Q2 2022 Snowflake Inc. Earnings Call

Okay.

Good day, and thank you for standing by welcome to.

Fiscal year 'twenty 'twenty, two Snowflake earnings conference call at this time, all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press Star and then the number one on your telephone keypad if you require.

The sacred or assistance, Please press star zero.

You know I would like to hand, the conference over to your first speaker today, Mr. Jamie Sexton head of Investor Relations for Snowflake, Sir. Please go ahead.

Good afternoon, and thank you for joining us on Snowflakes Q2 fiscal 2022 earnings call joining me in Bozeman, Montana.

And you for Frank's Luqman, our chairman and Chief Executive Officer, Mike Scarpelli, Our Chief Financial Officer, and Christian Klein Herman our senior Vice President of product will be joining us for the Q&A session. During today's call. We will review our financial results for second quarter fiscal 2022, and discuss our guidance for the third quarter and full year fiscal 2022 during today's call we will make.

<unk> looking statements, including statements related to the expected performance of our business future financial results strategy products and features long term growth and overall future prospects. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results information concerning those risks is available in our earnings press release distributed.

Excuse me good afternoon everybody.

We are addressing the largest enterprises globally with a vertical industry approach. We see these investments yield strong results in Q2 financial services customer product revenue grew more than 100% year on year.

Representing the largest contribution while health care.

Customer product revenue grew nearly 200% we.

We are engaged in targeted industry events, where these verticals and we will continue to go to market with tailored business outcomes.

We are pleased with our geographical expansion outside the United States with product revenue from EMEA and Asia Pacific Outstripping, the company's growth as a whole growing 100.

85% and 170% year on year, respectively.

One of our largest new customer signed into corner came from Asia Pacific.

During Q2, we had key enterprise wins, including Alliance Bernstein constellation brands and Lithia Motors.

Following milestones we think are worthy.

Quote in Q2, we announced public preview availability in all AWS regions of Snow Park, our new developer experience.

Snow Park enables developers to work in their preferred programming language and formats, including Java and Scala Snow Park is designed to make building complex data pipelines and applications.

<unk> EZ and allow developers to interact with snowflake directly without having to extract data maximizing governance.

The Snowpack accelerated program has over 50 partners enrolled to bring their capabilities and innovations across data science data engineering and security <unk> Park in the future.

The park will add support for Python, and expand to Azure and Google cloud regions.

<unk> is the most widely used programming language for machine learning and data science generally.

We also launched powered by Snowflake in June to help companies build operate and grow applications in the data cloud.

Power brush snowflake.

<unk> is designed to accelerate the delivery of differentiated applications on snowflake by supporting developers across all stages of the application journey and Snowflake data cloud today. There are over 80 powered by partners, including founding members Blackrock Adobe lacework observed and off loans.

Hopefully increasingly application providers are enabling their apps to operate directly against their customers Snowflake accounts, meaning no data needs to be copied to replicate it simplifying data governance, while accelerating the network effect of the data cloud.

We also continued to deliver new capabilities to strengthen data governance for our customers.

During the quarter, we made ROE axis policies generally available data governance features are typically the broadest and fastest adopted feature across our customer base.

Snowflake, increasing focus on vertical industries is leading to more a deeper discussions with customers globally Snowflake team is organized.

Around the following articles they are financial services health care and life Sciences, retail and CPG advertising media.

<unk> technology public sector education and manufacturing.

This vertical industry focus will continue to intensify and expand over time.

Time.

One example of our vertical approach is the advertising industry, which is facing new regulations and increasing pressure to strengthen consumer privacy advertisers want to compete in a market dominated by the walled gardens. The snowflake data cloud is an empowering large media companies technology providers and marketers.

<unk> to collaborate with their data assets across the ecosystem.

Snowflakes data clean room solutions can enable companies to share and joined data without copying or moving their data assets.

Snowflakes data cloud powers, these data clean rooms, with transparency and privacy controls for customers like this.

And NBC Universal.

Each customer is creating their own data network within the snowflake data cloud for their advertising businesses.

Snowflake continues to deliver performance and optimization improvements throughout our platform from improving storage efficiencies lower ingestion latencies to faster.

Once across.

Across different workloads.

Performance improvements bring not only timely or insights, but improve the economics of our platform for our customers.

Finally, Dave.

Data cloud adoption is growing rapidly the data cloud is the sum of all data network and relationships that are active at any point in time retract these data relationships through what we call <unk>.

It just we added over 450 customers in the quarter.

And continue to expand the number of customers with stable at just at the end of the quarter, 16% of our customers have stabilized hedges in place.

