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Sprint (NYSE:S) Third Quarter 2022 Earnings Conference Call, December 7, 2021, 5:00 PM Eastern Time
good afternoon. Thank you for participating in today's SentinelOne Third Quarter 2022 Earnings Conference Call. My name is Selena, and I will be your host. During the presentation part of the call, all lines will be muted, and a question and answer opportunity will be provided at the end.
[Operator Instructions] I now want to transfer the meeting to our host, Doug Clark, SentinelOne Investor Relations Director. please continue.
Doug Clark-Head of Investor Relations
Good afternoon, everyone, and welcome to SentinelOne’s third quarter fiscal year 2022 earnings conference call that ends on October 31. With us today are Chief Executive Tomer Weingarten; Nick Warner, Chief Operating Officer; and Chief Financial Officer Dave Bernhardt (Dave Bernhardt). Our press release and shareholder letter were issued earlier today and posted on our website. The conference call will be broadcast live via webcast. After the conference call, the investor relations section of our website will provide an audio replay.
Before we begin, I would like to remind you that in today’s conference call, we will make forward-looking statements on future events and financial performance, including our guidance for the fourth fiscal quarter and the entire fiscal year of 2022, as well as certain long-term -Term financial goals. We remind you that such statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to the documents we submit to the SEC from time to time, especially our S-1 and our quarterly report 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 the results contained in our forward-looking statements.
As of today, any forward-looking statements made during this conference call have been made. If you replay or view this call after today, the information provided during the call may not contain current or accurate information. Except as required by law, we are not obligated to publicly update these forward-looking statements or to update the reasons why actual results may be materially different from the expected results in the forward-looking statements, even if new information is available in the future. During this conference call, unless otherwise stated, we will discuss non-GAAP financial measures.
These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Today’s press release and our shareholder letter provide a reconciliation of GAAP and non-GAAP results. These non-GAAP measures are not intended to replace our GAAP results. The financial outlook we provide today does not include stock-based compensation expenses, employer payroll taxes for employee stock transactions, and amortization expenses for acquired intangible assets. These expenses are currently uncertain and therefore have not been checked in today's press release.
With this, let me forward the call to Tomer Weingarten, CEO of SentinelOne.
Tomer Weingarten - Chief Executive Officer
Good afternoon, everyone, and thank you for participating in our third quarter earnings conference call. This is another outstanding quarter, and I am very proud of the entire SentinelOne team. Our ARR growth accelerated to 131% year-on-year in the third quarter. This is the third consecutive quarter that we have achieved triple-digit growth. Supported by leading endpoint protection, machine speed DDR, XDR innovation, and a go-to-market strategy supported by our strong partners, we continue to expand our business.
The demand environment remains exceptionally strong. Before getting into the details of our quarterly performance and results, I want to share some views on the network security landscape. I encourage everyone to also take a look at our shareholder letter on the investor relations website, which provides more detailed information. We are still in the early stages of the generational shift in cybersecurity led by the ongoing digital transformation of enterprises.
Every year, millions of cyber attacks cause trillions of dollars in losses. This is unacceptable for global companies, and the risks are increasing. The increasing number of attacks and complexity clearly shows that companies must deploy best-in-class solutions that enable them to stay one step ahead of attackers. Take the current state of ransomware as an example. Attackers have moved from simply taking operations as hostages to actual data breaches and infiltrations, penetrating into traditional and unprotected devices.
This is where SentinelOne comes in. We created the world's first purpose-built, artificial intelligence-driven XDR platform, making cyber security defense truly independent from endpoints and other places. We believe that protecting all parts of corporate assets is critical, such as unknown devices, cloud workloads, and the data itself. We focus on data to provide enhanced visibility and advanced analysis.
We protect our customers in real time at machine speed, and provide human operators with the speed, scale and precision of technology. Our approach is resonating with our customers. We received the highest overall rating in the 2021 Gartner Endpoint Protection Platform Customer Voice Report, and 97% of reviewers would recommend the SentinelOne Singularity XDR platform. I am very proud of everything we do to keep our customers safe, engaged and happy.
We focus on putting customers first. Let's turn the discussion to how we implement it. During the IPO earlier this year, we outlined five key aspects of our growth strategy. Our third quarter results proved that each item has achieved success and progress.
First, we continue to innovate and enhance our network security and data platform. Automation is SentinelOne's top priority. Machine speed automation can help respond to immediate cyber attacks and support under-resourced IT teams. Last quarter, we launched Storyline Active Response, or STAR, for custom dynamic detection and response rules.
This quarter, we began to provide remote scripting or RSO to immediately investigate and classify threats on multiple endpoints throughout the organization remotely. Together, these two functions increase the level of automation and help companies integrate legacy workflows into the tools of the Singularity XDR platform. I want to study RSO in more depth. We designed RSO to transform the endpoint management of incident response providers and enterprises.
We provide complete remote control and orchestration across endpoints. For security providers, this is a scalable way to not only detect and respond to existing endpoints, but also manage and control the entire deployment footprint. It's like always having a security analyst on every endpoint. Our customers and partners have realized the benefits of RSO's advanced features.
One of our incident response partners stated that RSO helps eliminate the time-consuming work of collecting and integrating forensic data in rapidly contained attacks, allowing us to minimize the impact of our adversaries. On the customer side, a Fortune 500 wholesale company added RSO to help realize the ultimate threat hunting function, making SentinelOne more powerful and an integral part of its security posture. In addition to automation, we believe that a true XDR platform must be a comprehensive open platform that can provide visibility, protection, and response across the entire enterprise environment. Customers have been asking us to provide mobile protection to supplement our leading protection capabilities.
