Q2 2023 Snowflake Inc. Earnings Call
Okay.
Good afternoon. Thank you for attending todays Q2, FY 'twenty three Snowflake earnings Conference call. My name is Tina and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question. Please press star one.
On your telephone keypad I would now like to pass the conference over to our host Jimmie stocks then head of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us on <unk> Q2 fiscal 2023 earnings call with me in Bozeman, Montana are Frank <unk>, Our chairman and Chief Executive Officer, Mike Scarpelli, Our Chief Financial Officer, and Christian Klein, Our senior Vice President of products will join us for the Q&A session. During today's call. We will review our financial results for the second quarter of fiscal 2023 and <unk>.
Our guidance for the third 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 for the first quarter ended April 30 of 2022 and the Form 10-Q for the quarter ended July 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. We would 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 measure.
These are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP to see the reconciliations of these non-GAAP financial measures. Please refer to our earnings press release distributed earlier today, and our Investor presentation, which are posted at investors that snowflake Dot 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 product revenue grew 83% year on year to $466 million, meaning.
Remaining performance obligations grew 78% year on year to $2 7 billion and in the quarter. We added 12 global 2000 customers.
Net revenue retention rate exceeded a 170% and snowflake leaves the industry with a net promoter score of 72.
Ladies and delivering high growth and operating leverage non-GAAP product gross margin exceeded 75% and we continue to generate non-GAAP operating income and free cash flow.
Our success is fueled by broad based workload enablement, the core idea behind the snowflake data cloud enable work to come to the data and prevent data from having to be moved to the work previously data was copied transferred and replicate it to be used wherever it was process that led to massive operational complexity cost and governance.
The Snowflake data club promises to bring out the regrettable legacy to announce.
Starting in 2014, Snowflakes cloud native architecture removed the scale performance and economic bottlenecks that held back data analytics at scale for generations. The impact was immediate and led to a major expansion of workloads and use cases.
Initially organizations use snowflake to drastically improve overnight analytical processes sort of fresh up to date data about the business. Most reliably available first thing checking that box customers move on to using data for predictive insights and prescriptive solutions. This is what has driven snowflakes massive platform expansion in terms of <unk>.
Well types user types and data types.
Snowflake data sharing solve the challenge of data access and enrichment in Q2, the number of snowflake data sharing relationships measured with what we call stable at just grew 112% year on year.
21% of our growing customer base has at least one stable edged up from 15% a year ago among customers over 1 million in product revenue, 65% of at least one stable edge.
Across sectors, we are meeting customers with solutions pertinent to their vertical industries. For example supply chain management, realizing snowflakes combination of execution and access we hear how supply chain management is failing at many levels because of dislocation such as the pandemic and spiking inflation. This is in large part a data problem.
The data originates in different places, which is why it has such a challenging time coming together and the world is stable and changing marginally day to day. This has been somewhat tolerable now with massive disruption to status quo must change.
Our next frontier of innovation is aimed at reinventing cloud application development, our ambition as far reaching our aim is to transform our cloud applications are built deployed sold and transacted to.
To help achieve this we launched our powered by Snowflake program. Today, we have 590 powered by Snowflake, registrants, representing 35% quarter over quarter growth.
We announced a number of significant product innovations at our summit users conference in June which saw an approximate five fold increase in attendance from 2019.
These announcements are foundational for that vision units store allows developers to bridge transactional and analytical workloads in a single dataset to.
This saves users time and effort associated with moving and transforming data across systems.
So park for Python is now in public preview this capability brings more optionality to a technical audience of application developers data engineers and data scientists.
Our integration with our recently acquired Streamlet is tracking well against plan.
<unk> bridges, the gap between data scientists and business users accelerated time to insight by enabling developers to build applications using their favorite tools.
Finally, we announced support for Apache Iceberg table formats in private preview iceberg is the emerging standard for data Lake architectures with this offering we bring to performance and governance benefits of snowflake to externally stored data.
We are pleased to announce our intent to acquire Africa Africa, Mobilizes unstructured data for advanced analytics and machine learning application team and best in class technology will great create opportunities for customers and partners to get more value from all data types.