Snowflake accounts compared to 50% last quarter.

The total number of these stable edges grew more than 20% quarter over quarter.

This growth is fueled by the content on our marketplace, which saw listings growth 32% quarter over quarter.

The data cloud enables our customers to enrich their data J more effective analytical insight do so faster and more cost effectively.

Strategically snowflake is emerging as a highly secure compliant.

Global and efficient data network and the infrastructure crossed a major public domains. The combination of world class data workload execution with cloud application development Cross cloud operations data and data application marketplaces as well as plant monetization is what makes snowflake stand out.

During the quarter, we hosted our annual Snowflake summit to share our data cloud strategy platform optimizations feature enhancements and vertical industry use cases over 60000 folks registered for the three day event, we had four industry executive sessions and more than 60 customers sessions.

Snowflake was launched in preview with over 50 partners supporting the Snow Park accelerated program, and we announced overlay analytics as the winner of the first Snowflake startup challenge.

In Q3, we will be hosting events, including the Snowflake financial services data summit across the Americas, Europe and Asia Pacific.

There will be sharing more on how snowflake is connecting the entire financial services ecosystem.

Snowflake is a sponsor at Adweek, we will discuss our enhanced advertising media and entertainment offerings and finally snowflake is holding our built events for technical executives, including Cto's Vps of engineering.

Data scientist data engineers and application developers.

In closing our results demonstrated high quality durable growth, coupled with improving efficiency and we're looking forward to executing the second half of the year.

With that I will now turn the call over to Mike.

Thank you Frank we saw continued strength across the board in Q2.

With great sales execution, and operational efficiencies setting us up for a strong back half of the year.

Q2 product revenues were $255 million, representing 103% year over year growth.

<unk> performance was led by our financial services customers with continued strength from our technology and health.

<unk> care verticals, our rapid growth is driven by our existing customer base. The expansion of our net revenue retention rate to 169% is indicative of the power of our product over time as well as our sales team driving long term business outcomes Q2 was an impressive quarter of sales execution remaining.

Walnuts obligations grew 2152.9 billion with net new bookings led by the technology and financial services verticals. We are still maturing the sales organization to sell multi year contracts.

Timing of the largest multi year deals will be lumpy as a reminder, in Q2 last year, we sold our largest multi.

Year contract ever a three year $100 million deal, while the multi year component of new bookings sets up a difficult comparison, we saw net.

New annualized contract value accelerate compared to the year ago period. This is why <unk> and revenue must be evaluated together.

Our consumption based business model of the $1.5 billion in IPO, we expect approximately 56% to be recognized as revenue in the next 12 months, representing an approximately $87 million increase quarter over quarter, we remain focused on penetrating the largest enterprises globally as.

We believe these organizations provide the largest opportunity for account expansion.

In Q2, the number of customers with greater than $1 million in trailing 12 months product revenue increased to 116 up from 104 last quarter. The second quarter was a breakout quarter for us in terms of profitability and efficiency.

And a non-GAAP basis, our product gross margin was 73, 6% up 140 basis points from last quarter increased price per credit related to higher priced addition consumption.

And higher than expected compute as a percentage of revenue from improved storage compression mentioned last quarter.

<unk> drove the outperformance we have confidence in our ability to show leverage over time, but we view this significant quarter over quarter increase as onetime in nature operating margin was negative 8% benefiting from revenue outperformance, our adjusted free cash flow margin was 1% positively impacted by strong linearity in.

Gross and operating margin outperformance going forward. We believe we will remain adjusted free cash flow positive as a reminder, adjusted free cash flow excludes the impact of net cash paid or received in both employee and employer payroll taxes related items unemployed stock transactions. This quarter, we saw.

Bookings $15 million impact from those items.

We maintained a strong cash position with approximately $5.1 billion in cash cash equivalents and short term and long term investments now, let's turn to our guidance and outlook for the third quarter of fiscal 2022, we expect product revenues.

280, $285 million representing year over year growth between 89% to 92% turning to margins, we expect on a non-GAAP basis negative, 7% operating margin and we expect 303 million weighted average shares outstanding for the full year fiscal.

<unk> be 2022, we expect product revenues between $2.06.0 billion to $7 billion.

Representing year over year growth between 91%, 93%.

Turning to profitability for the full year, we expect on a non-GAAP basis, 73% product gross margins.

Negative, 9% operating margin and 7% adjusted free cash flow margin and we expect 300 million weighted average shares outstanding our outlook assumes that we will still add more than 200 net new employees during the fiscal year with respect to Covid. Our forecast now assumes that we will most likely continue to.

