybe the pipeline of those types of displacements going forward.
Speaker Change: Sure.
Speaker Change: First I would say, it's not only displacement. So I think in many cases, you see implementation in many cases, you see net new data where people are looking to store in more effective automated an AI driven solutions. So are you seeing a lot of different dynamics play out I think one of the thing that we.
Calia: We kind of mentioned throughout the prepared remarks.
Calia: Our ability, which we launched at RSA jockey tap into existing Sim providers and allowed them.
Calia: To really enjoy or allow customers to really enjoy our AI capabilities without the need to move data.
Calia: <unk> of deployment and I think what youre seeing more and more.
Calia: For especially the larger customers do you have data in many different stores rarely do you see one place with all the data and I think allowing customers to unify the data whether it migrating it or migration free mode. I think really opens up how you think about applying AI to enterprise data.
Calia: Though.
Calia: There is definitely more and more interest in cloud need to Sim solutions or data lakes, both because of the cost benefit, but I think more importantly.
Calia: Cause of the need to start.
Calia: Addressing threats and issues in real time, which if you look at the legacy providers I think thats got to the point, where they're struggling significantly none of these systems were designed to run in real time. Most of these systems have very significantly currency and these are deep architectural issues that they have they are all going to be sold.
Calia: Overnight or maybe at all and I think that's what's driving a lot of the desire for customers to look at new solutions.
Calia: And I think as customers are doing that especially in this new Braves AI agent to coral Dave want to these new solutions, the new data solutions to already be embedded with AI and that's exactly what our <unk> is able to provide out of the box.
Speaker Change: Our next question comes from <unk> <unk> with Bank of America. Please go ahead with your question Hi.
Tony: Hi, Tony.
Tony: Strategic question I think I asked you. The same question two years ago, and I'm going to ask the same question again because.
Calia: On one hand, the pipeline is strong.
Calia: But in your space is extremely attractive.
Calia: But you are one fifth of the size of your biggest competitor and you're growing at the same rate and with all these new products and new activities.
Calia: And things Youre successful at what needs to happen for the company to outgrow. This just because of your small size.
Calia: And what areas do you think can drive up this this growth acceleration in the future.
Paul: Thanks for the question, Paul Yes, I remember it from two years ago.
Calia: I think we're in a different revenue scale nowadays at the same time I think the biggest difference that you're seeing with us versus pretty much every other incumbent in cyber security.
Calia: Amount of actual new logos that we're adding.
Calia: Versus I think the motions of audio.
Calia: <unk>.
Calia: I also fully suspect that for us and what Youre seeing today in cyber security the different solutions that are out there.
Calia: I'm almost certain that in a year time two year time.
Calia: Quadrants, where cyber security is going to be changing dramatically.
Calia: I think that we already have been leading with our AI offerings, we will continue to expand that lead into the future.
Calia: We're still running at a top tier growth rate across every software vendor out there pretty much not just our competitors. So all in all again, we're one of the biggest obviously.
Calia: Security providers in the world today.
Calia: And we're going to continue to grow so to us it's only about putting the right types of products and solutions into the hands of customers.
Calia: This market is incredibly big and we're focused on our own path.
Speaker Change: Our next question comes from John <unk> with Guggenheim. Please go ahead with your question.
Speaker Change: Thank you.
Speaker Change: A question for Tomer.
Speaker Change: So when you talked about the macro backdrop, which we understand is something you can't control, but you also spoke about go to market moving from product centric to a platform strategy, which is something that is under your control I know this has been happening but can you talk further about what this means and the likely impact on sales timing.
Speaker Change: <unk> also come into play at all this quarters with this quarter's results and your slate lowering for the year or was it just all macro driven and by the way nice job on the free cash flow Barbara.
Speaker Change: The share buybacks as a law so thanks.
Calia: Thank you for the question.
Calia: Look I think as we call it in the script the go to market evolution part of our journey. As this continues so there wasn't anything specific in Q1.
Calia: It's very clear that as we put forward more of our AI based offerings and we are expanding the suite of capabilities that we have that changes the way that we talk to customers. It changes the way that we bill customers. It changes the way that we lead our conversations.
Calia: Especially if you couple that with what I mentioned earlier the move towards more flexible.
Calia: Structures for customers the ability to consume the entire platform. These things don't happen overnight, but I do believe.