Just this week, we announced Singularity Mobile. SentinelOne customers can now manage mobile device security as well as endpoints, cloud workloads, and IoT devices. Singularity Mobile brings behavioral AI-driven machine speed protection, detection and response to iOS, Android and Chrome OS devices. In summary, we were recently recognized as an outstanding company in the Forrester New Wave Extended Detection and Response Providers report.
Forrester emphasized that the SentinelOne Singularity XDR platform is most suitable for companies that need customizability and develop into XDR. We were also named the best innovator in SE Labs' annual report. The second part of our strategy is to protect more businesses every day. In the third quarter, our ARR increased by 131% year-on-year, and our revenue increased by 128%.
Our business performed exceptionally well. We have continuously added more than 600 new customers. Compared with a year ago, our total number of customers has increased by more than 75% to more than 6,000. The number of ARR customers with more than $100,000 increased by 140%, and we continue to see a growing portfolio of large companies in our business.
In addition to expanding our global influence through the direct sales team, our channels are still a source of scalable growth and differentiation. Through our partner-friendly approach, we succeeded in further expanding our scale through incident response from managed security service provider partners. Nick will talk about this in more detail later. Third, we are further adopting products in our existing customer base.
In the third fiscal quarter, our net retention rate reached 130%, setting a new record for our company. This growth is driven by strong license extensions, platform upgrades and customer adoption of our new features. We are in the early stages of our module strategy, but we have seen great interest and adoption from customers. Our emerging products, such as Ranger IoT, cloud workload protection, and data capabilities, are all growing at an impressive triple-digit rate.
In particular, our cloud workload protection products achieved the highest growth this quarter, which proved our need for real-time runtime protection of cloud workloads and containerized environments. In one case, a leading book publisher chose SentinelOne to protect cloud workloads because it was easy to use, simple to deploy, and had a real EDR in one console to manage their cloud-native Windows, Linux, and Kubernetes environments. The fourth element of our growth strategy is to further expand our global footprint. Revenue from international markets increased by 159% year-on-year.
The international market now accounts for 33% of our total revenue, up from 29% a year ago. For example, in the third quarter, we received support from a European conglomerate by replacing more than 20 different antivirus products. This shows how our platform can help suppliers integrate while providing leading performance. We are expanding our sales coverage and channel influence in the international market.
Last quarter, we talked about opening a new R&D center in the Czech Republic, and I am very happy that we are recruiting excellent talents in the region. These measures will continue to strengthen our international influence. The fifth and final point is that we have the ability to expand our overall target market through acquisitions and strategic investments. By appointing Rob Salvagno to lead corporate development, we have further strengthened our leadership team.
When considering acquisitions, we evaluate prospects that are consistent with our products, customers, and strategic market opportunities. Over time, we intend to use these opportunities to extend the coverage of our XDR platform to adjacent areas that complement our products. Our strategy also includes a minority equity investment. We recently made two strategic investments in Laminar and Torq's early funding rounds, and these companies are aligned with our automation and API approach.
Investments in emerging technologies will allow us to continuously enhance the SentinelOne platform in areas that we may be interested in in the future. These investments reflect our long-term commitment to innovation, automation, and protection of data, and we are in a leading position in cutting-edge cyber security technologies no matter where the data is located. Finally, as part of our XDR roadmap, Scalyr has performed very well and continues to grow year by year and quarter by quarter. Scalyr has been integrated into our technical backbone, and we are using it to redefine XDR.
At the same time, we are seamlessly accepting all new customers in our remodeled backend. We have already started migrating some existing customers. By using Scalyr, our customers are enjoying faster performance and advanced analysis capabilities. Before I transfer the call to Nick, I want to discuss our employees and our culture.
Our real competitive advantage comes from the employees of SentinelOne. We invest in talent in sales, marketing, engineering, and corporate functions, while fostering inclusive and diverse workplaces. In the past year, we have developed rapidly, and the number of employees has increased from 600 to 1,100. This is no small feat, and we are continuing to grow and expand the team.
We are working very hard to cultivate a productive and inclusive culture, and our efforts are bearing fruit. As part of the 2021 Best Place to Work Certification, 96% of employees said that SentinelOne is a great place to work. We received several other awards this quarter in recognition of our workplace culture. With our differentiated technology and dedicated team, we are helping our customers stay ahead of competitors, prevent data leakage, and independently respond to innovation.
We are helping our customers reimagine cyber security. I am excited about what we can do from here. Thanks to all Sentinels and our customers and partners. With this, I will forward the call to our chief operating officer Nick Warner.
Nick Warner-Chief Operating Officer
Thank you, Tomer, and welcome everyone. The launch of our sales and marketing, channel and technology partners’ flywheels brought another outstanding quarterly performance. Our third quarter results proved our strong demand for the Singularity XDR platform. Our customers clearly choose SentinelOne as their partner and preferred technology.
In the third quarter, we reported an impressive ARR increase of 131%, reaching $237 million compared to last year. This growth is driven by a healthy combination of new customer additions, existing customer renewals and upsells. Today, we are protecting more than 6,000 customers with our Singularity XDR platform. Compared with last year, the total number of customers has increased by more than 75%, that is, an increase of nearly 2,500 customers.
