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Hello. And welcome to the SentinelOne, Inc. Q1 FY2026 earnings conference call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, 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.

Good afternoon, everyone, and welcome to SentinelOne, Inc.'s earnings call for the first quarter of fiscal year 2026, which ended April 30, 2025. With us today are Tomer 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. This call and accompanying slides are being broadcast live via webcast, and a replay will be available on our website after the call concludes. Before we begin, I would like to remind you that during today's call, we will 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 known to us, and that our actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, in particular our annual report on Form 10-K, and our quarterly reports on Form 10-Q. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements. Any forward-looking statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented during that call may not reflect current or accurate information. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. During this call, we will discuss non-GAAP financial measures unless otherwise stated. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results, other than with respect to our non-financial outlook, is provided in today's press release and in our earnings presentation. These non-GAAP measures are not intended to be a substitute for our GAAP results. Our financial outlook excludes stock-based compensation expense, employer payroll tax on employee stock transactions, amortization expense of acquired intangible assets, acquisition-related compensation costs, restructuring charges, 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. And with that, let me turn the call over to Tomer Weingarten, CEO of SentinelOne, Inc.

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 a record free cash flow margin of 20%, demonstrating top-tier growth in operating leverage as we approach $1 billion in scale and sustained profitability. An incredible milestone. We continue to solidify our position as a technology leader across key growth categories of AI, cloud, data, and endpoint. Our Singularity platform is setting new benchmarks across the industry for AI-powered cybersecurity, delivering industry-leading performance and operational resilience. Let's first turn the discussion to our latest platform innovation and customer momentum. With our land and expand platform strategy, we're protecting more enterprises than ever before. In Q1, we continue to expand our customer base and drive platform adoption across AI, cloud, data, and endpoint. We're increasing our market share in each of these categories. For instance, Purple AI achieved triple-digit year-over-year growth in quarterly bookings, underscoring strong market demand and momentum. 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, bringing together cloud workload and runtime protection, 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 in our modern data analytics backend. We're delivering cloud security that is designed for real-time defense operations, and this most recent launch makes it more accessible and easier to deploy than ever before. We're seeing strong traction among cloud security opportunities. A Fortune 500 industrial leader was seeking to modernize its cloud security posture. This customer wanted to eliminate coverage gaps left by the incumbent solution and looked at SentinelOne, Inc.'s CNAP for a robust AI-driven approach. Our Singularity cloud security suite seamlessly met their complex requirements and exceeded product performance expectations. What set us apart was the strength of our cloud security offering as well as the value of our unified platform, delivering comprehensive protection. I'm also pleased to share that our data solutions surpassed $100 million of ARR in Q1. Among the AI SIEM opportunities, a large Fortune 500 retailer faced significant challenges around soaring Splunk costs, operational efficiencies, and the complexity of managing multiple logging platforms. Singularity directly addressed these challenges by simplifying operations, lowering costs, and providing a unified intelligence security experience. This win underscores the momentum of our AI SIEM offering and the increasing preference for our modern AI-driven cloud-native data solution. Among endpoint opportunities, a leading Fortune 500 financial institution consolidated multiple security vendors by switching to SentinelOne, Inc., reducing overhead and improving performance. Our unified platform and autonomous security were clear differentiators. Overall, our success with large enterprises and platform adoption continues to drive higher ARR per customer, which reached a new record in Q1. 