Fiscal <unk> for the foreseeable future and we have paused most travel with a slight uptick of return to office expenses in the fourth quarter, we anticipate an eventual return to the office, we do not have a specific timeline for that goal with that operator, you can now open up the line for questions as a reminder, Christian client <unk> our SVP.

The product will be joining us for Q&A.

Yes.

Thank you as a reminder to ask a question. Please press star and then the number one on your telephone keypad again, just press Star and then the number one on your telephone keypad and do we draw your question press the pound key.

We'll pause for a moment to compile our Q&A roster.

The work for them.

Your first question comes from the line of Mark Murphy from Jpmorgan. Your line is open.

Yes, Thank you very much and congratulations on a solid first half of the year.

How many of your Fortune 500 type customers are in.

Guidance with you today with some kind of a plan to build their own data cloud for instance, and energy cloud or an insurance cloud or or a retail cloud that uses snowflakes.

Data sharing model and that had a quick follow up for Mike.

And I don't have an exact.

<unk>.

Number two we're back to what I can tell you that I'm involved in those conversations on a daily basis.

We lead with that value proposition literally.

Every conversation.

We're we're batting 1000.

When we go down.

David.

Path. So we're super excited by.

The way this is resonating with our customers now that said.

The way our market has historically worked people have had a workloads.

Attitude and mentality to the world in terms of moving to the cloud so sometimes.

The data cloud is viewed as something that is sort of phase two or phase.

<unk> III people are first preoccupied with data to the cloud than moving workloads to the cloud and then having sort of pulling up and having a look at what's next.

We're working very hard to make sure that we look at the data read.

From the beginning and the real reason is what you don't want to do and this is what we tell every single customer that we meet with is to recreate the silos of the past.

The cloud because they will find out what the exact same set of challenges that they have today. So the data collect conversation has to happen upfront to prevent people from <unk>.

Silo and their data and really selling themselves short on the potential of data science machine learning and advanced analytics capabilities.

That are coming down the pike.

Sure.

I see okay.

Thank you Frank and then Mike you spent a little time talking about the IPO, Yes, I wanted to ask you on the next 12.

Months portion of Rps, we understand it's an estimate.

Of future consumption do you have any thoughts on.

How to model it this year, because if thats kind of strips out the multiyear noise just.

Just for instance.

We would we think about it growing in line with revenue growth or could it be slightly.

The above slightly below any framework for that.

I'm not really giving that it's been running in the low to mid fifties and as I said, we expect 56% based on what we're seeing today that could change.

And it really changes based upon.

How many multiyear deals.

<unk>, we do because obviously when the total RPM grows because of multiyear that percentage could come down.

But what we're seeing now it's 56% were estimating.

Thank you.

Thank you. Your next question comes from the line of Gregg Moskowitz from Mizuho. Your line is.

Is open.

Okay. Thank you for taking the questions and congratulations on a good quarter.

Frank you called out strength in financial services and Im just wondering when you look at consumption patterns is there anything that you would notice that sort of stood out on a geo basis this quarter.

<unk> basis.

I think we're sort of experiencing traditional patterns in enterprise.

Software adoptions U S leading.

EMEA.

Following after that.

Pacific.

Virtually.

Really encouraged by the uptick in.

In EMEA.

We certainly have work to do coming into the company in terms of how we were approaching that marketplace, it's coming around really well very please and what's going on in Asia Pacific as well I mean, we're really big on making sure that all our products all of our regions all of our channels are showing up every single quarter.

Quarter Thats really.

A key focus.

When youre driving high growth the way, we have and so everybody is contributing and thats.

If there is a secret sauce, that's part of it.

Alright, that's very helpful. And then just for Mike So you've now signed up more than 10% of the fortune 500 over.

Just the last 12 months.

That's incredibly difficult to do with my question here is given the nature of your model would it be fair to say that a very small percentage of your Q2 revenue came from these 54 relatively new fortune 500 customers.

I would say less than 1% has come from new customers, we landed in the quarter.

And for the full year less than 10% will be for customers. We land in the year as a reminder, when we land. These customers. It takes nine to 12 months before they really start consuming at a rate. So what's really driving the revenue. This year are all of the customers we land at those large customers.

As we landed last year.

And I want to stress too it's not just those large we have a lot of small customers that drive a lot of revenue too is just the point is those large customers. They have a lot of growth potential within them still today.

Absolutely alright, Mike Thanks.

Your next.

Next question comes from the line of Kirk <unk> from Evercore ISI. Your line is open.

Yes, thanks, very much Mike actually I wanted to follow up on that on that last point you made in terms of the bigger customers, who are taking nine to 12 months to.

