Q4 2022 Snowflake Inc. Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today.
At this time, I would like to welcome everyone to the Q4 fiscal year 2022, Snowflake earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press star one. Thank you. It's now my pleasure to turn today's call over to Mr. Jimmy Sexton, head of Investor Relations. Sir, please go ahead.
Good afternoon, and thank you for joining us on Snowflakes Q4 fiscal 2022 earnings call. With me in Bozeman, Montana are Frank Sweetman, our chairman and Chief Executive Officer, Mike Scarpelli, our Chief Financial Officer, and Christian Kleiman, our senior Vice President of product will join us for the Q&A session. During today's call, we will review our financial results for fourth-quarter fiscal 2022.
And discuss our guidance for the first quarter and full-year fiscal 2023.
During today's call, we will make forward-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 after market close today and in our SEC filings, including our most recently filed Form 10-Q, and the Form 10-K for the fiscal year ended January 31, 2022 that we will file with the SEC. We caution you to not place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information future events or changes in our expectations.
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We'd also like to point out that on today's call, we will report both GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operational decision, making purposes and as a means to evaluate period to period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. To see reconciliations of GAAP to non-GAAP financial measures.
Please refer to our earnings press release distributed earlier today, and our Investor presentation, which are posted at investors.snowflake.com. A replay of today's call will also be posted on the website. With that, I would now like to turn the call over to Frank.
Thanks, Jimmy and good afternoon, everybody. We finished fiscal 2022 with a record-breaking consumption in bookings results.
Revenue surpassed $1.1 billion for the full year growing 106% year over year remaining performance obligations were $2.6 billion representing year on year growth of 99%.
Q4 was our strongest bookings quarter to date and include a number of large multiyear commitments.
Our net revenue retention rate reached 178% driven by continued growth from our largest customers. In the quarter, we added 14 Fortune 500 and 21 global 2,000 customers.
Key enterprise wins included the California Department of Public Health and KPMG, who is also a new alliance partner.
We closed the year with $150 million non-GAAP adjusted free cash flow.
High growth with improving unit economics and operational efficiency.
Snowflake's growth is driven by digital transformation and a long term secular trends in data science and analytics enabled by cloud scale computing and Snowflakes cloud-native architecture.
Snowflake is a single data operations platform that addresses a broad spectrum of workload types when incredible performance economy and governance.
As a platform, Snowflake enables the data cloud world without silos and the promise of unfettered data science.
And the most recent Dresner Advisory survey, 100% of Snowflake customer surveyed said they would recommend snowflake to other organizations for the fifth year in a row.
Our focus is to continually enable more workload types use cases data types. This fully aligns with our consumption model, which drives worked through the data instead of data to the work.
During the fourth quarter, we announced several product development milestones, including Snowpark, our develop a framework that helps data scientists and developers transforming program data.
Snowpark for Python is now in private preview and Snowpark for Java on AWS is now generally available.
We now support compliance with the international traffic in arms regulations in our Microsoft Azure government and AWS Gov cloud regions.
Currently available data governance capabilities, including object tagging and conditional data masking.
Object tagging in particular is important for cataloging of data and resource consumption governance.
And continued advancements with higher concurrency and lower latency workloads.
Snowflake data sharing is seeing continued traction in the field in fiscal 2022, the number of stable edges grew 130% year on year.
18% of our growing customer base has at least one stable that is up from 13% a year ago.
Snowflake's data marketplace listings grew 195% this year now with more than 1100 data listings from over 230 providers.
Snowflake data marketplace fuels our rich application development ecosystem and powered by Snowflake program.
Today, there are over 285 powered by Snowflake partners, including New members Yexed and hub group.
We continue to elevate our go to market functions with an industry specific focus in the fourth quarter, we hosted our first media data cloud summit.
The event highlighted real-world customer use cases. Companies like Experian, Roku and Warner Music Group showed how they are leveraging the media data cloud to protect consumer data drive advertising and subscriber growth.
Our priority for the year is essentially unchanged.
And it is as follows. First, the enablement and expansion of our workload types. Nothing is more core to our mission to develop the data cloud existing workload types of data Lake data engineering and data science develop continuously become more functional efficient and performant.
Performance.
New workload types will be announced later this year. Our focus on Snowpark, and enabling workload driven by languages, such as Java and Python fall under this header. Today, we announced our intent to acquire streamlet to accelerate data applications development on Snowflake stream.
Streamlit enables data scientists to build deploy and share data applications. Data scientists will be able to discover a government data to build applications powered by Snowflake. One and a half million applications have already been built on Streamlit and we will continue to invest in the open-source framework that developers love.
We've agreed to pay $800 million with a mix of cash and stock. The transaction is subject to customary closing conditions.
Secondly, we're expanding our use cases by vertical industry as well as functions such as IT, sales, marketing, finance and engineering.
Sales marketing finance and engineering.
