Company's Q3 2026: Contradictions Emerge on Growth vs. Profitability, Sales Linearity, AI Adoption, and Deception Product Impact

Date of Call: December 4, 2025

Financials Results

• Revenue: $259 million, up 23% year-over-year
• Gross Margin: 79% in Q3 (industry-leading)
• Operating Margin: 7% in Q3, improved ~1,200 basis points year-over-year

Guidance:

• FY26 revenue expected to be approximately $1.001 billion (+22% YoY)
• Q4 revenue expected to be approximately $271 million (+20% YoY)
• FY gross margin ~78.5%; Q4 gross margin ~77.5%
• FY operating margin expected to slightly exceed 3%; Q4 operating margin ~5%
• Guidance absorbs ~130 bps impact from Prompt/Observo acquisitions and ~120 bps FX headwinds
• Reaffirming positive free cash flow for FY26, expected a few points higher than operating margin

Business Commentary:

• Revenue and ARR Growth:
• SentinelOne reported revenue growth of 23% year-over-year to $259 million for Q3, with an increase in total ARR to over $1 billion.

• The growth was driven by strong demand across platforms, notably in AI, data, and cloud solutions, along with increased ARR per customer and broad-based new customer wins.

• Operating and Financial Margins:

• 
• The company achieved an operating margin of 7%, marking an improvement of 1,200 basis points year-over-year, with a gross margin of 79%.

• This is attributed to improved operating leverage, platform unit economics, and strategic cost management initiatives.

• Product Contribution and Sales Strategy:

• Half of the quarterly bookings came from products outside the Endpoint suite, notably Purple AI and Data Solutions, with Purple AI achieving a 40% attach rate for licenses sold.

• The growth was supported by SentinelOne Flex, which allows customers to consume multiple platform solutions dynamically, driving larger multi-solution deals and longer-term commitments.

• Innovation and Strategic Acquisitions:

• SentinelOne completed strategic acquisitions, including Observo AI and Prompt Security, to enhance its data pipeline and AI security offerings.
• These acquisitions are expected to amplify the company's data analysis capabilities and address the growing demand for real-time visibility, governance, and control in AI tool deployments.

Sentiment Analysis:

Overall Tone: Positive

• "Q3 was another strong quarter"; "We exceeded our top and bottom line expectations"; ARR grew 23% year-over-year; "operating margin reached a new high"; management: "put the company on a path towards sustainable profitability."

Q&A:

• Question from Saket Kalia (Barclays Bank PLC): Tomer, maybe for you, it's great to hear that half of the bookings are now coming from outside Endpoint. Can you just maybe talk about which products outside of Endpoint are kind of becoming the most material from a new business perspective? And to what extent is Flex enabling that?
  Response: Data Solutions (triple-digit bookings growth) and Purple AI (~40% attach) are the main non-endpoint drivers, and Flex is enabling broader, dynamic consumption of the platform, accelerating multi-solution deals.

• Question from John DiFucci (Guggenheim Securities, LLC): Is there anything to read into the guide being lighter than expected? And is Barbara's departure related to company direction?
  Response: Q4 guide is prudent due to seasonality, deal timing and dynamic macro (in‑quarter linearity); Barbara's departure is personal and unrelated to SentinelOne's outlook.

• Question from Brian Essex (JPMorgan Chase & Co): Could you touch on gross margin drivers and the sequential compression in the guide; what do you see in the pricing environment and longer-term outlook?
  Response: Q4 gross margin guide reflects strategic investments in cloud infrastructure and capacity expansion; expect to sustain gross margins in the high-70s.

• Question from Nasr Islam (Deutsche Bank AG): As you evaluate the breadth of products, do you see the need for more M&A and what are the guardrails balancing growth and profitability?
  Response: Platform is largely complete; M&A will remain opportunistic for strategic gaps while prioritizing in‑house innovation and selective, disciplined deals.

• Question from Meta Marshall (Morgan Stanley): Can you give more details on where you're seeing strength with Flex and improved execution?
  Response: Sales execution has improved; Flex is driving larger multi-solution deals, longer commitments, higher ARR per customer and greater sales efficiency.

• Question from Joseph Gallo (Jefferies LLC): Any commentary on Q4 net new ARR and should we expect net new ARR growth next year?
  Response: No formal ARR guidance, but expect Q4 net new ARR to be higher sequentially consistent with seasonal patterns.

• Question from Fatima Boolani (Citigroup Inc.): Can you unpack the net new ARR 1% growth and reconcile with strong RPO/bookings and net retention commentary?
  Response: Net new ARR is solid with contributions from new logos and expansions; record ARR per customer and net retention remain expansionary and stable.

• Question from Eric Heath (KeyBanc Capital Markets Inc.): Through November has linearity been slower and are sales cycles getting longer with bigger Flex deals?
  Response: Expect Q4 to be back‑end loaded due to U.S. holidays and lower-than-anticipated Services revenue; in‑quarter linearity and deal timing are drivers of revenue timing.

• Question from Jonathan Ho (William Blair & Company L.L.C.): Where are we in AI security adoption and customer maturity for new solutions?
  Response: Prompt Security has strong early traction; customers seek real‑time visibility, governance and controls—Prompt is both a cross‑sell and new‑logo entry point.