Consuming.

How are you guys working with sort of the ecosystem broadly to make.

Sure that that cadence stays on track as you add more and more of those large customers do you feel good that the kind of resources that are out in the market in terms of consultants professional services partners are out there to make sure that the after you sort of land. These customers that they are on track to start consuming within sort of the approximate.

Timeframe you'd laid out yes.

Yes, so it's been a couple of ways is done through our professional service people and we probably do I think less than 10% of that.

But we have a.

Our whole alliances program is focused on all of the the global GSI and the regional partners and I think the number of those partners, including GSI is up three extra.

Where it was last year and you can see one of the things on a professional service line a big chunk of that is training and.

And we are spending a lot of time training partners. So there are people, who can get certified doing a lot of training. The trainers. So they can add more resources that are snowflake certified to do these.

Migrations and implementations.

And just a quick one for Frank Frank you guys have taken sort of a vertical approach to sales and quicker than you did the last company you're the last company. So can you just talk about the opportunities within the federal government or governments in general that serve a big quarter for the federal that we're all aware off I was just kind of curious on.

That vertical in particular, where you think you are and maybe where it could be 12 months 18 months from now thanks.

Yes actually.

Great question.

Ironically this wasn't true in the previous company that you referenced.

Public sector is actually the slowest market.

For Snowflake to come along in Asia Pacific traditionally.

Especially in Japan.

To be the slow adopters are actually coming around much faster in public sector is actually slower than one of the reasons is cloud.

Cloud adoption in the federal government is bloody hard because of the standards.

That they have for companies like ours, and we can go on premise something that.

We did do service now as you recall.

We are now getting close to approaching requirements for broadly being able to contest federal business, we believe that our federal business it can become 15%.

Total number so there is an enormous opportunity.

<unk> pending for US there we have not.

Really effectively addressed it up to this point, but we are super confident that we're going to there is a lot of tremendous demand.

And it's very much.

<unk> set of requirements that we have to grind through and it's not easy to do so once it's there.

There. It will also really form quite a quite a moat or a barrier if you will.

Around that type of business.

Super Thank you.

Thank you. Your next question comes from the line of Brent <unk> from Piper Sandler Your line is open.

Thank you and good afternoon first one.

For Frank or Christian here, we saw a noticeable uptick in the number of data Lake migration like this quarter clearly builds on the data warehouse migrations, but what's resonating most with enterprises that are now standardizing on snowflake for data Lake use cases as their new feature functionality that you've added to enable.

Able that and how big of an opportunity can that be as you think about that going forward.

Yes, certainly Christian here I think is the breadth of the platform that will Europe, we sent them to our customers not only performance advantages relative to alternatives, but the economic benefits that our performance represents we hear that consistent.

Seasonally that has driven migrations from a variety of platforms.

Helpful and then Mike as we just think about the operating margin this year, it's narrowed materially faster than expected.

Encouraging to see the leverage in the model, but how much of the improvement would you attribute to just product gross margin improved.

Improvement here versus higher sales productivity that you expect in the second half clearly performing better just trying to understand what's driving that.

Well, it's the the.

Gross profit is driving part of that the revenue performance and also improved gross margins as we said we improved 100.

Basis points.

You know, we're really looking more to keep our sales productivity flat and improve that because of its growing too fast. It means we're not adding reps at a fast enough pace out there.

And it's it's really partly because of COVID-19 with the return to office, we're not traveling that we saw some uptick in in our.

And fifth hiring was more back end loaded and as most of you know we tend to be very.

Cost conscious when we spend money on anything and I don't think Theres a lot of waste in our numbers.

Got it so a lot of that is just the flow through on the product side and then it sounds like still hiring aggressively helpful color. Thank you alright.

Thank you. Your next question comes from the line of Gray Powell from <unk>. Your line is open.

Oh, great. Thanks for thanks for taking the question and congratulations on the strong results.

So yes, maybe a high level question on my side I guess, what do you see as the bigger driver of your business today is it the replacement of legacy.

Warehouse architectures or is it more net new from modern companies like instant carton coinbase that start out and build businesses on top of a snowflake.

Yes, Frank.

An important question.

To us because we have very.

Very high net revenue retention rates.

People were wondering where's that coming.

From because that's typically in a scene.

Reason is a lot of snowflake does.

What we call enabling demand in other words, we're not creating it we're allowing it to happen. So there is there is a lot of latent bottled up pent up demand, there's literally grown over literally.

Decades, where people have because of fixed capacity limits.