Our focus on automation, speed, and accuracy is of paramount importance to any business (actually all businesses). I want to make it clear. This is a highly competitive market. The environment has not changed, but we have maintained an incredibly high winning percentage in all competitions with traditional and next-generation suppliers.
Every new quarter, we will protect more and more key business enterprises around the world. In the third quarter, we added a leading global financial exchange to a seven-figure multi-year agreement. This is a real platform victory. They chose SentinelOne as the endpoint, cloud workload protection, remote scripting, and data application.
This shows that we have received so much attention from our competitors, which shows our attractiveness in the market. We have won more and more customers, and our growth rate is self-evident. What companies need is automated security, not repackaged old AV and crowdsourcing protection. Our mission is to improve the safety of our customers through unremitting attention to innovation.
Our customers are satisfied with the 97% total retention rate and the highest score in the Gartner Customer Voice survey. These are hundreds of customer reviews, which is significant compared to any single customer example. Let me take a step back and share some detailed information about our customers and business portfolio. Compared with last year, our customers with ARR of over US$100,000 have increased by 140%.
Thanks to our success with large enterprises, strategic channel partners, and increased module adoption rates, our business portfolio from customers with ARRs of over US$100,000 continues to grow. In addition to protecting new major customers, we have also seen strong retention and expansion in our existing customer base. The overall retention rate remains the same as in previous quarters. Our net retention rate for the quarter was 130%, which is a new record for our company.
This record-breaking NRR was driven by license expansion, platform-level upsell and adoption of emerging features. In the third quarter, two of our Fortune 10 customers renewed their multi-year agreements and both expanded their use of the Singularity platform, adding modules such as Ranger and Remote Script Orchestration. I want to talk more about our channel partners. Our partner ecosystem helps expand our market access and significantly expand our reach and efficiency.
We do not compete with our partners. Instead, we equip them with industry-leading features such as multi-tenancy and open APIs. In fact, we are expanding our partner ecosystem, which is driving our significant growth. Let me double-click our managed security service provider partnership as an example.
MSSP provides outsourced monitoring and management of security equipment and systems. Our growing and highly scalable partnership with MSSP provides us with strong mid-market and large enterprise coverage. In the past few quarters, we have jointly promoted important new customers and business growth. We are honored to cooperate with companies such as N-able, AT&T, Pax8, Continuum, Kroll, etc.
To demonstrate the momentum we are seeing, in our third fiscal quarter, the ARR of our MSSP channel increased by 300% year-on-year. In addition to MSSP, our incident response partners also use the SentinelOne platform to provide non-compliance response services, making us an integral part of their capabilities. Last quarter, we talked about our commitment to support more IR partners through the Singularity platform. In the third quarter, we built on this progress and further expanded our investor relations partner network.
We have added KPMG as a global listing partner for incident response and proactive cybersecurity services. Our expanding network of IR partners continues to help protect businesses. For example, during the quarter, we won a major airline customer in Asia through one of our investor relations partners. Finally, I want to share how we put our customers and partners first.
We recently held our first customer meeting called OneUP. Participation and response are very positive. We also held partner conferences in the Americas and Europe, the Middle East and Africa. Our goal is to educate our latest innovations and continue to consolidate our momentum.
In the past few quarters, we have also received very good feedback on our certification program. We have added continuing education courses to supplement our certification program. These courses allow our partners to keep abreast of new features and modules, thus supporting our ever-expanding scale and platform coverage. In June 2021, we obtained approximately 2,000 certifications.
Since then, we have made amazing progress, and as of the end of November, our sales and pre-sales courses have received more than 6,000 certifications. This huge improvement illustrates the increasing attention we are seeing in the channel. I am proud to work with our ruthless Sentinel global team every day. I am excited about our future.
We will continue to realize our vision, focusing on execution and listening to customers. Thank you again for joining us. Let me hand it over to our Chief Financial Officer Dave Bernhardt.
Dave Bernhardt-Chief Financial Officer
Nick, Tomer, thank you, and thank you for joining us today. I will introduce the financial highlights of the quarter, and then provide more background information around our guidance for the fourth quarter and fiscal year 2022. After that, we will open the phone to ask your questions. Our third-quarter results exceeded expectations across the board.
Both our revenue and ARR growth accelerated during the quarter. Our performance advantage is extensive, coming from a healthy portfolio of new and existing customers. It also balances geography and customer scale. We achieved revenue of 56 million U.S. dollars, an increase of 128% year-on-year, and achieved an ARR of 237 million U.S. dollars, which accelerated to 131% in the same period.
Talking about our costs and profits. Our non-GAAP gross margin for the third quarter was 67%. This is a year-on-year increase of 9% and a month-on-month increase of 5%. The biggest benefit comes from our expanding scale and business expansion, including the modest benefits brought by up-sell modules and platforms.
In the third quarter, the costs associated with migrating existing customers to our Scalyr backend were the lowest. Compared to our previous expectations, this helps increase gross profit margin. I want to provide more details here. Scalyr is a key part of our XDR roadmap and future innovation, providing us with enhanced data storage and ingestion capabilities.
We are balancing our product roadmap and the migration of existing customers. We will follow the best pace for our customers and our business. In the third quarter, we took a more cautious approach to migration, which had a smaller impact on profit margins. We expect to migrate more customers in the fourth quarter and the first half of next year.