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. Turning to our partner ecosystem, we're constantly deepening engagements, especially amongst our strategic relationships. As AI-driven threats grow 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 protection. To further support this shift, we're making it easier for our partners and customers to access our platform. In Q1, we launched Partner One, an entirely reimagined program for MSSPs, incident responders, VARs, and technology partners. It features a streamlined tiering structure, performance-based incentives, and customized enablement resources. The launch of Partner One will enable us to reach more customers, increase flexibility, and reinforce our role in the broader cybersecurity ecosystem. In the public sector, we're demonstrating technology leadership and opening new opportunities. Last year, we achieved FedRAMP high authorization for endpoint and AI SIEM. I'm pleased to say that earlier this month, we achieved FedRAMP high authorization for Purple, CNAP, and hyperautomation across the Singularity platform. Purple AI is now the first and only cybersecurity agentic AI solution approved for US government organizations. This milestone is an important competitive differentiator and reflects our deep strategic commitment to safeguarding the US government's most sensitive environments. Cybersecurity is national security. While near-term uncertainty around federal budget allocation and spending persists, our broader pipeline and opportunity set remains strong. In fact, we closed a seven-figure renewal and expansion deal with a large federal agency in early Q2. We continue to grow our presence in the federal space, though deal timelines may vary in the near term. 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. All of this success stems from our focused innovation strategy and technology leadership. Most recently, we earned prominent recognitions across the industry. In April, Frost and Sullivan named SentinelOne, Inc. the top-performing vendor in both growth and innovation in their 2025 radar for endpoint security. We're also honored to be recognized at the SC Media Awards as both the best endpoint security and the best cloud security. These accolades clearly reflect the strength of our Singularity platform and the innovation our teams are delivering. At RSA, we announced Athena, the next evolution of Purple AI, showcasing our vision to deliver the industry's first true end-to-end agentic AI platform for cybersecurity. It's time to combine the two most powerful forces in the world, humans and AI. Purple AI understands context, draws connections, and acts autonomously with speed and precision. We're enabling customers to seamlessly connect to third-party data sources, unlocking the full potential of Purple.ai for enterprises regardless of where they are in their data migration journey. Security teams can get faster response times, broader coverage, and scalable intelligent SECOQs. With our latest innovations, Purple.ai leverages trillions of security-relevant events, resulting in a unique dataset that is continuously tuned, refined, and optimized in partnership with our elite MDR team and extensive MDR partner network. Purple AI's Auto Triage, now generally available, helps investigate threats, orchestrate multistep responses, and remediate incidents in seconds. Also generally available is Singularity hyperautomation. Combined with Purple AI, this allows enterprises to harness no-code automated workflow capabilities to execute novel detection rules autonomously. For organizations overwhelmed by thousands of daily alerts and manual operations, our autonomous security innovations empower teams to focus on the most critical threats. Let's shift to the broader demand environment and trends we're seeing in the market. Demand for cybersecurity 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 net new ARR. As a result, we're taking a more measured stance on our full-year growth assumptions. Importantly, we haven't seen project cancellations or lost deals, and our win rates remain strong. We're focused on execution and staying nimble. In parallel, cybersecurity is undergoing a fundamental transformation. Everything from how software is developed to how security is deployed to how outcomes are measured is evolving rapidly. The software model as we know it is undergoing an AI-driven transformation. In a world where threats move at machine speed, legacy siloed tools or complex platforms built around static features are no longer effective. Going forward, cybersecurity also requires a new standard, one where software adapts to the need of the business, not the other way around. In our view, the future of cybersecurity will be powered by integrated data visibility and AI-based protection. And that's what we're building at SentinelOne, Inc., a source-agnostic unified security platform powered by the industry's most advanced security AI. Our goal is to simplify security significantly using AI. 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. For years, we've been at the forefront to lead this shift. We too have undergone a significant shift through platform evolution in recent years. Now with a platform-wide AI-centric approach. As a primary example, known endpoint solutions represent approximately half of our quarterly bookings. Going forward, we're making our offerings more flexible and even easier to access, adopt, and deploy. We believe this will increase velocity, drive broader platform adoption, and unlock more value for our customers over time. As our offerings evolve, so is 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 recognize the incredible teams at SentinelOne, Inc. Through this dynamic environment, their drive, resilience, and commitment power everything we do. In particular, our teams are working tirelessly every day with prospects and customers to deliver leading security across the world. I'm also grateful to our customers and partners for the trust they place in us every day. We started a new fiscal year delivering top-tier growth and improving profitability. The future for AI-powered security is 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.