On storage and computational architectural limitations they have not been able to do what the technology is now capable of doing so just just unlocking.

Unlocking that puzzle and allowing workloads to be provisioned.

Our unlimited number of concurrent workloads, let jobs run every night as opposed to once a month if youre lucky that it's really the explosion in the enablement of demand there was or there is really the big big driver behind Snowflake now there are others. I mean, there is brand new use cases that are exploding.

In several of these verticals are driving a lot of demand as well because this is a very dynamic marketplace. This is not okay. We have an existing workloads, we're going to move it to the cloud and call. It a day that is not the nature of this business. This is a very fluid dynamic process, where people are doing brand new innovative thanks.

The great thing about the public cloud combined with Snowflake as that technology is no longer standing in the way what is the only standing in the way now as your imagination and your budget those are not minor things by the way, but that's a hell of a lot better than having fixed limitations that we historically have to live with.

Got it thank you very.

I'll leave it there.

Thank you. Your next question comes from the line of Patrick Colville from Deutsche Bank. Your line is open.

Alright. Thank you very much for taking my question I'm glad you asked about this vertical strategy that you referenced at the beginning of the call probably for Frank I mean, how much of the vertical strategy is.

Product.

Specificity versus kind of go to market partnerships.

It's not product we only app.

One product and the product is not vertical license a horizontal product.

It's an infrastructure.

Platform. So this is really about use cases.

It's how you apply the technology to industry specific challenges.

And problems. So you can as you said it very much has to do with okay.

Our specific institutions doing a specific industries with snowflake and <unk> and other entities in the industry and some industry tickets.

Take advantage of those learnings there is a lot of talk going on inside these verticals between entities about hey, what are the opportunities to apply this technology to problems that we're all living with so that's why I heard acquisition is so important because we can we can really accelerate our business. One of these use cases and these opportunities are becoming more broadly shared.

Shared.

Yeah, that's helpful and then can I.

On the product side actually I'm, just jealous about snow Park again, you referenced that in your prepared remarks, I mean, even though were still kind of early in that product cycle. Just help me understand the the indicators.

You're seeing that drive confidence.

Developers embrace so bulk.

Yes Christian here, we look at a number of adoption metrics all of them are following our most successful launches relative to other previous we've done.

We have talked to the different customers that have been early adopters of the technology and the feedback.

Becky is overwhelmingly positive.

And as Frank mentioned in his remarks, we have over 50 partners that have signed up to drive solutions, a snow park and they also have overwhelmingly positive feedback, but I will also provide leverage to the adoption. So we're.

Highly confident.

Great. Thank you so much.

Thank you. Your next question comes from the line of Keith Weiss from Morgan Stanley. Your line is open.

Alright, thank you.

Good.

Probably another question for Christian and it sort of relates to snowflake and maybe the.

Market, which is a 300 billion.

Market today as customers are sort of centralizing more and more of your data on to snowflake.

What are the potential opportunities in terms of applications development of applications on top of a snowflake maybe.

Next generation CRM or our next generation.

<unk> financials application given that you're centralizing that data what do you think thats snowflakes will could be when it comes to applications that something more that partners that sort of built on top of where could we see snowflake has some ambitious on the application side of the house.

Yes Christian here its a great question and obviously something that is.

An important priority for us we shared some of this vision at our Investor day.

One of the biggest challenges that application developers face today is the notion of data governance, where they need to.

Get customers to trust them and share the data with them, what we're enabling is bringing.

Its applications to operate within the governance and security perimeter of Snowflake, and we see interest from applications across horizontals in verticals wanting to build on top of snowflake and running closer to the data without creating copies of our silos.

One follow up.

Though.

One of the things that.

We talk about when we talk about the data cloud is that it isn't completely.

Comprehensive hemisphere for application developers and I referenced in the prepared remarks, but what that means is we have a data cloud that has number one life data number two.

It has full blown infrastructure, obviously like that can scale unlimited is a function of our public cloud relationships. We have through snow Park, a complete application development and infrastructure on top of that club than when we have a marketplace that allows people to find to discover to explore.

To try out applications, and then you layer monetization on top of that.

Basically.

And the environment.

Developers can build cloud applications that the world has never seen before and we sometimes compared as to what happened on mobile development, which obviously was a huge world with mobile developers.

Florida have to set up separate environments for the iPhone App for Android here, you literally have one place and you.

You'll be able to target multiple runtime platforms in terms of our AWS Azure DCP and so on so that's really what the data club wanted.

When it's fully built out.

OLED capabilities.

It will be and so I think your question about.

Software developers is strategically very important to snowflake.

Yes.