We're continuing to drive collaboration through data sharing leading enterprise software companies to drive this trend.
Third, as of February 1st, we have also vertical as part of our selling motion to address our largest customers by industry.
Lastly, we will continue to deepen and broaden our geographical scope expecting faster growing contributions coming from outside the United States.
We're excited about starting a new Snowflake fiscal year. With that, I will turn the call over to Mike.
Thank you, Frank. Q4 was another quarter of exceptional execution and strong finish to our fiscal year. Q4 product revenues were $360 million, representing 102% year over year growth. Remaining performance obligations accelerated to 99% year over year, reaching $2.6 billion.
Billion.
Of the $2 6 billion in RPO, we expect approximately 52% to be recognized as revenue in the next 12 months, representing 85% year over year growth.
For Q4 product revenue, we anticipated holiday season headwinds. However, we did see a slower than expected return to normal consumption in January. We also introduced platform enhancements that improved efficiency higher than expected, which lowered credit consumption.
Our increased net revenue retention rate of 178% includes 15 new $1 million customers and reflects a durable growth among our largest customers. Smilar to last quarter six of our top 10 customers product revenue grew faster than the company overall.
Industry vertical investments are yielding strong results Q4 was our largest bookings quarter to date and the outperformance spanned across our core verticals financial services retail and CPG advertising and media healthcare and technology accounted for 85% of net new bookings in Q4.
Large deal volume continues to increase in these verticals in the quarter, we closed seven deals at or above $30 million in total contract value up from just one in Q4 of last year significant contractual commitments gives us confidence that our largest customers consumption will continue to grow in Q4.
We saw a number of customers with greater than $1 million in trailing 12 months product revenue increased to 184 up from $108 48 last quarter. Turning to margins. On a non-GAAP basis, our product gross margin was 74.99% up nearly 500 basis points from last year.
Enterprise success in growing scale across regions contribute to steady gross margin improvement.
Operating margin was 5% benefiting from revenue outperformance at hiring linearity, our adjusted free cash flow margin was 27% positively impacted by strong collections and operating margin outperformance, we do experience free cash flow seasonality in Q1, and Q4 will continue to be our strongest free cash flow quarters.
Operating margin was 5% benefiting from revenue outperformance at hiring linearity, our adjusted free cash flow margin was 27% positively impacted by strong collections and operating margin outperformance, we do experience free cash flow seasonality in Q1, and Q4 will continue to be our strongest free cash flow quarters.
Given the record record bookings in Q4, you should expect to see outsized adjusted free cash flow in Q1 of this year. We are proud of our free cash flow progress and we will continue to invest for growth with a focus on efficiency, we are committed to showing leverage year on year.
We ended the year in a strong cash position with approximately $5.1 billion in cash, cash equivalents and short term and long term investments. Going forward, we are using our strong cash position to transition to a net share settlement for vesting of employee or issues in almost all countries. This will help us further managed solution which is.
Already been running below 1% year on year on a fully diluted basis.
Now, let's turn to guidance, which includes the full impact of the Streamlit acquisition.
For the first quarter of fiscal 2023, we expect product revenues between 385 and $388 million.
Representing year over year growth between 79 and 81% turning to margins, we expect on a non-GAAP basis negative, 2% operating margin and we expect 359 million diluted weighted average shares outstanding.
For the full fiscal 2023, we expect product revenue between $1.88 and $1.9 billion representing year over year growth between 65% and 67% as we have mentioned before certain product improvements create a revenue headwind for our business. We undertake these initiatives because.
They benefit our customers and expand our long term market opportunity. Last year, we called out improvements in storage compression that reduced storage costs for our customers. Similarly phased throughout this year, we are rolling out platform improvements within our cloud to point deployments. No two customers are the same but our initial testing has shown performance
improvements ranging on average from 10% to 20%, we have assumed an approximately $97 million revenue impact and our full-year forecast, but there is still uncertainty around the full impact these improvements can have. All these efforts negatively impact our revenue in the near term, overtime daily customers to deploy more workflows to Snowflake due to the improved economics.
To snowflake due to the improved economics.
Turning to profitability for the full year fiscal 2023, we expect on a non-GAAP basis 74.5% product gross margin, 1% operating margin and 15% adjusted free cash flow margin and we expect 360 million diluted weighted average shares outstanding.
Our gross margin guidance includes performance improvements and investments in additional deployments around the world, most notably government deployments and international.
In order to support our continued growth initiatives, we plan on adding more than 500 net new employees during the year and lastly, we will host our in-person Investor day. The week of June 13th in Las Vegas in conjunction with Snowflake Summit, our annual users conference. If you're interested in attending please email IR@Snowflake.com.
With that operator, you can now open up the line for questions.
At this time I would like to remind everyone.
In order to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Rod [inaudible] with Deutsche Bank. Your line is open.
