SentinelOne (NYSE: S) beat on revenue and profit, raising its full-year outlook. Revenue grew 21% year-over-year to $292 million, about $1.7 million above consensus. Non-GAAP diluted EPS doubled to $0.08 from $0.04 a year ago, clearing the $0.07 estimate. The headlines look clean. The real story is how the company is scaling profitability without sacrificing growth.
A record $56 million in net new annualized recurring revenue (ARR) drove the beat. It was a Q2 record and the fifth straight quarter of positive net new ARR growth. Total ARR reached $1.218 billion, up 22% year-over-year. That momentum fed straight to the bottom line. Non-GAAP operating margin leaped 820 basis points year-over-year to a record 10.5%. Non-GAAP net income margin climbed to 9.8% from 5.4% a year ago. This isn't a one-off pop from easy comparisons. It reflects a structural shift as revenue scales faster than expenses.
The margin expansion is striking because it happened alongside heavier investment in AI. SentinelOne's AI Security offerings (Purple and Prompt) nearly tripled their ARR year-over-year. Non-endpoint solutions — Data, AI, Cloud, and the like — now make up over 50% of total ARR, up from a minority share before. This mix shift is the quarter's real quality driver. Selling more platform deals instead of point products improves retention and wallet share. Customers with ARR of $100,000 or more grew 13% year-over-year to 1,715. Net revenue retention for that group improved both sequentially and year-over-year.
Management lifted its full-year FY2027 revenue guidance to $1.202 billion to $1.207 billion. Non-GAAP operating income guidance is now $124 million to $128 million, and non-GAAP diluted EPS guidance is $0.30 to $0.32. For Q3, the company expects revenue of $309 million to $311 million and non-GAAP EPS of $0.08 to $0.09, both roughly in line with consensus. Raising guidance, rather than just reiterating it, signals management believes the current trajectory is durable.
Gross margin bears watching. Non-GAAP gross margin was 77%, down 200 basis points from 79% a year ago. The decline is partly due to mix; cloud and data solutions carry different cost structures than endpoint products. Still, at 77%, gross margin stays within the company's target range, and operating leverage downstream more than compensates. The GAAP picture is messier. GAAP gross margin fell to 72% from 75%, and GAAP net loss per share widened to $(0.27) from $(0.22), driven by a $92 million stock-based compensation charge and a $24 million restructuring charge. For a company at SentinelOne's stage, the non-GAAP metrics are what matter for operating performance.
SentinelOne's cash position is healthy at $813 million in cash, cash equivalents, and investments. Free cash flow was negative $13.2 million for the quarter. Adjusted free cash flow for the first half of the year was $48.1 million, helped by a $30.7 million cash tax payment tied to an Israeli tax agreement. The company isn't consistently free cash flow positive on a quarterly basis yet, but the trajectory is improving.
This quarter signals SentinelOne has found a gear: growing ARR in the low-to-mid 20% range while expanding operating margins by several hundred basis points annually. The raised guidance confirms management sees this as sustainable, not a one-quarter anomaly. The key risk is whether the company can keep this balance as it invests in AI and cloud products that may have lower initial margins. For now, the data suggests the platform strategy is working.