That will not have evolved.

As my follow up going into sort of mikes commentary around the expansion opportunity within these.

These larger customers.

These what early in terms of like the data marketplace, but is there any sort of examples that you can cite in terms of customers standing up new revenue generating business is whether it's data stores, our data marketplace monetizing that business and how that's revenue that theyre getting compares to their annual snowflake spend that are.

No its Apollo two 510 any sort of indicator for some of these early cohorts that are monetizing.

So it sounds like.

Yes, I think we are.

Frank.

We have seen some of our data.

<unk> Sterling.

The financial verticals.

Our multiple.

In very short period of time.

Very substantial expansion of their business, where we're literally a channel for them.

To reach demand.

They couldn't through traditional challenges.

I can't really bring any more sort of comparisons.

And metrics to it is probably something that we'll try to do it at a future point in time, but there is no doubt that.

As you can.

As I said during the prepared remarks, we have tremendous growth in the data listings that are coming onto the marketplace and by the way that the reason that they are coming is because they're reviewing.

Snowflake increasingly as a place where they can sell data and Neil.

The network effect starts to be induced and more data that gets more data right because it becomes a very rich environment. After a while so we're very positive with this quarter with the.

The growth in listings to growth in data.

And that's really how.

We track our progress in terms of the data cloud and the data network and relationships that make up that data cloud.

Thank you.

Okay.

Thank you. Your next question comes from the line of cameo mail checks of William Blair. Your line is open.

Hi.

Everyone. Congrats on the strong quarter and thank you for taking my questions.

I believe you mentioned in your prepared remarks that tech and financial services were large drivers of RP or strengthen at your user conference you called out media entertainments your largest vertical so it so it's great to see broad growth as you look out across.

Across the six end markets that you structure. Your salesforce around are there any industries that particularly stand out as drivers of strength over the next one to two years, especially as the economy opens up and where do you see the risks of deceleration, particularly as you think about your guidance.

Well Frank.

As you look at correct.

Both media entertainment.

That area is approximately the same order of magnitude.

Our financial services or both that drivers.

Sure.

Business.

I really don't see any deceleration.

Youre asking I'm just we're just waiting for industries that were heavily affected by the pandemic to come online obviously hospitality aviation all the places that have suffered disproportionately.

To start normalizing and.

We will become I guess more daring in terms of their exploits.

Awesome.

I.

There was upside, but yes. They are one of the great things about the type of business that we're in it's very secular in defense.

It's really not driven by by too many macro factors I mean, this is something that people are going to do to some of them are just doing it faster than others.

Yeah makes sense.

And.

Just as a quick follow up can you talk about any changes you've seen on the competitive front are you seeing any private companies more often and among your large.

Public competitors are you seeing any impact from the changes theyre, making to their platforms.

Okay.

Not really.

The competitive environment has been speculated upon.

Quite a bit in recent days and weeks, but from our perspective.

Things are saying, obviously when you become a much bigger company is we have been the intensity starts to pick up because youre just in more places and youre contesting in more places and so on with fundamentally to dynamic.

As we have characterized.

Previously so theres really nothing terribly noteworthy in this area.

Okay. That's good to hear thanks ranking congrats again.

Thank you. Your next question comes from the line of Raimo <unk> from Barclays. Your line is open.

Thank you.

I apologize for asking the question but.

You don't have a lot of the legacy players you ask okay, how is customer behavior changing now.

The pandemic is getting better we have like recovery talks and stuff like that I mean your growth has been so strong over the last few quarters.

Throughout the whole life, but do you see.

Change in customer behavior in terms of contract size contract lengths and stuff like that coming through that that we should think about that.

We might think about it and then I had one follow up.

I haven't seen any real change in contract duration still the majority of our customers start.

Any day, one year contract and then on the renewals when they do a multiyear contract.

We did see our HCV pick up but in terms of deal size its actually remained pretty consistent.

There.

I will say there are some new customers. We're in discussions with that are willing to do bigger.

With first year deal, but they are one year deals with them, but.

I don't think thats going to change the ramp time to any of these customers historically, they just take nine to 12 months to really ramp a large customer.

Yeah, Okay, perfect and then one follow up more for Frank.

Maybe.

If you think about initially.

The discussion was like Snowflake as a teradata competitor, but that's what we see now more and more as like you as a data platform more guidance broken with you. How do you see that that mix evolving how customers see you versus like some of the old traditional players.

Future it almost feels like Youre moving way beyond that and it's kind of a long discussion that we're having here. Thank you and congrats from me as well.

Yes, it's not entirely the wrong discussion to have I mean, you. Both these dynamics are playing out.