Great. Thanks, it's actually Brad Zelnick for Deutsche Bank.
Congrats on an amazing quarter and a strong finish to the year. Mike, I wanted to drill down a little bit more into the platform enhancements that you talked about that resulted in optimization and consumption efficiency in the quarter.
And you mentioned I think it had a 10% to 20% ink impact.
And you called out the $97 million.
That I think you've baked in that's going forward. To what extent does that compare to the expectations that maybe you had in your forecast? But more importantly, how should we think about the slope of the curve and cadence of future improvements that clearly benefit the customer, but the impact that then has on the model? I guess, maybe the confidence that you have in calling out 97 million.
7 million.
Yes. Good question, so first of all.
As an example for Q4, there was a rollout of what we call our warehouse scheduling service. We only rolled that out in January for three weeks, and we saw $2 million improvement or impact and improvement for our customers using less by doing the same number of queries because they're not.
What we call our.
Warehouse scheduling service, we only rolled that out in January for three weeks, and we saw $2 million improvement or impact and improvement for our customers using less by doing the same number of queries because theyre not.
It's much more efficient when you're scheduling inquiries to run them and rolling that out for next year. That is much bigger than what we're anticipating in the full-year impact of that next year is quite significant but what we generally see is when we do these things. So there's usually a lag of about six months when we start to see more workloads move to Snowflake and then there is other platform improvements.
That we're doing that we rolled out in a beta in Q at the end of the quarter and it's starting to be rolled out now throughout the year. And the growth is actually more like $160 million, but I do expect that will be offset by over $60 million in additional workloads coming from our customers.
Rolled out in a beta in Q in the end of the quarter and it's starting to be rolled out now throughout the year and the growth is actually more like $160 million, but I do expect that will be offset by over $60 million in additional workloads coming from our customers.
And in terms of what we're expecting, we knew these were going to come next year and we never gave any guidance for next year yet. So it's within what we were guiding. I just want to remind people of these.
It's very helpful context, Mike and the growth that you're delivering at scale I think is unprecedented. Maybe a real quick follow up for Frank. As we contemplate the results and the guide for next year, is the Streamlet acquisition, which congratulations on it by the way.
Any response to competitive changes in the market or is this something that you know has been teed up and part of the vision for a while?
Alright. Hey, Brad. It's Frank.
This is definitely part of Australia as you focus that we've been talking about and making announcements on.
For the better part of last year, and that's the focus of driving.
Workloads really from the developer to Snowflake, we've been obviously super successful.
To drive it from the data engineering, data warehousing and data analytics side.
But what the initiatives around Snowpark, all the program ability options.
For us to really address.
The Python developer community.
This is going to be a superb asset for Snowflake.
For Snowflake.
So we have to address workloads across the spectrum.
And this is going to help us do that in places where we historically have not been as well represented.
As we've been in other areas.
It's a great asset. Congrats on the deal and thanks for taking my questions, guys.
You bet.
Yes.
Your next question comes from the line of Mark Murphy with JPMorgan. Your line is open.
Yes. Thank you very much and I'll add my congrats on just a very strong bookings quarter that you're reporting here, especially on the RPO line.
I wanted to ask about the comment on the slower than normal return to consumption growth in January. Plenty of other software companies saw slower consumption over the holidays. I'm curious did you get any sense of what occurred in January that might have driven that behavior, perhaps relating to omicron?
Or other factors and have you seen that change in any direction so far in February?
Yes, so as I said.
We did see kind of a little bit more of a holiday effect going into January whether people were taking longer vacations I don't know, but we did see it return to more normal in January.
And you do see. About 70% of our work is really driven by machines and the other 30% is humans and that machine and we can see that machine layer stays consistent on a daily basis.
About 70% of our work is really driven by machines and the other 30% is humans and that machine and we can see that machine layer stays consistent on a daily basis.
And it's the human interaction that changes and we did see a decrease in human interaction early in January which leads us to believe people are taking vacations. As an example last week, we look at it on a daily basis was President's week and ski week for a number of people, we see a decrease there as well too.
But then we see a return in a week like this.
Okay, understood. And just ask a quick follow up I think recently, you've had favorable spread where retention. It seems like it's giving you 70 points or more of revenue growth, but you've had the product revenue has been growing around 100%. Do you have any sense of how that relationship could end up playing out in fiscal year '23?
Just given the dynamics with the platform improvements.
Well, I don't even try to pair net retention with revenue growth rates, but I will say.
Definitely our net revenue retention will go down next year because of all these improvements, it will stay above 150, but it's not going to stay in the 170s.
Understood. Thank you very much.
Your next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open.
Okay. Thank you very much for taking my questions.
Frank, you mentioned that.
As of February 1st, you implemented changes with respect to verticalizing your sales motion. Can you elaborate on that? It sounds like you are seeing real progress with respect to verticalization. Just trying to get a sense of how substantial are these changes may be as you guys can kind of go after that opportunity.