In other words, when I looked at our 67% gross margin in the third quarter and the progress we have made in the past few quarters, I saw a glimpse of the scale and efficiency in our model. Check out the rest of our income statement. We are investing in growth, and this quarter's ARR and revenue once again achieved triple-digit growth rates. Our non-GAAP operating margin was negative 69%.
We will continue to make strategic investments to enhance our products and expand our listing scale. Nevertheless, this is a significant improvement from the negative 102% in the same period last year and the negative 98% in the previous quarter, showing the leverage potential in our entire business model. We are still in investment mode in the short term, and given the huge opportunities before us, this is the right strategy. Now is our outlook for the fourth quarter and the entire fiscal year.
In the fourth quarter, we expect revenue to be between US$60 million and US$61 million, a year-on-year increase of 101% to 104%. We raised our full-year revenue forecast from US$199 million to US$200 million. This means an annual growth of 115% at the midpoint. The structural tailwinds of digital transformation, mixed work environments, and evolving but persistent threat environments will continue to exist.
We executed very well. Our product innovation, brand awareness and scale improvement, and listing provide us with favorable opportunities to interact with existing and potential customers. We expect the fourth quarter non-GAAP gross profit margin will be between 62% and 63%, and the full year non-GAAP gross profit margin will be between 61% and 62%. Our fourth-quarter guidance means that non-GAAP gross profit margin increased by at least 8% year-on-year, as we benefited from scale expansion, improvements in cloud hosting agreements, and improvements in processing efficiency.
Our guidance also reflects the migration of existing customers to Scalyr, which we expect to continue into the first half of next year. Finally, for non-GAAP operating margins, we expect a negative 83% to 80% in the fourth quarter and a negative 91% to 90% for the full year. We see tremendous growth opportunities, and the investments we make today will enable us to succeed in the long term. In addition, as a reminder, our IPO lock-up period will expire, and vested options and outstanding shares can start trading on December 9, 2021.
This is the continuation of the 15% lock-up period at the end of September. Finally, the third quarter is another outstanding quarter, with strong execution across the company, and we expect this momentum to continue until the end of our fiscal year. I want to thank you all for participating in our earnings conference call. Operator, can you open the problematic line.
Absolutely. [Operator Instructions] The first question comes from Saket Kalia of Barclays Bank. please continue.
Saket Kalia-Barclays-Analyst
OK. great. Hello everyone. Thank you for asking my question here.
I appreciate it. Tomer, maybe it's just from you. Can you know a little bit about the combination of customers on different packages? Obviously, in addition to winning new customers here, you also talked about higher value opportunities with higher value packages. Can you talk about our position and your views on the future?
Tomer Weingarten - Chief Executive Officer
of course. Most of the products we sold this quarter were complete packages. I think what we see on the Complete platform is just overall standardization. People are choosing the complete EDR package.
I think what I can say besides this is the increase in the adoption rate of our cloud modules. We just saw an increase in demand for cloud workload protection. Given that our platform is currently one of the best of its kind on the market, we are seeing this situation more and more. The most important thing is that I want to add through Complete that we still have about 10 cost story modules.
Data retention is one of them, and we are also seeing more and more people adopt this approach. So, all in all, I think Complete and EDR are becoming the standard for us to move forward. The most important thing is the expansion module we provide to the market.
Saket Kalia-Barclays-Analyst
understood. understood. This is very helpful, Tomer. Dave, maybe it's for you.
You talked about Scalyr migration. I understand, I mean, there is some time to think about this, but it's nice to see the gross margin growth this quarter. What do you think of the long-term gross profit after migrating to Scalyr? Does that make sense?
Dave Bernhardt-Chief Financial Officer
Yes, of course. I think what you are seeing is a bit like our new baseline on the basis of moving forward. Scalyr did not migrate as many as we initially expected this quarter. I think that during the IPO roadshow and last quarter, we told you that this change caused an approximately 4% impact on the cost of sales during that period.
So, I think what you are seeing now are the benefits of business expansion, the benefits of scale, and higher revenue. We have seen the efficiency that Scalyr products bring to our own back-end. Then, you will also see some of the benefits of cross-selling and AWS renegotiations that we did. So, all of these are-great tailwinds to our future.
I don't think we have changed anything in terms of long-term goals, which is 75% to more than 80%. You know, when we were significantly lower than the ratio of 67% a year ago, you have seen all the measures we take to implement this goal have made great progress. Therefore, when we complete the migration, I think this will continue for several quarters of downturn, and then I think we will return to this range and start to increase profit margins in the future.
Saket Kalia-Barclays-Analyst
Thank you, Mr. Kalia. The next question comes from Alex Henderson and Needham. please continue.
Alex Henderson - Needham & Company - Analyst
I hope you can talk about your thoughts-I know when you are growing at your current rate, it is difficult to talk about, but seasonality, especially considering that the sales organization enters your finances first--I think the fourth quarter Will enter seasonality, and there will be weakness in the first quarter. So, can you talk about how seasonality might affect your perception of growth, and whether we should include it in our assessment of the next few quarters?
Nick Warner-Chief Operating Officer
certainly. good question. The fourth quarter is our strongest quarter. I think that has been the case in history.
I think if you look at the broader buying trends in the security industry, the fourth quarter is the most active quarter. We expect a very strong fourth quarter in terms of where our pipeline is located and where it is in the current transaction flow. Therefore, I think your assessment is accurate.