We believe our strategy and underlying market trends position us for success, we look forward to executing against this growing opportunity and with that I will turn the call over to Mike.
Thank you Frank Q2 product revenues were $466 million, representing 83% year over year growth in remaining performance obligations grew 78% year over year totaling $2 $7 billion of the $2 7 billion and RP O. We expect approximately 57% to be recognized.
<unk> revenue in the next 12 months. This represents a 79% increase compared to our estimate as of the same quarter last year. Our net revenue retention rate of 171% includes 15, new customers with $1 million in trailing 12 months product revenue and it reflects durable growth.
Our largest customers.
We continue to pursue a vertical sales strategy, our core verticals are financial services advertising media and entertainment retail and CPG technology, and healthcare and life Sciences.
All verticals are growing rapidly financial services drove the most product revenue growth sequentially advertising media and entertainment and technology verticals grew in line with the overall company.
Driving this growth as they're continuing to move up market in the quarter. We added 12, new global 2000 customers. Our average trailing 12 months product revenue from these customers grew 14% quarter over quarter to $1 $2 million. We believe these accounts will grow to become our largest customers a global.
2000 Technology company is now a top 10 product revenue customer less than two years after signing their initial deal.
Last quarter, we called out customers that were negatively impacted by headwinds specific to their businesses. The Q2 results from these customers were mixed some saw the weakness we expected while others outperformed we are monitoring our key business metrics, which we believe are leading indicators of the macro economy impacting our business we are not.
Seeing these metrics softening across the customer base for example, our corporate sales team that address the small and medium sized businesses outperformed their net new bookings growth for the quarter.
<unk> sales team contributed four of our top 10, new customer wins in the quarter and as I mentioned earlier the largest organizations in the world continue to increase their use of snowflake.
These indicate that companies globally are prioritizing snowflake right now.
Foreign currency exposure has been a relevant topic recently, however, less than 5% of our revenue is invoiced in currencies other than the U S. Dollar. So at the moment, we do not evaluate our business on a constant currency basis, given the immateriality now turning to margins on a non-GAAP basis, our product gross margin was.
75%, Gail and our public data cloud public.
Public cloud data centers and enterprise customer success contribute to the year over year gross margin improvement.
Margin was 4% benefiting from revenue outperformance, our adjusted free cash flow margin was 12% positively impacted by strong collections, we collected a $33 million invoice in Q2 from a customer who had paid its invoices in Q3 in prior years, we ended the quarter in a strong cash position with approximately.
$5 billion in cash cash equivalents and short term and long term investments now, let's turn to our guidance for the third quarter, we expect product revenue between 500 $505 million representing year over year growth between 60, and 62% I would like to remind everyone that in Q3 last year, we saw anew.
Usual seasonality due to re accelerated product revenue growth turning to margins, we expect in a non-GAAP basis, 2% operating margin and we expect 358 million diluted weighted average shares outstanding in Q3, we expect $4 million of expenses associated with our data cloud World Tour the 'twenty one.
Vince will take place around the world and showcase our latest innovations for the full year fiscal 2023, we expect product revenues between 1905, and $1 91, 5 billion representing year over year growth between 67% and 68% turning to profitability for the full year fiscal.
<unk> 2023, we expect on a non-GAAP basis, approximately 75% product gross margin, 2% operating margin and 17% adjusted free cash flow margin and we expect 358 million diluted weighted average shares outstanding.
The full year outlook includes operating expenses related to the acquisition of applicants were adding head count to support our growth initiatives year to date, we have added almost 1000 net new employees. We view the current hiring market is favorable for snowflake and have not altered our hiring plans for the year, our long term opportunity is.
Stronger than it has ever been and we look forward to executing with that operator, you can now open up the line for questions.
And Lee if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to leave that question. Please press star followed by two again to ask a question press Star one we kindly ask that participants limit themselves to one question today as a reminder.
Youre using a speakerphone, please remember to pick up your handset before asking your question.
Our first question is from the line of Mark Murphy with J P. Morgan. Please proceed.
Yes, thank you very much.
I'm looking at the sequential growth in the product revenue.
Which is.