Yes, first of all, this is not a re orientation of our entire selling motion as really the upper stratum in terms of our large account focus.
We really replace the geographical backbone within that was an industry.
Equivalent of that because we don't think fourth for large account the geographical breakdown really adds anything.
We've been talking on this call probably I think for the last four quarters.
We are really in all aspects of our business, bringing a much stronger industry aperture to everything we're doing. Sales organization has been working all of last year.
Industry, operator to everything we're doing sales organization has been working all of last year.
On making this transition happen so I know [inaudible] came around.
Everybody is fully up to speed, we're locked and loaded to let that go but the broader context to industry orientation is that.
Our selling motions and really our whole posture towards the industry is really shifting from a workload oriented way of thinking.
From a workload.
To really to what are the use cases of the customer needs to address I will tell you that in my almost three years here.
Initially, I mean all of the conversations were around.
Architecture and moving workloads from on-premise to cloud and how our database migrations are.
And today, 9 out of 10 conversations.
Are industry specific very very industry specific.
Oftentimes not necessarily with IT types.
With business people and data science types. Oeople are really trying to.
Drive predictive insights into the business. Things that are becoming possible that's never been done before.
The company really wants to evolve.
Towards this posture in the marketplace. It doesn't mean that we're going to walk away from workload transitions and others that is bread and butter, we're going to be doing that for four ever literally because we're still in the very early stages of that transition as well, but we think the industry posture is all about us assuming the customers' point of view right.
And then our own and we think that's correct way to do things.
Super helpful. Thanks for that and then just as a follow up so obviously, having Java available on Snowpark is great. We think eventually getting Python.
To be GA is going to become a big deal and Streamlit clearly enhances your exposure to Python, but what are your expectations of adoption of Snow Park over the next 12 months? How do you see this progressing?
I take that Christian. Yes, sure. Hi, this is Christian. I don't know how to project as a percentage of the overall consumption, but if you just look at it at current adoption.
Java is trending quite well, we see migrations from Spark.
From Hadoop and other workloads.
And I can also share that for Python right now we have.
Way more customers requesting access to the preview that we can onboard currently.
Way more customers requesting access to the preview that we can onboard currently.
So the answer is super high. They generate a lot of consumption, trends are very positive.
Alright, terrific. Thank you.
Your next question comes from the line of Keith Weiss with Morgan Stanley. Your line is open.
In the guidance is there a significant revenue contribution.
Is there any significant sort of operating margin lag that we could be aware of? Keith, sorry.
Keith, your first part of your question was cut off we couldn't hear it. Could you start from the beginning and reask that?
Sorry. Yes, I was just asking about the FY '23 guidance. You mentioned that Streamlit was in the guide.
But didn't give us much detail in terms of how it is in the guide. Is there a significant revenue contribution or operating margin impact that we should expect from the acquisition?
Yes, there is about $25 million in expenses associated with Streamlit. But there is no revenue. Streamlit that has no revenue or its de minimis is less than 100,000.
About $25 million in expenses associated with stream, but there is no revenue stream that has no revenue or its de minimis is less than 100000, and we won't be.
And we won't be having a product ready on Streamlit late until the end of the year. So we're not factoring in any revenue that could come sooner.
Got it, got it. And then when we think about the impacts from the platform improvements. Obviously, you are calling out the revenue impact.
From the way that we look at the numbers and that net dollar expansion rate I would assume that that's also going to see a impact. Any way you can help us kind of understand what the impact on that is going to be on a go-forward basis?
Yes, well. I did say earlier on one of the questions that net revenue retention is definitely going to come down.
I did say earlier on one of the questions that net revenue retention, it's definitely going to come down.
We're not going to guide to net revenue retention, it's hard to do I'll, just say it will be above 150, but it's definitely going to drop below 170.
Below $1 70.
Got it.
That's super helpful, thank you guys.
Your next question comes from the line of Keith.
Sorry. Your next question comes from the line of Camille [inaudible] with William Blair. Your line is open.
Hi. Thanks for taking my question. Congrats on a strong year.
You've delivered very strong net expansion rate.
Impressively, I think accelerating our already strong level this quarter.
Can you provide some detail around some of the specific drivers?
How should we think about the relative contribution among the adoption of new workloads?
More data is being loaded onto platforms for existing use cases, and maybe expansion into newer departments within existing customers.
Well you see the net expansion rate of 178 for the quarter that is really driven by expansion, obviously within existing customers and it's a combination of new workloads or new divisions within companies. And it's across the board. New use cases as well too in there.
And there.
Can't give really much more color than that.
Snowball effect.
Yeah.
That's helpful and just a follow up on the customer counts. So your net new customer growth I think was down slightly in the last two quarters. I realize that the long term expectation is for Fortune 500, and other $1 million customers to generate the majority of your revenue I think 77% with a long term target.
