SentinelOne’s $24.4 million restructuring charge hits profits as AI security ARR triples
The cybersecurity company raised its full-year revenue outlook to more than $1.2 billion, but cut its earnings forecast after recording higher restructuring costs. Israeli acquisition Prompt Security is emerging as one of the fastest-growing parts of its AI security business.
SentinelOne raised its full-year revenue forecast after reporting second-quarter results above Wall Street expectations, but the cybersecurity company also lowered its earnings outlook as it absorbs higher restructuring costs and continues investing in new growth areas, including AI security.
Revenue for the quarter ended July 31 rose 21% to $292 million, compared with $242.2 million a year earlier. Adjusted earnings reached 8 cents per share, double the 4 cents reported in the same quarter last year and above analysts' expectations of 7 cents.
The stronger operating performance was offset at the bottom line by a sharp increase in restructuring expenses. SentinelOne reported a GAAP net loss of $93.4 million, or 27 cents per share, compared with a loss of $72 million, or 22 cents per share, a year earlier.
The company recorded $24.4 million in restructuring charges during the quarter, up from $3.9 million a year earlier. The increase follows the workforce reduction of roughly 8% announced by SentinelOne in May as part of a broader effort to improve operating efficiency.
Despite the charges, SentinelOne's adjusted operating margin improved to 10%, from 2% a year earlier.
For the full fiscal year, SentinelOne now expects revenue of between $1.202 billion and $1.207 billion, slightly above the approximately $1.2 billion expected by analysts. It also raised its adjusted operating income forecast to between $124 million and $128 million.
The company, however, cut its full-year adjusted earnings forecast to 30-32 cents per share, from 32-38 cents previously. Analysts had been expecting roughly 35 cents.
The weaker profit outlook highlights the trade-off facing SentinelOne as it seeks to expand beyond its traditional endpoint-security business. The company is continuing to invest in artificial intelligence security, cloud and data products and other areas even as it works to reduce costs.
One of the more significant developments in the quarter was the acceleration of SentinelOne's AI-security business, including Prompt Security, the Israeli company it acquired last year.
CEO Tomer Weingarten said annual recurring revenue from SentinelOne's AI-security offerings, which include Prompt Security and Purple AI, tripled from a year earlier. He said the company expects AI security eventually to become its next business category generating more than $100 million in annual recurring revenue, following endpoint, cloud, data and Wayfinder.
Prompt Security remains the fastest-growing of SentinelOne's platform offerings, according to Weingarten. Its technology is designed to help organizations monitor AI systems and impose security and compliance controls as companies deploy models and autonomous AI agents.
The Israeli company's role gives SentinelOne a foothold in a part of cybersecurity that is emerging as organizations move from experimenting with AI to deploying it in production. Prompt's technology is aimed at identifying risks around AI models and agents, including unwanted behavior, data exposure and policy violations, and providing organizations with controls over how those systems operate.
Weingarten said the company is seeing demand for AI security from organizations seeking greater visibility into AI activity and guardrails around models and agents. Bell Canada, he said, has selected Prompt Security to secure its network, citing requirements for real-time visibility, automated guardrails and compliance.
SentinelOne's AI-security business is still considerably smaller than its established businesses, but its rapid growth makes it one of the areas investors are watching most closely as the company attempts to build its next source of revenue.