Calia: We're getting better and better.
Calia: Because of these things so if anything as we deploy more capabilities to customers to consume more of our platform that should allow us to actually improve on our efficiency and our ability.
Calia: To really drive further gains.
Calia: As we think about our sales force and what each and every seller can potentially so or talk to a customer about so all in all go to market.
Calia: Ever growing evolution, I would say, especially in a market thats changing especially went technologies are changing I think that were looking today at our platform because one of the preeminent platforms in the in the space the amount of offerings we have.
Calia: Significant our data and AI leadership is significant so for us it's really about honing in on these areas of our business and shifting away from what was a very product centric.
Calia: Type of go to market function for us.
Calia: <unk>.
Calia: <unk> always had some complexities with enablement and training and we called that out also in the prepared remarks.
Calia: I mean, these would be net positives for the business going forward.
Speaker Change: Our next question comes from Brian Essex with J P. Morgan. Please go ahead with your question.
Brian Essex: Hi can you hear me okay.
Calia: We can hear you.
Speaker Change: Great. Thank you. Thank you for taking the question I guess Barbara this one's for you.
Calia: Prior to joining I think the company has talked about being growth constrained because of the focus on margins and now we've kind of approach breakeven levels and the outlook for profitability and cash flow looks a little bit better, but what I'd like to understand us.
Calia: Where are you seeing incremental.
Calia: Incremental cost savings within the company and then on the other side of that.
Calia: Where are you investing incremental leverage where are you seeing the greatest return and how can we think about the way that those initiatives to drive better growth ahead.
Calia: Thanks for the question, Brian in terms of growth versus profitability I would just say we remain focused on investing for efficient growth, we've been driving meaningful efficiencies across the business. So realigning teams.
Calia: And also making more targeted investments in key growth areas as well as away from growth areas that are key.
Calia: So that included disruption last quarter.
Calia: So I'll try to focus on efficiency as well as growth and continue to scale the company.
Calia: From an investment focus area, we are continuing to invest in AI based innovations across all of our solutions and point cloud data and purple.
Calia: And just really given the market.
Calia: Environment, we're really leaning into strengthening our go to market presence, both sales and marketing.
Calia: So continue to take proactive steps to drive efficiency and drive margin improvement and you can see that reflected in our op margin guidance for over 650 basis points of improvement in FY 'twenty six.
Calia: Our next question comes from Rob Owens with Piper Sandler. Please go ahead with your question.
Rob Owens: Great. Thank you for taking my question I think Tom during your prepared remarks, you talked about 25% of subscriptions sold during the quarter had an AI attached to it.
Rob Owens: Curious what that's doing to overall deal sizes. If you can give some color. Thank you.
Rob Owens: Of course.
Speaker Change: I think we talked about it a few times in the past and that hasn't really changed I mean, the inclusion of AI is about a 25% uplift to.
Rob Owens: Two the average deal size.
Rob Owens: I would say that that is a starting point for US. This includes only our foundation AI capabilities.
Rob Owens: We're now extending our capabilities.
Rob Owens: To introduce multiple agenda.
Rob Owens: Solutions that can really build on top of it and create even more accretion.
Rob Owens: Into the future. So all in all it is not only that.
Rob Owens: Uplift for us, but it's also a great differentiation point.
Rob Owens: If you think about it today, we don't really sell or don't think it's wise to sell even in edr solution without AI capabilities. So we bundled these two together.
Rob Owens: And we're the only call it AI Edr solution.
Rob Owens: On the market today, I think that's already positioning us in a very different way for both our customers and our partners.
Rob Owens: As we go forward, obviously, those argentic add ons.
Rob Owens: Are going to continue to fuel growth for customers I mean, the outcomes obviously.
Rob Owens: We're able to deliver with agency capabilities.
Rob Owens: I think are just staggering them both in terms of.
Rob Owens: Time saving in terms of speed in terms of automation.
Rob Owens: We got amazing components into the platform, but if you put together.
Rob Owens: <unk> with our endpoint capability, but all the way to agenda capabilities into hyper automation, which is also generally available for us customers trying to get a picture of what they can do with this end to end platform and connecting all these pieces together so that initial uplift we believe.
Rob Owens: It's really just the starting point for us and it is just very promising to see people to get it as part of our base offering.