How should we think about the pace of total customer growth going forward? Is it beginning to stabilize? And are we getting to a point.
Where maybe you've landed a large portion of the Fortune 500, and the focus begins to shift more from landing new customers and more towards expanding within existing.
Yes, so to be honest, we don't focus on absolute number of customers is more on the quality of customers and as we've talked about before a Fortune 500 is not a great metric.
Because it's too US centric.
And we're actually focused more on global 2000. It doesn't mean we're not focused on fortune 500, and I will say global 2000 excludes the public sector and large private enterprises. So it's really going after quality large customers is what we're going after and you will see fluctuation in the number of new customers.
We land in the quarter, but that fluctuation tends to be from small customers.
And I just wanted to remind you to these sales cycles into these large customers, we don't find an opportunity in the quarter and closing in the quarter for a new deal. These are 1, 2 sometimes 3 year sales cycles to break into these large organizations and those are the ones that become the 10 million dollar plus customers.
As I said, we now have 184 paying us north of $1 million a year and we're very pleased with that growth up from 148, and we see based upon the ones that are just on the cusp of a million that number will continue to increase.
Yes, that's great. Thanks, and congrats again.
Your next question comes from the line of Derrick Wood with Cowen. Your line is open.
Thanks. First question, Mike, just wanted to touch back on the seasonality and consumption. Can you just talk about how the consumption piece came in versus your expectations? And maybe compare that with how new bookings and sales productivity came in versus expectations.
I would say the quarter actually came in pretty much where we were expecting.
Slightly off from consumption in January but not a huge amount.
I will say and I called it out, we were surprised at and enhancement we rolled out the profound impact of it. It was only out for a few weeks in January and added $2 million impact. Other than that we landed from a revenue standpoint, where we were forecasting and guiding.
Where I was really surprised with the strength in bookings in the quarter. You saw we closed over $1.2 billion in contract value in the quarter growing our RPO to 2.6 billion. That was well above what we were planning internally. The other thing I want to call out too as we co sold.
With the cloud vendors $1.2 billion in contract value for the year as well.
The cloud vendors $1 2 billion in contract value for the year as well.
Great, that's helpful color.
For Frank a question, wondering how you're thinking about the opportunity around security.
I guess as you look into the new year.
How much demand are you seeing around customers wanting to build security data lakes or security analytics on your platform? And is there anything you guys may look to do to lean in more aggressively?
Yes. We're going to make announcements on this topic later on this year.
Yes. We're going to make announcements on this topic later on this year.
We're going to make announcements on this topic.
Later on this year.
Uh huh.
But that has [generation] priority and focus quite a lot for Snowflake.
It's one of the best add-on selling motions that we have in large accounts.
Snowflake is just an ideal platform for hosting that type of capability.
So you will see us lean into that opportunity a lot more going forward.
Thanks for taking my questions.
You bet.
Okay.
Your next question comes from the line of [D.J. Hynes] with Canaccord Genuity. Your line is open.
Hey, guys. Frank, a two-parter for you on the data sharing stopped. So the customers that have embraced data sharing, how long does it typically take for them to get there? Like can that happen quick or is it typically more with customers that have been on the platform for a bit? And then the follow up that part two would be how much of an inflection in consumption does that typically drive?
Frankly, a two parter for you on the data sharing stopped so the customers that have embraced data sharing how long does it typically take for them to get their like can that happen quick or is it typically more with customers that have been on the platform for a bit and then the follow up that part two would be how much of an inflection in consumption.
Does that typically drive.
Well, your first question.
Most of the time. Not all the time, but most of the time customers have other priorities in terms of transitioning their databases and their workloads.
Not all the time, but most of the time customers have other priorities in terms of transitioning their databases and their workloads.
Before they get onto data sharing if they weren't doing that before.
Get onto data sharing if they weren't doing that before.
But it's also quite possible that we have workloads that are driven by data showing as a core premise and obviously then it's something.
It's something.
That is the starting point and that's something that's sort of the comes several iterations later.
Several iterations.
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So it's all [defense] and so historically our business has been very must been a modernization play from existing workloads. And this way you have to wait sometime before we'll sort of get their sea legs under them and they sort of move on to these opportunities.
Modernization.
Play from existing workloads and this way you have to.
Wait.
Sometime before we'll sort of get their sea legs under them and they sort of move on to the duties opportunities.
But that study is starting to change as we said in our prepared remarks.
We now have 18% of our customers, having at least one stable edge as far as their platform and that was up from 13% last year.
Last year.
So the data cloud is really operating and others with our rapidly growing customer base underneath that.
Underneath that.
The second part of your question.
Just how much of an inflection that is in consumption.
Well, it hasn't been an extraordinary inflection and consumption in terms of data sharing driving consumption per se, but now doing sharing as a core underlying capability of an overload of an overall.