Dave Bernhardt-Chief Financial Officer
I think we will be down under the guidance-we are guiding the fourth quarter. We are full of confidence in the whereabouts of income. So, as you might expect, we know seasonality, which is why you see us-with our current tailwinds and momentum, you also see that we have increased our guidance for the fourth quarter and the whole year.
Alex Henderson - Needham & Company - Analyst
So, with the expansion of distribution, incident response, MSSP, and all other players driving your products, does this tell us that, given the circumstances, we should be more cautious about the contribution of the direct sales force entering the first quarter? You seem It seems that the internal target has been greatly exceeded, so it is clear that the salary of risers and sales staff in the fourth quarter will increase.
Nick Warner-Chief Operating Officer
No, the way we really look at it is that it is part of a flywheel, and that flywheel gained momentum this quarter. In fact, if you look at our MSSP or incident response ecosystem, you will find that they work with our own SentinelOne sellers. So for - let's take an example in the IR space. Incident response partners will deploy our technology platform to discover, mitigate and eliminate active threats in customer environments.
At the same time, a sales movement began. Especially when you are talking about corporate transactions, we can deploy our own sales team in the account to assist in pricing, completing transactions, etc. Therefore, it is actually cooperating with incident response partners for sales. Since it is related to our hosting service provider, many of these customers are in the mid-market.
Many of them are in large companies. And I think that in large-scale corporate transactions, our great SentinelOne seller team can and does participate in these transactions as needed. This kind of waiting is also correct; usually, they work side by side with our partners. But this really means to us that it is a potential customer. It does improve the quality of potential customers and provides us with real flywheel and gear effects in terms of coverage, because we basically participate in and build these power multipliers among global channel partners, MSSP personnel, and incident response companies Work with SentinelOne to help improve the security of companies around the world.
Alex Henderson - Needham & Company - Analyst
Therefore, considering the expansion of the distribution, there will be a situation that is lower than the normal seasonality. thanks. This is a good answer.
Thank you, Mr. Henderson. The next question comes from Brent Thill and Jefferies. please continue.
Hey guys, you let Joe replace Brent. Really appreciate this question. It is great to hear that MSP's ARR has increased by 300% year-on-year. I guess how much of the total ARR comes from MSSP channels? So what is the real difference? Is it consciousness? Not to compete? Price? Are there still technical differences?
Nick Warner-Chief Operating Officer
Yes. Therefore, we do not announce MSSP numbers, but I can say with certainty that the SentinelOne Singularity platform has technical advantages and, I think, our market culture is very different. So, when it comes to technical advantages, we have unique capabilities, such as true multi-tenancy. This is very important if you consider how the hosting service platform works with hundreds of customers under a central tenant.
Therefore, SentinelOne is indeed in a leading position in this field. We also have unique features, such as RSO or remote scripting, which really helps provide an automated way for people at the managed service provider level to take meaningful real-time actions on each machine. Then switch to some kind of market entry difference. A few years ago, SentinelOne made a basic decision when formulating our listing plan. From a philosophical point of view, we decided to adopt a supportive rather than competitive stance.
Therefore, we do not compete with our hosting service providers. We do not compete with our incident response partners. When you talk about building long-term business relationships based on trust and cooperation, it really means everything.
This is really helpful, Nick. Then maybe just with you. Can you talk about your recruitment plan, maybe how many incremental sales representatives we expect in the future? And the total quota carries any updates on behalf of?
Nick Warner-Chief Operating Officer
Yes. We will not disclose the exact numbers on recruitment. But as you can imagine, as we continue to enjoy tremendous growth, we are indeed still investing in the business. Therefore, we will really continue to recruit comprehensively, regardless of whether you are concerned about sales and sales engineering channels in the United States and outside the United States
I mean, if you look at our continued growth in the international market, I think it’s pretty amazing, where you see a 159% growth. Today, international business accounts for one-third of our global revenue. Therefore, we will continue to invest, and we are indeed investing in people all over the world.
Tomer Weingarten - Chief Executive Officer
Yes. I just want to add that the influence we unlock in all these different ecosystems through MSSP, IR, and now International (I mean) becomes our real differentiator. I mean, we are using all of these partner ecosystems in a good way to really unlock the parts of TAM that we think some other vendors can't really reach. This provides us with a very sustainable advantage because we can achieve growth over time.
It makes sense. thanks.
Thank you. The next question comes from Brian Essex of Goldman Sachs. please continue.
Brian Essex-Goldman Sachs-Analyst
Hi. Good afternoon, thank you for answering this question. I want to know if you can talk about the speed of the migration to Scalyr. The dynamics of this migration and how does it affect the revenue of customers who adopt it? How far is your installation base during the migration process?
Tomer Weingarten - Chief Executive Officer
Yes. For us, this is a very gradual approach. I mean, we divide it into two parts: A, all new customers have joined the Scalyr backend, which just creates a new cost-saving element for us as we look to the future. When we look at our existing customer base, we are taking a very selective approach.
We are basically any customer who requires a migration-it can be migrated. But in addition, we are adopting this new XDR method. Over time, we are unlocking this new method. In fact, we are providing better features for every customer who now uses the Scalyr backend as their own backend. Over time, this has created another way for us to continue to make money. As you may be clear, our XDR method is an open method, and we are starting to allow our customers to extract data from any other products they have in their ecosystem.
You can imagine that this will be monetized by actually monitoring data ingestion, while allowing these customers to access this data, put it in and keep it for longer, it will once again create better economies of scale for us, and once again create more for us Multi-channel monetization. I think that, as the entire market has seen, we are seeing an increase in demand for XDR features. I think our approach is different. And I think we are looking for a single, integrated single platform that can ingest all data. This is different from most other vendors, which are really media on the one hand and XDR on the other.