At the same time there.

There are tons of discussion going on.

In terms of the legacy placements I mean, you mentioned teradata.

The reality of the Teradata World is it's not that easy to pick up the workload and move it has cost a lot of money.

Sure.

I think teradata has done a good job, making your bloody hard to to move up there.

Our platform.

Kudos to them, but were still up 30% year on year in terms of.

Teradata replacements.

So that will that will play itself out over time is it going to happen is just as it go and go faster they're going to slow it is going to happen, it's not going to stay.

But you are also correct.

Those are traditional data warehousing workloads and obviously, we're the king of doing that sort of thing, but as I commented earlier, we're busting out in all of these verticals and all of these new use cases that are going way beyond data warehousing data cloud is the evolution of the data warehouse that is the way to think about it right.

It's incredibly enhanced vision of what data warehousing wants right. So that's where our people want to go to I don't want to replicate the data warehousing legacy in the cloud that is.

There is a missed opportunity and that's why there's so much new energy and new dynamics going on because of what is now possible that wasn't before.

I'll also add Raimo too, it's not just heritage if theres piles of Hadoop on Prem cloud era that we're doing and we're in discussions with many customers who still have multiple years left on those contracts, but they are all in discussions to move to snowflake.

Perfect Okay.

Yes.

Before.

Yeah, Okay, Hey, congratulations.

Thanks.

Your next question comes from the line of D. J Hynes from Canaccord Genuity. Your line is open.

Hey, guys, great set of numbers here, Mike the net revenue expansion metrics standup.

You can continue to impress I am just curious as the base ages.

Are there any consistent signals that this expansion starts to plateau or normalize either at a certain time period and threshold I don't know if theres cohort data that you can share I'm just trying to think about how this plays out longer term as the business matures.

Obviously.

<unk> longer term it will come down as our customer base becomes larger.

I think we've only been selling product for what five years now six years and remember this is going back two years looking at it I don't see any real slowdown in the near term future, but definitely over.

Obviously that number will come down.

Okay.

And then Frank one for you as you continue to introduce new solutions features functionality will there always be aimed at driving incremental consumption or do you see snowflake ever introducing additional non consumption based.

<unk> skus that could add different layers. So the revenue model.

Well.

We.

We are very focused because if we look at the world through the lens of consumption that is true and thats, how we seek alignment but.

One area that comes to mind that is not consumption basis.

Base through the monetization models that we are developing for data and data applications.

So that will also drive consumption, but it will also have a transactional component that will be yes.

Completely different business model than consumption.

Yeah right right Okay.

Thank you guys congrats.

Your next question comes from the line of Derrick Wood from Cowen Your line is open.

Great. Thanks for taking my questions.

Frank I wanted to start a couple of questions and verticals. Obviously, you guys highlighted financial services and I'm just curious if you're seeing a trend of new use cases that you know is it is it customer 360.

Is it trading is it broad detection cyber security anything you'd highlight as trending upwards and then on a different vertical at retail.

Are you, having any early traction kind of moving beyond analytics into operational automation like like inventory management supplier management thinks.

60.

Automate from an operational standpoint.

Well, obviously, we have large customers.

Yes, the card, who obviously have revolutionized.

Retail and obviously they have.

Very important relationships with the large.

Retailers all over.

Thanks.

The use of snowflake.

All kinds of new opportunities for insights.

For for optimization. So retail is hot it's really the combination of retail with the CPG consumer packaged goods providers the amount of data that move.

To play back and forth between these entities and the insights that can know.

Be derived.

How much faster these insights.

Being derived.

Yes.

In retail.

<unk>.

A business that has to come a long way.

Yeah.

Moving up sophistication.

It used to be it is very difficult for them to have accurate inventory levels, and really know where to restock and how it a restocking.

Things like instant card have really helped because they run <unk> across all the stores. They know exactly what's there was not there.

Yeah.

The new value.

Brought in terms of data.

In terms of verticals.

I can go on and on about one vertical after another in terms of what's going on there I mean, I remember, having a conversation with the Chief Science officer out of Big Pharma and.

They were saying that they view the biggest impact.

And the World of life Sciences in terms of People's longevity and quality of life we.

Will come from data science, and we will not come from life Science, which are really enormous statements to come out of life Sciences companies that they think that the enrichment.

<unk> of data is going to create insight in terms of the effectiveness.

Of treatments and therapies and protocols and so on they are they're going to have.

An enormous effect so that's that's why.

Two do you see data, becoming insanely important to all these different verticals because of the impact that it's going to have on what these people do for living.