Thank you, Tomer, 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 2026. As a reminder, all comparisons are year-over-year and financial measures discussed here are non-GAAP unless otherwise noted. We continue to deliver industry-leading growth and strong margin expansion. Our revenue of $229 million exceeded expectations and grew 23%. Revenue from international markets grew 27% and represented 38% of our quarterly revenue as we continue to deliver balanced growth across geographies. Our total ARR grew 24% to $948 million. As Tomer mentioned, macro uncertainty was pronounced in April and impacted our Q1 net new ARR. This is a dynamic time, but we believe we're well-positioned to navigate evolving market conditions. We continue to gain market share, and we're seeing continued success with platform solutions across endpoint, cloud, data, and AI. Customers with ARR of $100,000 or more grew 22% to 1,459. Our average deal size or ARR per customer expanded double digits year-over-year, highlighting our platform momentum across all segments of the market. Remaining performance obligations continue to reaccelerate and grew 33% to $1.2 billion. In addition to larger deal sizes, we're also seeing customers commit to longer-term agreements with SentinelOne, Inc. Contract duration for both new and existing customers expanded year-over-year in Q1. This is a testament to the trust we've established with our customers and our commitment to future innovation. Turning to margins, we continue to deliver margin expansion and free cash flow improvement. 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%. We also achieved our fourth consecutive quarter of positive net income. This performance was driven by scale, cost discipline, and our focused investment strategy. I'm especially pleased with our cash generation, producing a record 20% free cash flow margin for the quarter. On a trailing twelve-month basis, our free cash flow margin expanded five percentage points. Turning to our guidance for Q2 and fiscal year 2026. Our full-year outlook reflects Q1 results and the potential impact of heightened macro uncertainty. That said, we remain encouraged by the continued adoption of our new solutions, the shift towards larger, more strategic platform deals, our leadership in AI, and the strength of our competitive position. We believe we are well-positioned to continue to outpace market growth and create significant long-term value. For Q2, we expect revenue of approximately $242 million and growth of 22%, driven by sequential net new ARR growth that exceeds typical Q2 seasonality. For the full year, we now expect revenue of $996 million to $1 billion, representing 22% growth. Top-tier performance, especially against a backdrop of ongoing macro volatility. Turning to our outlook for margins, we expect Q2 gross margin to remain at approximately 79%. We expect full-year gross margin to be between 78.5% and 79.5% as we grow our customer and platform base. For operating margin, we expect Q2 to be breakeven, implying a year-over-year improvement of approximately 300 basis points. For the full year, we are reiterating our expectation for operating margin to be between positive 3% and 4%, an improvement of over 650 basis points at the midpoint compared to fiscal year 2025. In addition, we still expect free cash flow margin to exceed operating margin for the full year by several percentage points. We remain focused on instilling operational discipline and enhancing efficiency across the business. We believe these efforts position us to deliver stronger year-over-year margin improvement in the second half of fiscal year 2026 while also continuing to reinvest in the business. Our investment approach strikes a thoughtful balance between maximizing long-term growth opportunities and maintaining a strong, responsible, and profitable financial profile. First, we continue to invest in transformative innovation. We're committed to advancing the technologies that are redefining the industry: AI, data, cloud, and automation. Recent launches like Purple AI Athena, hyperautomation, and our cloud security suite represent a glimpse of what's possible. Still early in helping our existing customers unlock more value from our platform, and we're focused on driving deeper adoption. 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. We've been actively aligning teams and resources, enforcing greater discipline, and reinvesting in the highest impact opportunities. We're optimizing our facility footprints and personnel needs and remain focused on sustainable and profitable growth. Bringing this all together, we're beginning to generate more meaningful positive free cash flow. And in Q1, our cash, cash equivalents, and investments increased to $1.2 billion. This strong financial position provides us with flexibility to allocate capital in ways that support both growth and shareholder value. In that context, we're announcing a $200 million open-ended share repurchase authorization. This 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 or future potential. This program gives us the ability to act opportunistically in the market, reduce dilution over time, and continue investing in innovation and strategic priorities, all while maintaining a strong balance sheet. 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'll now take questions. Operator, please open up the line.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button that can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host, allowing you to talk. Then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We will wait one moment to allow the queue to form. Our first question comes from Joseph Gallo with Jefferies. You may now unmute your audio and ask your question.

Hey, guys. Thanks for the question. Can you just talk a little bit more about incremental ARR in the quarter? You were expecting net new ARR to grow this year, and it was down materially in Q1. I mean, was there more churn than expected from Deceptions? This a few large deals that slipped or churned? Yeah. Maybe just what gives you confidence that this is macro and not competitive? Thank you.