Workload footprint, so, it's really important that change rather than sort of separately and data sharing out as a specific workload driver.
Yes, got it and Mike a very quick follow up for you. Of the 800 million for streamline how much is cash?
It's roughly 80/20, 80% stock and 20% cash.
80% stock. Okay. Got it, thank you.
Your next question comes from the line of Kelly [inaudible] with GIS. Your line is open.
Hi.
Lastly, our guys. Thank you so much for taking my question.
I'm curious to get your your your.
Best case scenario for Us Kimberly Greenberger Green vision, two or three years from now what its doing thats going to allow <unk> to pursue in the machine learning data science ramp that would consider this to be a success in <unk> and <unk>.
Mike a question for you I know that you mentioned that you pass along savings practice uplift, but customer close to coming back and doing more workloads with you guys. So.
You can just run through the rationale of why do you think that illustrates net retention rates are going to well below $1 50, because its coming off of a very very high based on your Apple earn the goodwill and trust of your customer. Thank you so much.
I'll answer first and then I'm going to turn it over to Christian who is very passionate about streamlet.
And what it can do for us. So in terms of your question on the enhancement, we're doing listen we're running at 178% net revenue retention. These are extremely high numbers.
Such big numbers to begin with those percentages and just the law of numbers as we have new customers that are.
Coming into the pool that we blend it remember that looks back two years ago, a customer has to be on for two years that number will go will come down.
The efficiencies, we're talking 10% to 15%, 20% it depends upon the customer based upon the platform that has to come down that number.
And as I said it will remain above 150 for quite some time, but I do think it's going to drop below $1 70 for the full year on average next year.
Okay, and I'll comment Christian here, a comment on <unk>.
You recall at our Investor Day last June we shared our vision to help organizations of all sizes build applications data applications and data experiences on snowflake, while we see with extremely days they are super easy to use framework.
Powering all sorts of applications, both for internal consumption of data within companies, but also coming to our marketplace and helping entire businesses some of them industry vertical businesses some of them horizontal experiences but.
At the end of the day unlocking the power of data and creating new data experiences.
Okay.
Your next question comes from the line of Tyler Radke with Citi. Your line is open.
Hey, Thanks for taking the question so Mike your long term free cash flow guide at Analyst day was for 15% at $10 billion.
Product revenue and it looks like Youre guiding to 15% free cash flow margin.
For FY 'twenty three so maybe just give us a sense for what's driving that big.
Outperformance and how you're able to.
Achieve that so much sooner or is it is it mainly the efficiencies that you've discovered over the last year just help us understand that.
Couple of things, we're entering into larger customer relationships and you can see.
Customers consumption is is picking up and which are resulting in renewing contracts early which drives that free cash flow.
I do fully expect as I said on last call that we will be revisiting our longer term free cash flow and operating margin guidance I do expect it will come up considerably.
Before I'm not going to remember now.
And I want to remind people to don't be surprised when there is a really big free cash flow number in Q1, because of how bigger bookings were but over the year in that 15% is the full year and there is seasonality with Q1 and Q4 being.
The highest of the four quarters.
Got it and maybe just on the quarter or as you recap this past year, how did kind of the number of replacement deals.
The legacy on Prem data warehouse.
How fast does that number grow and just kind of what are you seeing in the pipeline as well on that on the legacy replacements.
Well most of our net new customers tend to be a replacement of some legacy some can be.
Cloud Gen, one cloud products as well too, but most of the large global 2000 tend to be on premise.
<unk> and you can see that in our <unk> ads and our fortune 500 ads, but there is a lot of growth as well within existing customers and that continues to be very strong for us as well.
Yeah.
Thank you.
Your next question comes from the line of Raimo <unk> with Barclays. Your line is open.
Thank you.
Quick question two quick question, if I may squeeze it in.
And Mike if you look at other vendors if they have product improvements that actually seats per customer cost of usually have like a sharing model of like the customer gains something and you gain something through maybe like price increases etcetera is that something that over time could happen or are you really happy to continue to give all the benefits back to customer.
And then for Frank just briefly any any update on the unstructured data opportunity because I remember that was a big focus for this year. Thank you.
Yeah. So our whole philosophy is any improvement we do.
We will benefit the customer, but it benefits us long term to because anything we do allows them to do more with the credits they bought the price they pay a certain price per credit they can run more queries per credit they buy and what happens is when customer sees their performance per credit and it's trending the that.
That is getting cheaper for them to run things.
Realize they can do other things cheaper instant flake and they move more data into us too.
Run more queries and so we have no intention on for existing customers increasing their pricing what I will say is our new customers coming in.
We'll be very disciplined around discounting with new customers.
On the topic Raimo on structured data on that that's actually the uptake has been.
It's been quite strong on that.
We were expecting as and that's exactly what's been happening I mean, there's some really interesting new opportunities were.
Data models are looking for relationships between.