Trevor Welsh: Our next question comes from Trevor Welsh with citizens. Please go ahead with your question.
Trevor Welsh: Great. Thanks for taking my question.
Trevor Welsh: Barbara maybe for you I appreciate the color that you gave around free cash flow outlook for the year that having just kind of ahead of the operating margin could you maybe just give us a sense of how that all kind of flow in the next couple of quarters. If I'll just look kind of similar to the seasonality that we saw last year and then Relatedly does the share purchase repurchase program kind of change your point of view.
Speaker Change: <unk>, just overall strategically around doing M&A transactions at all thanks.
Speaker Change: Thanks for the question. So you're right. We continue to expect free cash flow margin to exceed the operating margin for the full year.
Speaker Change: Several points I think from a seasonality trend Q1, typically tends to be our biggest free cash flow quarter Youll see that turn down in Q3, and Q2 and Q3 and then trend back up.
Speaker Change: And.
Speaker Change: In Q4, so pretty typical seasonality from.
Speaker Change: Our cash flow perspective, and then on <unk>.
Speaker Change: Share repurchase I would just say overall in terms of the timing why now.
Speaker Change: Starting to generate more meaningful positive free cash flow.
Speaker Change: <unk>.
Speaker Change: In Q1, our cash cash flow equivalents and investments increased to one 2 billion. So we really felt like with that strong liquidity position that gave us.
Speaker Change: Financial flexibility for our capital allocation as we continue to scale the business, so opportunistically with share repurchase but still.
Speaker Change: Ample cash for any potential M&A.
Speaker Change: Our next question comes from Adam Tindle with Raymond James.
Speaker Change: Please go ahead with your question.
Adam Tindle: Okay. Thanks, good afternoon.
Barbara Larson: Barbara I just wanted to.
Adam Tindle: Kind of get this out there guidance has been a little bit cryptic and it's creating some issues, where we miss model. So if I could just run through a couple of things for clarification for everybody. When you say net new <unk> in Q2 to be above seasonal if I look at the last couple of years, it's up 6% to $7 million sequentially does that mean up $10 million in high <unk>.
Barbara Larson: For net new IRR.
Barbara Larson: So just put some parameters around that and as you think about kind of throwing out a guide like that for Q2. This above seasonal if we look at Q4 Q1 on a they've been in line to Mrs. Why set that expectation for Q2, what gives you confidence to do this above seasonal and just trying to avoid.
Barbara Larson: Rolling into a similar situation, where expectations are too high and the stock's down double digits in the after hours. Thanks.
Barbara Larson: Thanks for thanks for the question so in terms of Q2.
Barbara Larson: Outperforming I wouldn't think of that in terms of our sequential growth rate in Q2, if you look at that of last year.
Barbara Larson: About 16% in the prior year as well so our expectation for Q2 is rapidly roughly double that.
Barbara Larson: Sequential growth rate what gives us confidence is really we've seen we've seen.
Barbara Larson: <unk> improved in May and so we're encouraged by the activity that we're seeing in the first month of the quarter as well as as well as the pipeline we have for Q2.
Peter: Our next question comes from Peter <unk> with Bernstein. Please go ahead with your question.
Peter: I appreciate your candor in detail associated with that.
Speaker Change: And the activities that went on this quarter and how you've rolled that through the year.
Peter: But one thing that.
Barbara Larson: Realized.
Barbara Larson: Feel.
Barbara Larson: Feel like I had clarity on is when you talked about the impact this quarter and some deals pushing.
Barbara Larson: That.
Barbara Larson: A bigger effect on existing customers and renewals and expansion or was that more of an issue associated with new customers and what maybe can we take away from the customer profile on kind of new versus existing.
Barbara Larson: And the strength of the business.
Barbara Larson: So it's a great point I mean, we're one of these.
Barbara Larson: Singular vendors out there.
Barbara Larson: If you kind of look on average.
Barbara Larson: 50% of the business that we do every quarter is actually with new customers net new customers. So when we're looking at some of these dynamics I mean, there are definitely more prevalent and I would say almost all prevalent which with new logos, which is why we believe again, we're trying to just create a more digestible mode for.
Speaker Change: Should any further disruption in the macro environment Tappan.