Thank you for the question. First of all, I think we're already seeing improved trends in May, and we totally expect the year-over-year ARR growth in Q2 to improve relative to Q1. It 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. 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. If we kind of think about the second half, I think, in a more holistic way, the opportunities, the engagements we see, demand is still strong, and pipeline is still strong. So all of that just points us again to fundamentals being intact.

And I'll just add in terms of deception and your question there on churn, that came in in line with our expectations.

Our next question comes from Brad

Great. Thank you so much. Barbara, my question is for you. I just wanted to better understand your guidance assumptions. And does the incremental conservatism assume the April trends persist throughout the year? And just related to that, you know, what did you see in May? And I don't believe in your guidance you've given us any update for ARR. But with the revenue cut on the full year, should we also assume that the $200 million plus or minus ARR target no longer stands? Thanks.

Yeah. Thanks, Brad. Appreciate the question. So, just in terms of the broader piece, I would say our outlook is reflecting underlying kind of new business growth as we move throughout the year. We definitely are seeing improved trends in May compared to what we saw in April. But 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 FY2026. As you noted, our revenue guide, we did decrease that by 1%, and you can assume that that means our internal expectations around net new ARR came down a slight bit as well.

Our next question comes from Gabriela Borges with Goldman Sachs. Please go ahead with your question.

Hi. Good afternoon. Thank you. Tomer and Barbara, was hoping you can give us some more specific commentary on what customers were telling you with the slip deals. We understand the general macro uncertainty, but are 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? Is it perhaps gonna take longer? Help us marry the broad economic commentary to the specific SentinelOne, Inc. commentary.

Sure. Let's maybe start a bit more high level. The macro backdrop changed in Q1. I think for a lot of folks that was fairly unexpected, especially in April, which is our largest month of the smallest quarter. So we observed longer sales cycles, and I think customers basically paused their spending decisions for a few weeks. We have not seen any deal cancellations. I think as we look ahead, unknowns around federal purchasing, global trade, all of that is still present. We're trying to be mindful and reflect that in our outlook. Second and positively, we do expect 22% growth this year, a top-tier growth rate, especially in the challenging environment. So our success with large enterprises, the platform adoption, continue to drive higher ARR per customer. That actually reached a new record in Q1. So we're seeing many positive factors, but at the same time, it's really clear that we're trying to create some more room to be able to digest better any potential further disruption. You know, this environment is proving to be very unpredictable on almost a daily or weekly basis. So we're just trying to take a more tapered approach to our growth expectations. As we mentioned a couple of times, trends have definitely improved in May. We're starting to see more and more progression in the enterprise and in federal sales. So that's definitely encouraging. Again, the demand overall is still strong. Win rates are strong. And as you see more platform adoption, I think that what gives us the confidence that most of the drivers are there. This disruption is the part that we cannot just predict on our own accord.

Our next question comes from Itay Kidron with Oppenheimer and Co. Please go ahead with your question.

Thanks. I appreciate it. Tom, maybe you could talk about the progression of the productivity and the bundle sale. How's that moving along? Where would you like to see some more improvement? And also, with respect to the elongated sales cycles, can you be a little bit more specific with respect to region? Was this just North America or globally? Also by vertical? Was this a little bit more pronounced in some verticals versus others?

I'll start with the latter question. I think we've seen it all around in different pockets. Definitely more pronounced, I think, in larger deals than in the enterprise, but definitely globally. Mid-market was still very strong for us in the quarter. As to what we're seeing out there, there's no question that 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, more parts of our platform. One example of that could be our Purple AI offering. Once we've introduced that into our foundation package, it immediately drove more and more adoption and the price uplift. So as we progress to the second half of the year, our ability to deploy complete flexible procurement for our entire platform we believe is gonna drive more adoption of the modules that we have. Our data business crossing $100 million in ARR, that's a great milestone for us. Both of these parts of our business, AI plus data, are growing significantly. They are the major drivers of the business at this point in time, and we believe that will fuel growth for years to come. So when you couple all of that and you allow customers to consume any part of your platform, I think this we're gonna start seeing some meaningful accretion, just by changing our bundling structure, moving away from a product-centric approach and into a platform-wide approach.