• Question from Shaul Eyal (TD Cowen): What actions are you taking to accelerate net new ARR and how do you think about hiring next fiscal year?
  Response: Focus on Flex to drive efficient expansions, rapid integration and scaling of acquired assets, and positioning the unified platform to land bigger and expand larger.

• Question from Michael Cikos (Needham & Company, LLC): How did deal timing and macro play out in Q3 versus expectations and how is public sector performing?
  Response: Deal timing remains unpredictable so guidance is measured; federal business met expectations—demand strong but procurement cycles remain slower.

• Question from Zachary Schneider (Robert W. Baird & Co.): What benefits have been seen since the Observo acquisition and how are you positioning it vs private vendors and peers?
  Response: Observo provides an AI‑native real‑time telemetry pipeline enabling faster data onboarding, end‑to‑end data orchestration and supports automation/agentic capabilities versus legacy pipelines.

• Question from Adam Tindle (Raymond James & Associates, Inc.): A competitor called out a partner displacement; how do you respond and how does this affect maintaining ~20% growth?
  Response: No meaningful disruption seen; partner ecosystem remains robust with multiyear commitments and contribution to growth, and company remains confident in momentum despite macro uncertainty.

• Question from Joshua Tilton (Wolfe Research, LLC): Replacing the CFO who led profitability with a Growth Officer as interim—does this signal a shift away from profitability focus?
  Response: Management will continue to prioritize margin expansion and profitability (aiming for Rule of 40) and maintain the same disciplined path despite the interim CFO change.

• Question from Patrick Edwin Colville (Scotiabank Global Banking and Markets): The 50% bookings from emerging products stayed consistent — does that mean endpoint still surprising or emerging products underperforming?
  Response: 50/50 mix is balanced; core endpoint remains strong with further opportunity while data and AI solutions are scaling—multiple growth vectors are expected to continue driving expansion.

Contradiction Point 1

Focus on Growth and Profitability

It highlights a shift in focus regarding the company's priorities between growth and profitability, which could impact investor expectations and strategic decisions.

Replacing the CFO with a Growth Officer—how does this align with your focus on profitability? - Joshua Tilton(Wolfe Research, LLC)

2026Q3: We continue to focus on expanding operating margins and achieving the Rule of 40. The next CFO will ensure continuity in our financial strategy, maintaining the course towards sustainable profitability. - Tomer Weingarten(CEO)

Are there guardrails for Q3 net new ARR given first-half volatility? - Robbie David Owens(Piper Sandler & Co.)

2026Q2: We continue to be very focused on growth with a very healthy balance sheet and a very healthy cash inside. So we continue to be mindful of our gross margin and operating margin trends as we go forward. - Barbara A. Larson(CFO)

Contradiction Point 2

Sales Cycle Length and Linearity

It pertains to the company's sales cycle lengths and linearity, which are crucial for understanding revenue predictability and growth trajectory.

Are sales cycles lengthening with Flex deals? Is linearity slower than anticipated? - Eric Heath (KeyBanc Capital Markets Inc., Research Division)

2026Q3: In-quarter linearity is back-end loaded due to U.S. holidays. Services contribution is lower than anticipated. - Barbara Larson(CFO)

Can you clarify your guidance assumptions and whether the incremental conservatism assumes April trends continue year-round? Can you share May's results? - Brad Zelnick (Deutsche Bank)

2026Q1: In Q1, the macro backdrop changed unexpectedly, with elongated sales cycles due to paused spending decisions. - Tomer Weingarten(CEO)

Contradiction Point 3

AI Security Adoption and Customer Maturity

It involves the company's assessment of AI security adoption and customer maturity, which are critical for understanding market readiness and product acceptance.

What's the current state of AI security adoption and customer maturity? - Jonathan Ho (William Blair & Company L.L.C., Research Division)

2026Q3: AI security is centered around Prompt Security, addressing a growing need for real-time visibility and control in AI workloads. - Tomer Weingarten(CEO)

Can you clarify your guidance assumptions and whether the incremental conservatism assumes April trends persist throughout the year? What did you see in May? - Brad Zelnick (Deutsche Bank)

2026Q1: The macro backdrop changed unexpectedly in Q1, with elongated sales cycles due to paused spending decisions. - Tomer Weingarten(CEO)

Contradiction Point 4

Deception Product Impact on Guidance

It involves the impact of the deception product on the guidance, which is crucial for understanding the company's financial performance expectations and investor confidence.

Has a competitor's significant displacement affected partnership growth and forward guidance? - Adam Tindle (Raymond James & Associates, Inc., Research Division)

2026Q3: We have not seen any meaningful disruption from competitors. Our partner ecosystem remains robust, with multiyear commitments from key partners. Our growth momentum and strong product resonance give us confidence in meeting guidance. - Tomer Weingarten(CEO)

Excluding the deception product and its attrition effects, considering only new ARR and normal attrition (which is minimal), why did only half of your companies show new ARR growth? - John DiFucci (Guggenheim Securities)

2025Q4: So from a deception perspective, I'll first cover that for net new ARR. So for FY '26 the impact is about $10 million of term for the year, and Q1 is about half of that. On a revenue perspective for the full year, deception has about a 1 point headwind on FY '26 revenue. - Fatima Boolani(CFO)