Barbara Larson: To us again, one of our strategic pillars is to continuing to grow new logos, which which we're doing I think in a great way and have been doing in previous years.
Barbara Larson: <unk> ducked dynamic where customers are choosing to sometimes wait or just.
Barbara Larson: Kind of observe what's happening with the environment before they commit to.
Barbara Larson: A deal is definitely more of a net new customer dynamic.
Barbara Larson: With that.
Barbara Larson: Our existing upsell and cross sell motion is also incredibly strong and we're making adjustments again to just be able to be in a place where at our scale.
Barbara Larson: We can digest and you have these pumps towards.
Barbara Larson: Towards any point of the year.
Barbara Larson: Slightly more predictable way.
Barbara Larson: Our next question comes from Shaw Al with TD Cowen. Please go ahead with your question.
Shaw Al: Thank you hi, good afternoon. Thank you for taking my questions.
Shaw Al: I wanted to try and build on Brian Essex question, maybe a little differently.
Shaw Al: Yeah.
Speaker Change: Your hiring plans for fiscal 2006, if we look at it from a 100% perspective.
Speaker Change: How would you break it between R&D and sales and marketing and I don't know if you want to also provide us with the.
Speaker Change: With absolute numbers.
Speaker Change: I would say first of all we're constantly kind of adjusting.
Speaker Change: Plans as we see fit.
Speaker Change: Generally I would say that a lot of them to hiring we are doing.
Speaker Change: As in R&D.
Speaker Change: Started the year with it.
Speaker Change: Close to fully ramped sales force, which I think gives us.
Speaker Change: Kind of a tenured amount of salespeople on the street.
Speaker Change: But we've got we're constantly shifting sometimes we're pruning in certain areas and then reinvesting in other areas, but as a whole I would say.
Speaker Change: R&D is definitely a source where.
Speaker Change: The products that we generate today and for the future are so incredibly important that youre going to see us continue and invest.
Speaker Change: And as it comes to sales and marketing I think it really is very commensurate with growth.
Speaker Change: And the areas, where we want to make sure we're successful.
Caffari: Our next question comes from training Caffari with Baird. Please go ahead with your question.
Caffari: Yes, thanks for taking my question.
Caffari: On the federal side of questions of how the broader background <unk>, adding to our existing endpoint and Sam.
Speaker Change: Curious what are you seeing there are budget constraints, including the recent.
Speaker Change: These are dynamic where you've had success there.
Speaker Change: The recent past, but with larger deals.
Speaker Change: Are you seeing.
Speaker Change: Or are you expecting to see more delays around spine chance.
Speaker Change: Also on the New agency logos.
Speaker Change: Are you engaging at the same levels on the on the RFP basis. Just curious if you can comment on the federal side. Thanks.
Speaker Change: Sure.
Speaker Change: We're in a great position to partner goes the federal ecosystem, we have.
Speaker Change: A number of growth opportunities and we just announced to your point, we're now pretty much the first and only cyber security Argentic AI solution accrued for government organizations.
Speaker Change: Which joins all of our key platform offerings across endpoint AI Sim.
Speaker Change: Cloud security hyper reclamation all of them are federal Pi.
Speaker Change: The pipeline looks promising as well I think you can definitely site.
Speaker Change: Longer sales cycles more approval needed I think there is.
Speaker Change: At this point of constant change and how federal agencies are treating procurement with that there is some also fast track.
Speaker Change: Capabilities that have been.
Speaker Change: Available to them. So all in all I mean, it's still influx, but obviously the need is still there. So the timing of deals can vary and I think thats also something we reflect.
Speaker Change: In our guidance and so some of that in Q1 as well so all in all it's been encouraging to see some of those deals closed in may.
Speaker Change: Showing there is progress and that's just the beginning.
Speaker Change: We have no further questions at this time I will now turn the call back over to time of Wang Gotcha.
Speaker Change: For closing remarks.
Speaker Change: Thank you all for joining us today. The subsequently landscape is changing rapidly in central and one of the leading that change.
Speaker Change: Innovating with the purpose to redefine what cover security in the AI era is and our teams are executing with discipline. We believe we are well positioned to serve the needs of customers today and into the future a unified security AI platform. That's what people need. Thank you again to our employees customers partners and shareholders for your <unk>.
Speaker Change: Trust and support.