Our next question comes from Saket Kalia with Barclays. Please go ahead with your question.

Okay. Great. Hey, guys. Thanks for taking my questions here. Tomer, maybe for you, maybe just hitting on that data point that you made. Can you just talk a little bit about the SIEM market right now? 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?

Sure. First, I would say, it's not only displacement. So I think in many cases, you see augmentation. In many cases, you see net new data where people are looking to store in more effective automated and AI-driven solutions. So we're seeing a lot of different dynamics play out. I think one of the things that we kind of mentioned throughout the prepared remarks is our ability, which we launched at RSA, to actually tap into existing SIEM providers and allow them to really enjoy or allow customers to really enjoy our AI capabilities without the need to move data at the point of deployment. And I think what we're seeing more and more is that for especially the larger customers, they have data in many different stores. Rarely do you see one place with all the data. I think allowing customers to unify the data, whether with migrating it or in a migration-free mode, I think, really opens up how you think about applying AI to enterprise data. There's definitely more and more interest in cloud-native SIEM solutions or data lakes, both because of the cost benefit, but I think more importantly, because of the need to start addressing threats and issues in real-time, which if you look at the legacy providers, I think that's the point where they're struggling significantly. None of these systems were designed to run in real-time. Most of these systems have very significant latency, and these are deep architectural issues that they have. They're not gonna be solved 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. And I think as customers are doing that, especially in this new brave AI agentic world, they want these new solutions, these new data solutions already be embedded with AI, and that's exactly what our AI SIEM is able to provide out of the box.

Our next question comes from Tal Liani with Bank of America. Please go ahead with your question.

Hi. Hi, Tomer. I have a strategic question. I think I asked you the same question two years ago, and I'm gonna ask the same question again because on one hand, the pipeline is strong. But and your space is extremely attractive. 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, and things you're successful at, what needs to happen for the company to outgrow this just because of your small size? And what areas do you think can drive up this growth acceleration in the future?

Thanks for the question, Tal. Yes. I remember it from two years ago. I think we're in a different revenue scale nowadays. At the same time, you know, I think the biggest difference that you're seeing with us versus pretty much every other incumbent in cybersecurity is the amount of actual new logo that we're adding versus, I think, the motions of others. I also fully suspect that for us, in what we're seeing today, in cybersecurity, the different solutions that are out there, I'm all certain that in a year time, two-year time, the requirements for cybersecurity are gonna be changing dramatically. And I think that we're already have been leading with our AI offerings, and we'll continue to expand that lead into the future. You know, 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 cybersecurity providers in the world today. And we're gonna continue to grow. So to us, it's only about putting the right types of products and solutions into the hands of customers. This market is incredibly big, and we're focused on our own path.

Our next question comes from John DiFucci with Guggenheim. Please go ahead with your question.

Thank you. My question is for Tomer. Tomer, 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? Did this also come into play at all with this quarter's results and your slight lowering for the year, or was it just all macro driven? And by the way, nice job on the free cash flow, Barbara. And the share buybacks is a lot. So thanks.

Yep. Thank you for the question. Look, I think as we called in the script, the go-to-market evolution, you know, part of our journey is continuous. So there wasn't anything specific in Q1. It's very clear that as we put forward more of our AI-based offerings, and we're expanding this suite of AI capabilities that we have, that changes the way that we talk to customers. It changes the way that we build customers. It changes the way that we lead our conversations, especially if you couple that with what I mentioned earlier, the move towards more flexible structures for customers, the ability to consume the entire platform. These things don't happen overnight, but I do believe you know, we're getting better and better 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 to really drive further gains as we think about our sales force and what each and every seller can potentially sell or talk to a customer about. So all in all, you know, go-to-market is an ever-going evolution, I would say. Especially in a market that's changing, especially when technologies are changing, think that we're looking today at our platform as one of the preeminent platforms in the space, the amount of offerings we have is significant. You know, 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, you know, type of go-to-market function for us. It always had some complexities with, you know, enablement and training, and we called that out also in the prepared remarks. But outside of that, I mean, these would be net positives for the business going forward.

Our next question comes from Brian Essex with JPMorgan. Please go ahead with your question.