Very strong it's almost twice as strong as it was in Q1 and.
So I'm curious first if you think analytics and data intensive projects might.
Might be insulated area.
Activity during an economic slowdown and just Relatedly are you seeing many customers can see them at higher levels.
To try to analyze the changing macro and maybe looking at FX sensitivity, our interest rates sensitivity et cetera.
Yeah.
Hey, Marcus Frank.
In general.
I would say that.
Hopefully it gets it gets prioritized fairly high.
Inside the enterprise and the reason is we're sitting right on the intersection of cloud computing.
Artificial intelligence machine learning advanced.
Analytics customers.
Customers are.
Picked up the stand of the opportunity that is in front of them and they're investing they're hiring and they are buying.
Because these are things are going to be change big changes for our industry at whole industries are going to get redefined and healthcare and pharma and financial services.
So this is not a business as usual.
Try to hit the brakes. There is there is there is a very very high.
Urgency around advancing towards cloud computing environments, and then having an opportunity to really pursue the promising brink's we're living at a very very exciting time, where things are becoming possible that we could we could we couldnt even dream off just a few short.
Years ago. So this is this is you know why why we feel that.
This is not one of those expenses that people are going to casually cut back on because it's strategically compelling and important.
I'll also add Mark just to remind this is a consumption model on a SaaS model. So if we sign up a customer it takes them months before they go into production as I mentioned, there was a global 2000 technology company, we signed in.
In the last two years is now one of our top 10 customers that customer didn't start really ramping until the end of last year and they're going to continue to ramp and there's many more that started ramping this quarter that we would have signed last quarter. So you cant just do a quarter over quarter and because it is a consumption model, we do see patterns some customers.
Do go down consumption based upon specific projects, but by and large most of our customers are still ramping moving workloads to us and we think that is going to continue on average with our customers.
Wonderful thank you very much.
Thank you.
The next line is from and the next question is from the line of Keith Weiss with Morgan Stanley . Please proceed.
Thank you for taking my questions just a standard thing for Keith very impressive Q2, Michael what I wanted.
Wanted to ask a little bit about the Q3 guide from a seasonal perspective, the high end sort of implies 8% growth and understanding that last year was abnormally strong seasonal quarter. If I look back historically historically the guidance does seem more conservatives unusual I wonder if you can provide any context in terms of what.
Youre, assuming going into Q3, just conservatism or extrapolating any sort of trends that you may have seen in July .
Nothing has changed in our guidance philosophy since the time, we went public.
And what I would say is Q3 of last year was unusually high so it's not a good year over year comparison.
And.
As I said there is there is uncertainties in the macro environment right now and I think the guidance is prudent that we put out.
Understood. Thanks, Mike.
Thank you.
The next question is from the line of Simon Leopold with Raymond James. Please proceed.
Thanks for taking the question I wanted to see what your take is on your suppliers of public cloud capacity and whether or not youre seeing any changing in how they work with you.
And your pricing and really what is the criteria to pick one over another AWS versus Google versus as you are thank you.
Hi, This is Frank.
You know I think that most enterprises typically decide first on their public cloud platform.
<unk> and oftentimes, it's a multi club posture and overtime that can also change.
And then they sort of decide.
<unk> okay.
Snowflake going to run and that can also change over time, we've seen customers also deploy snowflake.
More than one cloud.
So that's sort of how it works and you obviously.
Our pricing does vary.
Looks like it's more expensive.
One cloud than another.
And obviously our.
The most aggressive pricing we have on our top cloud providers, where we have the heaviest concentration.
Of deployment.
Obviously matters to our customers, you'll all translates to $2 and cents, but the reality is snowflake snowflake as snowflake Theres really no change in the experience depending on what cloud Youre running on so you would think that it is strictly an economic tradeoff, but it's usually predicated by why they picked one public cloud.
Form over another with that said the majority of our customers 80 plus percent Brian .
AWS and about 18% as Azure and 2% is GCB.
Thank you very much for that detail.
Thank you.
The next question is from the line of Alex Zukin with Wolfe Research Research. Please proceed.
Hey, guys. Thanks for taking the question I guess, maybe just a high level mixed with a with a tactical financial question. If I, if I look at the environment right a lot of investors.