So, for us, what I mean is that the gradual execution of our XDR roadmap is in parallel with the migration of our customers.
Brian Essex-Goldman Sachs-Analyst
understood. This is super helpful. Perhaps to follow up, I will adopt elements of Saket and Alex’s questions, and may be close to the seasonality of the new logo. It seems that in the past few years, 3Q has been a lighter quarter—the seasonal lighter quarter with the addition of new signs.
Maybe you can learn a little bit about this dynamic and help us understand the combination of customers. It looks like you are well involved in larger corporate transactions. The ARR of each customer must have grown very well. So, it's nice to see, but maybe it's just how you approach the customer portfolio you bring, and how we should consider future logo additions.
Nick Warner-Chief Operating Officer
Yes. So, I think you said it well, the really most important factor in our customer portfolio is the 140% increase in customers and the ARR of more than $100,000. And I think if you combine it with what Tomer said, the vast majority of customers, especially new customers, use Singularity Complete. In essence, this means they are using Singularity and SentinelOne platforms to get more, which makes We are more sticky, more engaged, and more touch points in all parts of the company. And I think as part of it, what we are really seeing is exciting is the addition of module adoption and accessories for new customers in sales.
This is a very different motion from a year and a half ago, and we are very excited about it. So, if you look at overall growth from a high level, that would be great. If you see customer mix becoming more and more important to the business, these signals also exist. Then, if you look at the product portfolio, from our point of view, all of this is moving in the right direction.
Brian Essex-Goldman Sachs-Analyst
great. It makes sense. Thank you.
Thank you, Mr. Essex. The next question comes from Patrick Colville of Deutsche Bank. please continue.
Patrick Colville-Deutsche Bank-Analyst
Thank you very much for answering my question. I think the one question I want to ask you is, we got a lot of things from investors, how fast are we replacing antivirus software in December 2021? Are there many McAfee, Symantec, and any of these companies left? Or is this process almost complete now? I think, just go out and help us determine this opportunity or the remaining opportunities.
Tomer Weingarten - Chief Executive Officer
I think it is safe to assume that it is far from complete. What I mean is that one piece of data that points to this is the fact that almost every transaction we complete this quarter and the past few quarters always has an incumbent supplier. So, they are obviously still there. When we enter the environment, they are clearly still the vast majority of content we deal with.
And I think even if we take a very conservative view of the overall TAM, I think it is safe to assume that about 50% of it is still in the hands of the incumbent. Looking at our fourth and fourth quarter pipelines, this does not seem to have changed. So, for us, this cycle is still in progress. This is a fairly large TAM we serve.
Obviously, if you look at our portfolio today, you will also find that cloud security opportunities are further complicated, something that existing vendors have never provided. As a result, this makes the entire buying cycle more sticky, more inclusive, and more important to the business in general. Therefore, it becomes part of the picture. But again, in almost every account we entered, called the 90s high, we saw an incumbent supplier, so we won't see this fading away anytime soon.
Patrick Colville-Deutsche Bank-Analyst
great. thank you very much.
Thank you, Mr. Colville. The next question comes from Gray Powell from BTIG. please continue.
Gray Powell-BTIG-Analyst
great. Thank you for your question, and congratulations on the good results. So yes, there is a couple by my side. Maybe it's just the beginning, I just want to follow up on Scalyr and gross margin.
As a result, you are a little over 8 points higher than the gross margin guidance for the third quarter. To be fair, about 4% of this beat is due to the timing of Scalyr's migration, and then is the remaining upside just a natural lever in the business model?
Dave Bernhardt-Chief Financial Officer
Gray Powell-BTIG-Analyst
OK. That's very simple. Then my other question is - so you emphasized emerging products like Ranger, cloud workload protection, and data capabilities, which have all grown to triple digits. I think you can give more colors there? I mean, the entire business has grown by three digits.
So, I am curious how fast the growth rate of emerging products is compared to core products? Or can you let us know about the new sales mix brought about by emerging products? thanks.
Tomer Weingarten - Chief Executive Officer
Yes, it is significantly faster than the macro growth rate of the business. Cloud is definitely the dominant product line there. This is what we see in our pipeline. We started to actually generate pipelines for each product line.
Therefore, we see that each of these emerging modules has received great attention. We see that the surcharge rate is rising. The MDR service we launched about a year ago is now truly beginning to gain full scale. So, all in all, we see it as an additional growth vehicle in our business that will help bring our growth rate into the next few years.
Gray Powell-BTIG-Analyst
OK. great. thank you very much.
Thank you, Mr. Powell. The next question comes from Andrew Nowinski of Wells Fargo Bank. please continue.
Andrew Nowinski-Wells Fargo Securities-Analyst
OK. Thank you for answering the question. I want to start with the Vigilance service. So, can you give us any color in terms of the rate at which the service adds to your new transactions and how much revenue increase it provides when customers add Vigilance?
Tomer Weingarten - Chief Executive Officer
Yes. Be wary, for us, we started selling things about a year and a half ago. Today, approximately one-third of enterprise customers adopt Vigilance in the first few tiers. In fact, we added two new levels to the Vigilance service.
We have also seen their adoption.