Great. Thanks, and one for Mike, obviously impressive to see that 169% net revenue retention.

You had said at least 60.160.

At present this year youre kind of pushing that close to 170 are you should we still be thinking about at least 160 and what do you see as the biggest drivers that could generate upside to your expectations.

I don't think it's going to go up I think we're going to continue to be above $1.60 for the balance of the year, what I said last quarter.

Hi, Hugh.

And you know our large customers just continue to.

Increase their consumption if I when I look at the forecast for this quarter.

Our largest customers are continuing to consume at a very rapid pace.

That's great congratulations thanks.

Your next question comes from the line of Dan Church from Goldman Sachs. Your line is open.

Hi, Good evening. This is Dan church on for Kash RNG and thanks for taking the question just piggybacking on that net expansion rate, obviously 169 really healthy when you look at your large customers. How do you think about the.

That you have.

The share of wallet perspective, and how big Snowflake and ultimately become in terms of a line item and how sustainable that that 160% number is and then when you look at your million dollar customers can you give us a sense of how much of that is fortune 500 versus customers that may fall below that threshold.

So.

Let me go first Mark if you can go second on the second part of the question.

It's just really hard to predict where the ship is going to hit the beach because it is so dynamic there's so much latent pent up demand. There is so much opportunity. So it's really not that helpful to look.

Historical spend and try to extrapolate that into the future.

You see that in our net revenue retention rate. It is strictly the fact that it's now possible, we're enabling that demand is why it's happening right. So can foretell.

<unk> exactly what that's going to be no. We can't we're just going to follow it to two.

Where it leads and we're going to enable that to the maximum extent, but I can't put a stake in the ground and say this is what it will be.

Yes on your question.

Fortune 500, and I just wanted to remind people fortunate 500, it's very much a U S centric term.

And the fortunate 500 account for roughly 25%.

Our million dollar plus customers.

We have a number of global 2000, we started looking at global 2000, I think we now have 462 of the global 2000, we will start reporting on that next year.

But <unk>.

Clearly large customers are what are driving those that million dollars, there's a lot that aren't <unk>.

Over 100 that are large customers.

And we think that will continue to be the case, yes. The fortune five hundreds have big wallets and those will be some of our largest customers and we think that will continue to be the case.

In terms of your net revenue.

Retention.

I'm not going to guide long term.

It is hard to do that I'm, just going to say reiterate again, what I said to Derrick as we will stay above 160 for this year and I do expect longer term as our customer base bigger and bigger and more mature that number will come down, but I still think it will be well above $131.40 for a very long time.

That's really helpful. Thank you.

And then just a quick follow up I mean, we talked about their storage compression improvements last quarter and some of the impact on gross margins as revenue mix shifts more towards compute and then when you layer on kind of the opportunity you have it and data sharing to drive incremental compute or unit of storage how.

How do you think how do you see that impacting gross margins over the next let's say 12 to 24 months.

Well, we saw it right now and I'm not expecting a big increase in.

As a reminder, we do new storage compression technology every two years, we just rolled that one out.

Last quarter.

<unk>.

Storage is running just under 10% of our total.

Revenue.

And so clearly.

Computers, what's driving the margin, though and we think with data sharing there'll be a higher percentage of compute going forward I don't expect it to.

See much improvement.

On the storage side.

The biggest driver though of gross margin is as we move into larger customers that are buying enterprise and business critical that is more software rich that drives the gross margin.

That's really helpful. Thank you.

Yeah.

Yes.

Thank you. Your next question comes from the line of Pat Walraven from JMP Securities. Your line is open.

Hi, This is Joe on for Pat.

Great to see the strength of the APAC and the Asia Pacific region.

I guess at what point would it make sense to expand full force.

Cloud in the region like Alibaba cloud.

What's the thought process there any color would be great. Thank you.

Yes, let me let me just say.

First off we haven't made a decision as a company that we need to move into China.

Because China is now integral.

The world economies.

A separate market.

And our largest customers are demanding and sustained we'd be there.

We're literally in the middle of figuring out how to beta and we're reevaluating.

All of those options.

We are in one flavor or a cloud or another defense a whole lot on what type of a dynamic we're anticipating we've learned.

Isn't a bunch from being with Amazon.

With Microsoft and being with Google and we're certainly going to take those learnings into that market as well Christian do you have anything you want to add to that I would add that.

We like meeting customers, where they are and they guide very much our our deployment regional as well.

That's S cloud.

Deployments as Frank said, yes, we want to go in China, and he's working with our customers that we determine how we do that.

Thank you.

Thank you there are no further questions on queue.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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