Customers are wondering about optimizations.
And I.
I think on the call Mike in your script, you mentioned that you actually have changed you've increased the predict the prediction of how much will be consumed.
In reference to your <unk> metric over the next 12 months. So it feels like there is some there is theres kind of a.
The map differential in terms of expectations versus what youre seeing in delivering and I just wanted to better understand what's driving that increased conviction around consumption is have you seen a meaningful wave of optimizations that a rebase and now you're kind of off to the races and those workloads.
Do you not anticipate that occurring and I guess, how is that it sounds like what were the dynamics that made you changed those assumptions that you saw in the quarter.
Well I didnt changed any assumptions in the quarter. It's the same that we've had for quite some time.
Optimizations are not something that's new we just started talking to both them and showing the impact about them. We have always done optimizations. We will continue due to the optimizations, they're good for our customers because when they see if we can help make them use snowflake more efficiently we become cheaper they move more workloads to us and I showed you guys.
At.
Our financial Analyst day real data with two customers around that with regards to the CRP Oh that 57% of the total <unk> that is more of a function that we have a lot of our contracts that are starting to get burned down that were multi year that we do expect in Q4, there will be a number of renewals of those cant.
Tracks. So I do think the current CRP Oh as a percent of the total in Q4 will come down more in line with that.
The low fifty's, where it historically has been but thats really a function I think of our largest customer they signed a three year contract.
And I think it was September of 2020 that theyre going to burn through that contract in advance and there'll be a big renewal with them, whether they do it one year or multiyear that's up to them that will happen in our Q4, and then youll see that as well we have a number of customers like that one of the things that we're seeing more and more is customers because they are consuming fab.
Esther then there their annual amount in there the actual contract term theyre doing what we're calling co term, where they are bridging to their annual renewal and a lot of those annual renewals are really moving towards Q4 for us.
Got it that's why the billings Delta billings versus <unk> Delta is.
A little bit higher.
I have to tell you I don't even look at billings, because it's a meaningless thing for our business because we're not a SaaS company really focus more on cash flow and revenue consumption by our customers.
Perfect. Thank you guys.
Thank you.
The next question is from the line of her immuno when tsao with Barclays. Please proceed.
Thank you.
Quick question.
Sure.
Frank and Mike you heard all the concern from investors this quarter about consumption models and.
How in lower economic activity is less.
But I'm also seeing like the trolls, new global customers. What are you seeing in your customer conversations about consumption models in terms of like it gives customers more flexibility to pay for what they are using et cetera. So that almost in tougher times should be an incentive to go that way rather than having these massive upfront commitment.
Maybe talk a little bit of what you're seeing in the field. Thank you.
Ramos Frank.
Just trying to invert that whole way of thinking because it is actually quite attractive.
For customers to have a consumption model because the science you can sign the contract with us, but then they can throttle up and down you know.
How much they want to use you can't do that in the SaaS model, where you're going to pay no matter what were you using it or not so this is this gives customers actually more confidence to contract with us knowing that they can throttle up and down so we actually think it's an advantage.
And the type of times that we're living in as opposed to a negative which is one of them has been portrayed.
On the sell side and in the media.
I'll add to that too Raimo as a reminder, new customers when we land them. They generally start very small and it takes nine months to really start to consume so it's very low risk to come on and once we have an existing customer that is looking to buy more they've already have a P.
Path for what they want to do workloads and they want to do that on snowflake, because we will save them money from what Theyre doing and the other thing I want to remind you too is we have many different models you can sign a one year commitment you can sign a three year commitment or you can go on to on demand as a customer if you're if you're not if youre.
Comfortable making a big commitment upfront and we do see customers I think last quarter about $7 $2 million of our revenue was actually on demand. These are new customers that are just trying us out before they sign a capacity deal and Thats most of our capacity deal start from being on demand to go to that.
Okay perfect. Thank you.
Yeah.
Thank you.
The next question is from the line of Kirk Mccann with Evercore. Please proceed.
Yeah. Thanks for taking the question.