Hi. Can you hear me okay?

We can hear you.

Oh, great. Thank you. Thank you for taking the question. I guess, you know, Barbara, this one's for you. You know, prior to your joining, I think the company had talked about being growth constrained because of the focus on margins. And now we've kind of approached breakeven levels in the outlook, you know, for profitability and cash flow looks a little bit better. But what I'd like to understand is, you know, where are you seeing incremental cost savings within the company? And then on the other side of that, where are you investing incremental leverage? Where are you seeing the greatest return? And how can we think about the way that those initiatives can drive better growth ahead?

Thanks for the question, Brian. In terms of growth versus profitability, I would just say, you know, we remain focused on investing for efficient growth. We've been driving meaningful efficiencies across the business, so realigning teams, and also making more targeted investment in key growth areas as well as away from growth areas that aren't key to us. So that included deception last quarter. So all trying to focus on efficiency as well as growth and continue to scale the company. From an investment focus area, we are continuing to invest in AI-based innovations across, you know, all of our solutions, endpoint, cloud, data, and Purple. And just really given the market environment, we're really leaning into strengthening our go-to-market presence, both sales and marketing. So continue to take proactive steps to drive efficiency and drive margin improvement, and you can see that reflected in our off-margin guidance for over 650 basis points of improvement in FY2026.

Our next question comes from Rob Owens with Piper Sandler. Please go ahead with your question.

Great. Thank you for taking my question. It's Tom, during your prepared remarks, you talked about 25% of subscriptions sold during the quarter had an AI attached to it. Curious what that's doing to overall deal sizes if you can give some color. Thank you.

Of course. 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 the average deal size. I would say that that is a starting point for us. This includes only our foundation AI capabilities, and we're now expanding our capabilities, you know, to introduce multiple agentic solutions that can really build on top of it and create even more accretion, you know, into the future. So all in all, it is not only that uplift for us, but it's also a great differentiation point. If you think about it today, we don't really sell or don't think it's wise to sell even an EDR solution without AI capabilities. So we bundle these two together, and we're the only, call it, AI EDR solution on the market today. I think that's already positioning us in a very different way for both our customers and our partners. And as we go forward, you know, obviously, those agentic add-ons are gonna continue and fuel growth for customers. I mean, the outcomes obviously are that we're able to deliver with agentic capabilities, I think, are just staggering both in terms of time saving, in terms of speed, in terms of automation. You know, we got amazing components in the platform that if you put together, you know, starting with our endpoint capability, but all the way to agentic capabilities and to hyperautomation, 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, is really just the starting point for us. And it is just very promising to see people opt to get it as part of our base offering.

Our next question comes from Trevor Walsh with Citizens. Please go ahead with your question.

Great. Thank you for taking my question. Barbara, maybe for you. Appreciate the color that you gave around free cash flow outlook for the year and that trending just kind of ahead of the operating margin. Could you maybe just give us a sense of how that'll kind of flow over the next couple of quarters? Like, if that'll just look kind of similar to the seasonality that we saw last year. And then, relatedly, does the share purchase or repurchase program kind of change your point of view just overall strategically around doing M&A transactions at all? Thanks.

Thanks for the question. So you're right. We continue to expect free cash flow margin to exceed operating margin for the full year by several points. I think, from a seasonality trend, Q1 typically tends to be our biggest free cash flow quarter. You'll see that trend down in Q2 and Q3 and then trend back up in Q4. So pretty typical seasonality from a cash flow perspective. And then on share repurchase, you know, I would just say, you know, overall, in terms of, you know, the timing why now, we've started to generate more meaningful positive free cash flow, and in Q1, our cash cash flow equivalents and investments increased to $1.2 billion. So we really felt like with that strong liquidity position, it gave us some financial flexibility for capital allocation as we continue to scale the business. So opportunistically with share repurchase, but still ample cash for any potential M&A.

Our next question comes from Adam Tindle with Raymond James. Please go ahead with your question.