Andrew Nowinski-Wells Fargo Securities-Analyst
OK. Then because it is related to the net new ARR, it has increased by three digits in the past three quarters. When you consider how to model Q4, can you talk about how your sales ability compares to last year, and what other factors might affect the year-on-year growth of net new ARR?
Tomer Weingarten - Chief Executive Officer
I think this is relatively very linear for us. I mean, if you look at our business over the past few years, no matter what happens in the market, the growth of ARR has been very, very linear, and very much in line with our expectations. For us, we are just continuing and expanding our business. I think that while expanding the partner ecosystem, we are releasing more sales capabilities.
So, for us, what I mean is that we are continuing what Nick calls the flywheel effect. We are just continuing our growth. You have seen our guidance for the fourth quarter and full year. We think this is very sustainable.
Andrew Nowinski-Wells Fargo Securities-Analyst
Thank you, Mr. Nowinsky. The next question comes from Hamza Fodderwala of Morgan Stanley. please continue.
Hamza Fodderwala - Morgan Stanley - Analyst
Hey guys, thank you for answering my question. Dave, I just want to follow up on one of the previous questions. I think last quarter, you mentioned that about 10% of net new ARR comes from protecting cloud workloads and the Internet of Things. right? Do you have updated indicators? I mean, it may not change much every quarter, just curious.
Dave Bernhardt-Chief Financial Officer
The cloud is still our fastest growing module. Approximately 10% of endpoints are covered by clouds and servers. It has been our fastest growing module for some time. I think cloud is a business, and we think it will expand greatly in the future.
We expect that at some point, it will be similar to the size of the end market.
Tomer Weingarten - Chief Executive Officer
Yes. When we look at all emerging products together, the contribution of each specific quarter is more than 10%; we will definitely see this situation on the rise. So, for us, I mean, when you see emerging, we will see data, the Internet of Things, and the cloud. Again, all of this is just showing great progress.
Hamza Fodderwala - Morgan Stanley - Analyst
understood. And there seems to be a lot of focus on the top-line growth algorithm between the new logo and the average revenue per customer. Just looking forward, what should we think? Should we pay more attention to the ARR of each customer? I know what I mean is, based on my mathematical calculations, the ARR for each customer in your base is now about $40,000. What do you think will reach $50,000 or even $100,000 over time?
Dave Bernhardt-Chief Financial Officer
Yes. I mean, obviously, as we see the module expansion, because we see the customer upgrade from core to control or control to completion, we see the customer's price point is higher. Therefore, I expect this situation to continue. Moreover, we are clearly introducing new customers on a substantial scale.
So, I think you will see our continued growth in these two areas. We are excited about our guidance and the direction we continue to think we will execute in the future.
Hamza Fodderwala - Morgan Stanley - Analyst
Thank you, Mr. Fordwara. The next question comes from Roger Boyd of UBS. please continue.
Roger Boyd-UBS-Analyst
Well, thank you for taking my question and congratulations on the result. Going back to cloud workload protection, can you talk about how often you see it in the new logo and the frequency of upsells, and to some extent cloud security is becoming a bigger consideration in endpoint protection buying decisions?
Tomer Weingarten - Chief Executive Officer
Yes. We will definitely see a lot in the new logo motion, I think more than we are concerned, in terms of retention and upsell. I think this is definitely the mainstream awareness that you now need basically the same type of protection on the endpoint and server side as you have for years, and now on your cloud workload at runtime. This is actually a very different set of competition that we see in terms of cloud workloads. The vendors we most often encounter in cloud workload protection opportunities will be Palo Alto Networks and a series of start-ups.
It does affect what we call the combined cycle between sales endpoints and cloud collaborative sales, even though we have also addressed pure cloud opportunities through cloud workload protection platforms. It is currently considered to be one of the leading products in this field. So, for us, the cloud just represents a very exciting new opportunity. We have been studying Linux servers and Linux environments. This is actually an adaptation of what you see in the Kubernetes platform. We have designed a complete cloud-native platform to solve this opportunity and are showing Great attraction.
Roger Boyd-UBS-Analyst
Thank you, Mr. Boyd. The next question comes from Shaul Eyal and Cowen. please continue.
Shaul Eyal - Cowen and Company - Analyst
Thank you. Good afternoon everyone, congratulations on the strong results and guidance. Tomer, I have a product related question. Your Singularity platform is being integrated with Microsoft Azure Active Directory, where SentinelOne provides endpoint and identity solutions, if I am wrong, please correct me based on your conditional policy solution.
So, should I consider this integration, because in the long run, Microsoft may cannibalize its Defender platform? Can you double-click on that specific integration?
Tomer Weingarten - Chief Executive Officer
Yes, for sure. I think it is clear to us that providing conditional access in this zero-trust world is an urgently needed ingredient for many of these companies. You will see what other vendors are also doing in the field of identity protection. We found that their product range is very narrow, and we can actually deliver to customers by directly integrating with identity providers.
Now it happens that one of these identity providers is Microsoft, and Microsoft is clearly a competitor in this area. But I won't say that one really touches the other. For us, this is just a good way to provide more value to our customers without actually adding another module or providing other features, but in fact it just provides them with out-of-the-box conditional access integration, which is actually It is our target competitor that is charging. So, for us, once again, this is just a good way to solve the much-needed features in the space in a completely native way by directly integrating with Microsoft.
Another integration will be integrated with other identity providers that will be launched soon. All in all, zero trust is handled in a seamless manner again.
Shaul Eyal - Cowen and Company - Analyst
Understood. thank you very much.