Frank I was wondering if you could talk a little bit about some of the feedback you got from partners. Both GSI is in Ice's coming away from your user conference.
And kind of what are they asking you about in terms of making are telling you about rather in terms of making bigger investments in snowflake and maybe some of the takeaways you've had in terms of as you set up your own go to market not only for the remainder of the year, but into next year. Thanks.
Okay.
I think the conference most of an extraordinary display of our ecosystem.
We had a partner a good ROI and that was the size of the multiple football fields and I.
I think we're punching way above our weight.
Terms of how vibrant how large and how active.
Our ecosystem is and it's a very purposeful choice on our part to run the company in that way, we're not trying to create a single vertically integrated stack, where you have to buy all things Snowflake, we do quite the opposite we would try to create maximum choice and innovation on our platform. So we really become market and channel.
If you will for four system a system integrators.
The reality in the world of system integrators as.
Snowflakes presence in the marketplace is obviously a portion of their hand because.
Our customers are their customers and vice versa, we intersected the marketplace and customers are your customers are expecting them to be able to step up and deliver highly high value high impactful capabilities on snowflake, so theyre growing leaps and bounds.
But.
Sometimes there are more following then leading so that's why snowflake as always leading and the rest of the world is following just to give you a little data around the GSI network in the first half of this year. The GSI have done north of $550 million in services around snowflake.
Our top five GSI is represented more than $320 million of that work. These are real practices within these GSI is now.
And just on another thing because I know, there's been some chatter about resellers and other things. So I just want to make it very clear 1% of our bookings in Q2 went through the resale channel 2% of our product revenue goes through resellers. So resellers is not a significant amount of our direct business.
But the <unk> are very helpful. In doing the services work to get customers to consume on snowflake.
Thank you all.
Thank you.
The next question is from the line of Brad Reback with Stifel. Please proceed.
Okay.
Great. Thanks very much.
Mike I know you mentioned the <unk> consumption comp you also have a really really difficult <unk> RP O comp, but given your commentary should we expect a.
Healthy end of the year given that the renewal pool.
Yes.
Okay.
We expect Q4, you have a big increase.
But I'm not guiding to it you'll have to wait and see I'm never going to guide to <unk>.
Understood Thanks very much.
Okay.
Thank you.
The next question is from the line of Brent bracelet with Piper Sandler. Please proceed.
Good afternoon wanted to drill down into Europe , that's been an area, where we saw large deal delays with other large software companies it sounds like.
The opportunity for you you closed several large deals. So maybe if you could just talk about the demand environment in Europe right now.
And what's driving some of the mandates for you that perhaps is a little different than some of the peers. Thanks.
Yes, Brent shrank.
You know.
We've really shifted gears in Europe .
In terms of.
Not so much moving away, but sort of really emphasizing the large iconic accounts in key verticals.
And obviously in the top regions and countries and Thats really how you win markets over there.
Redirection, it's taken us a little bit of time, and we lost this last quarter that we just reported on we.
We've seen some significant impact and we made one comment during the prepared remarks about how they contributed some very very large customers.
Judy overall portfolio so to overall roster. So we're actually feeling good about the progress we're making in Europe .
And the large names in the key verticals. So I think it's going good the macro commentary, it's probably we're not really feeling.
A lot of.
Sort of headwinds if you will in Europe . Obviously, there are pockets that are weak the farther east you go the more you feel it but thats really not where we were to begin with so it's not really a factor. So we're not negative on Europe at all.
Yeah.
Great to see thank you.
Thank you.
The next question is from the line of Gregg Moskowitz with Mizuho. Please proceed.
Okay. Thank you for taking the question.
Another software vendor that primarily has a consumption based model recently made the comment that they're in there are for customers below the 130% threshold has been unchanged, but those above 130 have been slowing their consumption growth since it deviates a lot from what had been budgeted or committed now your overall MLR. This quarter again was.
<unk> strong guys, but I'm curious if you've seen any of this dynamic with your bigger enterprise customers. Thank you.
No.
Obviously, there are some of our top 10, and we talked about last quarter with some specific things to their business, where they have slowed down and that's been in our guidance, but overall, our top customers continue to grow.
And I haven't seen that slowing down.