On structured data types and other types of data types things that just weren't possible before that are now enabled by the platform.
So are we.
We are driving this hard to and we have tremendous expectations for unstructured data in general and the potential.
Four four for data science innovation, and new data applications and also in the context of the streamlined acquisition. This is this is going to do.
This is going to get very interesting for us.
Okay. Okay perfect. Thank you congrats.
Your next question comes from the line of Brent <unk> with Piper Sandler Your line is open.
Yeah.
Thank you and good afternoon, Frank I wanted to go back to the workload discussion I think one of the things that stood out to us over the last quarter was just a number of enterprises turning to snowflake for supply chain customer support sales enablement, even machine learning workloads I get data warehouse.
Migrations will be the bread and butter business, but how big of an opportunity do you see in expanding the snowflake footprint into these departmental areas and how fast is that are.
Those workloads shifting to snowflake any color there would be helpful. Thanks.
I think it's important for everybody on the call I understand that we are super early innings in terms of the total opportunity.
What is what people are going to attempt to do with data with us because the technology is running up front is enabling things that have never been done before now it's not like throwing the switch and all of a sudden everything is blinking green.
We're in conversations almost every day now with customers that are trying to do predictive thanks with data that they've never done before.
And a lot of the challenges they have is with skill sets that translates from from their core business due to data side and the gaps that exist there to make that all happening shoulders is very normal natural friction in the evolution of that and we're trying to learn how to duty strengths and you see it in the world of machine learning a lot.
It gets talked about.
But it was actually incredibly hard to.
To drive these benefits in a highly.
Predictable manner, there's lots and lots of attempts at it.
People are not already on the first attempt seeing exactly what they were hoping for.
The marches and absorb all in the sense that this is where it's all going I really think.
A lot of the bread and butter that we do today, which is the 24 hour cycles.
We are running a large highly skilled analytical batch processes populating dashboard when we come in in the morning, we got to see yesterday's data.
So that's all fine and good.
But thats were running these workloads really really well now compared to what we were doing in the past, but what is coming in terms of the potential is enormous and as I said. It is early days in terms of this entire opportunity.
Helpful color, there and then just Mike a follow up on platform enhancements as you think about the impact to the guide how much of it is mostly the warehouse scheduling feature versus other let's say lower CPU pricing resources, you are passing onto clients just trying to think through.
What you've baked in and is it mostly just scheduling or other things as well.
Yeah, what I would say from the gross impact rough.
Roughly 40% is coming from warehouse scheduling on a net basis a vote about.
It's 30% and then the balance is coming from other software improvements in hardware improvements that we see happening.
Helpful color. Thank you.
Your next question comes from the line of.
Kirk <unk> with Evercore ISI your line is open.
Thanks very much.
I was wondering if you could just talk about the GSI is and the progress you're seeing there I think accenture hit a milestone on trained.
Please proceed.
Pretty recently, just what can they do for you from just sort of a demand Gen perspective in fiscal 'twenty three and then just Mike on the <unk>.
Improvements can you just kind of conceptualize to us how you think about that from a return perspective, obviously, it's 100 male and Dr. Headwind. This year I think you mentioned, you're starting to see a pickup at six months later, how should we kind of think about sort of or at least how you think about it conceptually from the kind of benefit you get from delivering that's been proven.
Back to your customers. Thanks.
So the way we look at it the benefit is first of all the customers see an immediate price performance improvement and our customers are always looking at price performance and when they compare our price performance versus running it whether in another cloud or running it on prem in their existing.
Data warehouses, they make the move to move more things into us as a reminder.
We have landed.
<unk> of customers to do these big on Prem Teradata migrations I think we've only completed were completely shut down a little over 30 of those as maybe in the mid thirties now there's piles of other workloads that they plan on moving and when customers see the price performance. They were will accelerate the movement of those out.
Their workloads to us and we have historically seen that as I said I do anticipate that we will see some as a reminder, we see the gross.
Impact of about $162 million for the year, and we think we will make up about $65 5 million in revenue and a lot of that does there is a lag and it depends on the customer it could be a one month lag it could be a six month lag before they realize that and move more workloads, but based upon what we're seeing we think there'll be about 65 million.
Coming back in to get to that net $96 7 million. If you want to be precise what we're estimating.
On your question about our size you mentioned accenture in particular.
We're expecting a much higher contribution in partnership.
With Accenture.
Going forward we have.
Outstanding relationships, obviously with many others, notably the Lloyd we also announced relationship with KPMG.
It's just.
The intersection with the large size in.
In these large global 2000 accounts is inevitable. So you will see more and more and more of that business intersecting with snowflake and those relationships, becoming very very large overtime things that we've seen before in other companies absolutely going to happen for snowflake as well.
Your next question comes from the line of Karl Keirstead with UBS. Your line is open.
Two questions Mike to start does the Q1 April product revenue guide of $388 million assume.