Thank you, Mr. Eyal. The next question comes from Rob Owens and Piper Sandler. please continue.
Rob Owens-Piper Sandler-Analyst
Good afternoon, thank you for asking my question. I want to know if you can touch the linearity of the quarter a little bit and how it works. And I hope to learn more about the deferred accounts receivable and the number of days of unsettled bills. Is this a function of major customers turning to the high-end market? Or is this a more standardized range, and should we expect it to stay within this range? thanks.
Dave Bernhardt-Chief Financial Officer
Yes. I don't think our forecast is any different. I think there are bigger customers, and we expect them to continue to exist, so we will see the benefits there. But I think it's just that we are getting better and better in terms of operating our business.
So, I expect these numbers to be similar.
Rob Owens-Piper Sandler-Analyst
Thank you, Mr. Owens. The next question comes from Tal Liani of Bank of America. please continue.
Tal Liani-Bank of America Merrill Lynch-Analyst
Hi, everybody. I want to go back to what you said in the prepared comments. You mentioned that there is competition between new and existing antivirus vendors. If you look at-in the last year, if you look at the competitive landscape, did you see any major changes in the pricing or aggressiveness of other players? Some people worry that the pricing environment for basic products or initial footprints is deteriorating, and I want to know if this is what you actually see in the market.
Or is this just a high-level issue?
Nick Warner-Chief Operating Officer
We did not see. In fact, the price of our land is increasing year by year. This is a function of product enhancements, innovations we demonstrate, our customers, and our module connection rate. In fact, SentinelOne competed and won because of the differentiation of our data and artificial intelligence-driven technologies.
In this field with corporate buyers, no customer chooses a security provider based on pricing alone. That will not happen. So, I think what we are really seeing is a combination of several factors. First, people rely on and use the best technologies that provide automated and easy-to-deploy solutions.
The second thing is that we have very interesting modules that many customers are using. The third is that the surface we are protecting is increasing. So if you look at what we just announced through Singularity Mobile, you will find a large number of adjacent surfaces for us to protect. If you consider the cloud workload protection that Tomer talked about, coupled with the fact that there are already a large number of traditionally protected devices in the enterprise, then for us, there are plenty of opportunities for both new and existing customers Come and continue to increase our ASP and the price of each node.
Therefore, we did not see. We will see that in any given account, there may be one-time price pressure. But in terms of macro trends, we really haven't seen this.
Tomer Weingarten - Chief Executive Officer
In general, I would like to add what Nick said is that due to the number of moving parts, different modules, and different products, it becomes more and more difficult to compare apples to apples of any type in this market. A supplier entering the market. Therefore, I think this is highly dependent on the transactional composure of any given transaction. Once again, if you put a layer on it, a module based on consumption, we will also start to introduce it. We have already introduced our data retention module, which becomes more difficult to really slice and calculate completely. But as far as Nick is concerned, what I mean is that our PPN is going up, and all in all, we are very satisfied with the progress of the new land and the price point there.
Tal Liani-Bank of America Merrill Lynch-Analyst
And, Tommer, there-Initially, when you went public, some distributors or dealers said that your price level was lower than CrowdStrike's price level. Is it still like this now? Are you also winning on price? Or is it because you just said that we can’t compare pricing levels?
Tomer Weingarten - Chief Executive Officer
Yes. I think it has never been like this. I don't know if this is the case now. Similarly, the way we set prices — or the fair system we found through platform monetization, I think it is very competitive.
I think in some cases, you will find it more expensive than the competition. In some cases, you will see competition actually come in and get a substantial discount in an attempt to fight us. I think the dynamics of our market are very dependent on customers and sales cycles. In general, once again, if you look at our entire business, PPN is rising.
We like our price point. Take a look at our margin. I mean, if our product does not have a very healthy price point, it is impossible. So, for us, I mean, it's very healthy.
Nick Warner-Chief Operating Officer
One thing I want to add is that our listed company peer competitors usually bundle countless human services into their transactions. Therefore, usually when people seek the overall result of better visibility and better protection, if they compare apples with apples, then if another bunch of apples also has some oranges, it will end up with higher landed costs and more. High operating costs. Therefore, I think one thing that keeps our customers happy is that they have access to automation technology that does not require cumbersome services to deploy and maintain. And the overall return on their investment, they got a higher return on investment, and they achieved this goal faster through the Singularity platform.
Tal Liani-Bank of America Merrill Lynch-Analyst
Thank you, Mr. Liani. There are currently no other questions to register, so I will forward the meeting to CEO Tomer Weingarten for closing remarks.
Tomer Weingarten - Chief Executive Officer
Thank you all. Thank you for joining us today. See you next quarter. Thank you.
Doug Clark-Head of Investor Relations
Tomer Weingarten - Chief Executive Officer
Nick Warner-Chief Operating Officer
Dave Bernhardt-Chief Financial Officer
Saket Kalia-Barclays-Analyst
Alex Henderson - Needham & Company - Analyst
Brian Essex-Goldman Sachs-Analyst
Patrick Colville-Deutsche Bank-Analyst
Gray Powell-BTIG-Analyst
Andrew Nowinski-Wells Fargo Securities-Analyst
Hamza Fodderwala - Morgan Stanley - Analyst
Roger Boyd-UBS-Analyst
Shaul Eyal - Cowen and Company - Analyst
Rob Owens-Piper Sandler-Analyst
Tal Liani-Bank of America Merrill Lynch-Analyst
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