Okay. Thanks. Good afternoon. Barbara, I just want to 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 things clarification for everybody. When you say net new ARR in Q2 to be above seasonal, I look at the last couple of years, it's up six to seven million dollars sequentially. Does that mean up ten million in high thirties for net new ARR? 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, you know, Q4, Q1 on ARR, they've been, you know, in line to misses. Why set that expectation for Q2? What gives you confidence to do this above seasonal? And just trying to avoid, you know, rolling into a similar situation where expectations are too high and the stock's down double digits in the after hours. Thanks.

Thanks for the question. So in terms of Q2, outperforming, I wouldn't think of that in terms of our sequential growth rate in Q2. If you look at that last year, it was about 16% in the prior year as well. So expectation for this Q2 is roughly double that sequential growth rate. What gives us confidence is really we've seen the environment improve in May. So we're encouraged by the activity that we're seeing in the first month of the quarter as well as the pipeline we have for Q2.

Our next question comes from Peter Weed with Bernstein. Please go ahead with your question.

I appreciate your candor and detail associated with, you know, the activities on this quarter and how you've rolled that through the year. But, you know, one thing that I realized I didn't feel like I had clarity on is when you talked about the impact this quarter and some deals pushing, was that, you know, 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, you know, the customer profile on kind of new versus existing and the strength of the business.

That's a great point. I mean, we're one of these singular vendors out there that if you kind of look on average, 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, they're definitely more prevalent, and I would say almost all prevalent, with new logos, which is why we believe again, we're trying to just create a more digestible mode for us should any further disruption in the macro environment happen. So to us, again, one of our strategic pillars is to continue and grow new logos, which we're doing, I think, in a great way and have been doing in previous years. In that dynamic where customers are choosing to sometimes wait or just, you know, kind of observe what's happening with the environment before they commit to a deal is definitely more of a new customer dynamic. With that, you know, our existing upsell and cross-sell motion is also incredibly strong, and we're making adjustments again to just be able and to be in a place where, at our scale, we can digest any of these, you know, humps towards any point of the year in a slightly more predictable way.

Our next question comes from Shaul Eyal with TD Cowan. Go ahead with your question.

Thank you. Hi. Good afternoon. Thank you for taking my questions. I want to try and build on Brian Essex's question maybe a little differently. Your hiring plans for fiscal 2026, if we look at it from a 100% perspective, 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 absolute numbers.

I would say first of all, you know, we're constantly kind of adjusting, you know, plans as we see fit. Generally, I would say that a lot of hiring we're doing is in R&D. We started the year, you know, with a close to fully ramped sales force, which I think gives us kind of a tenured amount of salespeople on the street. But with that, you know, we're constantly shifting. Sometimes we're pruning in certain areas and then reinvesting in other areas. But as a whole, I would say, you know, R&D is definitely a source where, you know, the products that we generate today and for the future are so incredibly important that you're gonna see us continue and invest. And as it comes to sales and marketing, I think it really is very commensurate with growth in the areas where we want to make sure we're successful.

Our next question comes from Shrenik Kothari with Baird. Please go ahead with your question.

Yeah. Thanks for taking my question. On the federal side, of course, you have the broader FedRAMP authorization now adding to existing endpoint and SIEM. Just curious, what are you seeing there? Are budget constraints, including the recent CSA dynamic where they've had success, in the recent past with larger deals? Are you seeing delays, or are you expecting to see more delays around expansions? Also, on the new agency logos, are you engaging at the same levels on the RFP basis? Just curious if you can comment on the federal side. Thanks.

Sure. We're in a great position to partner across the federal ecosystem. We have a number of growth opportunities, and we just announced to your point that we're now pretty much the first and only cybersecurity agentic AI solution approved for government organizations. Which joins all of our key platform offerings across endpoint, AI SIEM, cloud security, hyperautomation, all of them are FedRAMP high. The pipeline looks promising as well. I think you can definitely cite longer sales cycles, more approval needed. I think there's at this point, a constant change in how federal agencies are treating procurement. With that, there's some also fast-track capabilities that have been available to them. So all in all, I mean, it's still in flux but, obviously, the need is still there. So the timing of deals can vary, and I think that's also something we reflect in our guidance, and saw some of that in Q1 as well. So all in all, it's been encouraging to see some of those deals closed in May. And that's showing there's progress, and that's just the beginning.

We have no further questions at this time. I will now turn the call back over to Tomer Weingarten for closing remarks.