More conservative view on usage ramps given what you flagged in early January or does it assume basically a return to normal activity seasonality.
Well it includes about $10 million revenue hit because of these product enhancements that we see and it's based upon what we're seeing today.
In terms of how customers are returning after vacations.
Okay, and then as a second question if I could just press a little bit on the context to passing on these platform improvements companies normally don't willingly make changes that cut 5% out of the revenues. So I'm curious where are you getting pushback from customers around.
Price performance relative to alternative products, and you decided to try to alleviate that price pushback by making this change like what what's the broader context, we are doing this because it's very rare.
Yeah, I'm going to let Christian talk from it.
A product standpoint, why he and others feel this is very and including me feel this is the right thing to do for our customers and pays off in the long term yes.
Okay, Hi, Karl.
We've been doing this since the big very beginning of it's not like we've always been focused on improving the performance of the system and we are very cognizant that improves the economics for our customers and the rationale behind that is that there is so much more data being created every day and the more marginal.
Our cost and effort of getting value out of the data decreases we know that theres a lot more value for our company to generate the data we see it time and time again.
Or improve the economics of the platform the more use cases come to snowflake. So we're looking at this with a very long term view.
One thing is Frank.
This is not philanthropy.
We are very much doing this that this is.
Stimulates demand and by the way, we can prove that to ourselves by going back years, because we've done this over and over and it does stimulate demand, but it doesn't do it in real time. There is a lag involved in this process I will add I think this is probably the biggest magnitude impact at one time and any platform improvements.
We've done since I've been here, it's also the scale and the scale of the business in recent years that is true.
In prior years, we did.
Assuming everything early on in the company, Yes got it okay. Thank you all of you that is helpful.
Your next question comes from the line of Phil Winslow with Credit Suisse. Your line is open.
Yeah.
Yes.
Yes.
Your next question comes from the line of Brad Reback with Stifel. Your line is open.
Great. Thanks, very much Mike I think earlier in the call you had mentioned about 30% of the workloads or machine to machine can you give us a sense of where thats been historically and where you think that can go to overtime.
Alright, what I said was about 70% of the queries and the worker machine scheduled scheduled theyre not you don't need a human to go on in schedule and these are automated processes that happen because you want to refresh queries every so often and about 30% is human driven.
And thats been pretty consistent for quite some time.
I haven't seen any change there and we also think that we're projecting our workloads also under the influence of Python, becoming available and more developer centric workloads.
Our way, but which tends to be more interactive.
<unk> balanced that out with machine learning models.
That we believe are going to be more scheduled in terms of generating predictable results and so on so we think that breakdown will hold over a period of time, we'll obviously, we keep looking at that.
Got it sorry, I'm forgetting that transposed and one other thing I hope I'm not Transco Transposes as well I think you also said that there was $1 2 billion coal co sold with the Hyperscale or for the year I think last quarter, you talked about $500 million, which would obviously imply you added 700 million that seems like a really big number.
Uh huh.
Yes.
So it was a very bad we sold in total for the quarter over $1 2 billion just for the quarter and roughly $700 million was co sold with the Hyperscale.
And I will say the vast majority of that is AWS.
I would say zero with TCP and the balance was azure.
Perfect. Thanks very much.
Okay.
Yes.
Your next question comes from the line of.
RG.
Sure Janet <unk> with Cleveland Research Your line is open.
Yes, thanks for taking the question.
It's on the close of the year I just want to double click on international could you provide more color if the consumption trends you saw.
In terms of the holiday seasonality was consistent across Geos and then just more color on.
Your plans for FY 'twenty, three and the geographic expansion this year. Thank you.
So it didn't really notice anything by Geo in terms of differences.
And I will admit I didn't really dig into that but I can't think of anything or I would have heard something from someone.
In terms of.
We continue to focus on international expansion, we think Europe is.
Set too.
Have a very good year this year a P. J, we've been investing a lot. There I mentioned, we are opening new deployments were getting requests to open deployments and a new one in India for instance, there's one in Brazil that will be opening this year, we're looking at another one in Asia.
As well in Europe , Theres, another one or two that will be opening. So the reason we're opening these as we're seeing the opportunity. So I do expect to international over time will become a bigger portion of our revenue is just that our growth within the U S continues to be phenomenal, especially in our enterprise segment.
Right right and then just one follow up if I may could you remind us could you spell out what would the impact of platform enhancements, both gross and net to FY 'twenty two product revenues.
Well I just said about <unk>.
$2 million was Q4 for one of the enhancements we rolled out in January for about three weeks that wasn't even to all of our customers is now rolled out fully.
The other one we talked about at our Investor day was the storage compression, which we did see a reduction in storage, bringing that down to about 10, but.
Sure.
Denver compute becomes a higher percent than that helps our margins.
Got it thank you.
Ladies and gentlemen, there are no further questions. Thank you for your participation. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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