Sure.
Got it thanks very much.
Thank you.
The next question is from the line of Tom Waldron.
With JMP Securities. Please proceed.
Oh, great. Thank you and let me offer my congratulations on the quarter, Frank can you take a minute to differentiate.
Snowflakes approach to the market from that of data bricks and they're they're lake house approach.
No.
One of the ways we.
We characterize it as.
Sort of.
Historically, you know snowflake has been.
A data lake with its own its.
Its own platform its own proprietary file formats.
And so on whereas.
<unk> has taken the approach that.
There are just another tool and delight you use many including them. So we were far more strategic choice customers to commit to.
And then on a much more tactical choice with just being a tool in the lake.
Over the years, we have really converge.
For example, we mentioned in the prepared remarks.
Our support of the iceberg open table formats.
Allows.
No flake.
<unk> to be used by announcements like tools for example, right. So it really puts us completely on par or better if you will in terms of functionality and performance.
In a pure data lake configuration, but customers can also use us.
And the conventional traditional highly optimized snowflake proprietary format.
That most people are using.
So I think that.
So that's one aspect of as you know the other aspect over there as you know we come from different places.
Our culture as a company is a database platform.
Obviously <unk> comes from a totally different.
Type of background, we also have different user types.
We have a very much a high level approach, we very much do.
Market size access to the sophistication of our platform like Snowflake data coming from from a world that's much more ROI wrong.
Very very deep technical very skilled amendment type of environment and there was a market for that as well so theres different user types.
Different workloads.
People will use different type of tools.
Last thing I'll say about it is that de facto.
Data bricks and snowflake have lift side by side for many many many years playing different roles.
And the setups in the type of workloads don't take performance or anything you want to say without question.
One quick comment on top of everything Frank said.
Hear very consistently from customers at our approach to simplicity and ease of use.
<unk> is one of the reasons why you see the results that you're seeing today in the net promoter score that Frank mentioned, because we help customers focus on solving their problems.
Getting value out of the data and not dealing with infrastructure.
Great. Thank you both.
Thank you.
The next question is from the line of Camille.
No.
Zurich with William Blair. Please proceed.
Thank you congrats on the solid quarter.
The head count growth in your sales and marketing organization has exceeded 50% in the first half of this year.
Is comfortably above the growth rates achieved in both fiscal 'twenty, one and 'twenty. Two can you provide more detail on where you've been focusing your investments and given the macro uncertainty.
Do you think about the time to ramp how long did it take for the new hires to be fully reflected in revenue. Thank you.
Well the first half of the year is always the biggest hiring and that tends to be we want to get people onboard for our sales kickoff. It's also when we like to onboard a lot of our junior Str's. So we can train them altogether in the year.
But.
The people, we're adding are principally in direct sales and sales engineers and we continue to open up new countries around the world, but theyre going a lot deeper within.
North America, as well too because theres still has a lot of accounts that aren't being covered today and Ed.
It takes depending on where they are in our corporate sales team, which is Marvin inside sales. It's about a six months period to ramp it's a little bit longer on the vertical or on.
The enterprise in the verticals that real large verticals. We go after those guys could take a year to ramp because those are long sales cycles.
That's helpful. Thank you.
Thank you.
The next question is from the line of Derrick Wood with Cowen. Please proceed.
Great, Thanks, and congrats great quarter.
Thank you.
Yes.
Close to 60%.
Hey, Derik, we can't hear you very well you are cutting in and out.
Could you repeat that maybe is this better.
Yes can you hear me now.
Yes.
I wanted to ask about the just the activity of migrating customers from legacy on Prem systems I think you.
Shown stats at close to 60% of your new customers come from that environment.
Given the macro out there.
Some would argue you'd see acceleration because of operational efficiencies. So I would argue maybe theres a lot of change management and companies would want to hold off but just curious what youre seeing out of your pipeline in terms of the prospects priority to migrate off of on Prem systems.
Yes.
One comment I mean, I will tell you that just just in the last two week I've heard some two very very iconic names in two different industries that we're staunch.
Promise people, who had never ever go cloud.
That are now going so I just feel that the resistance is completely breaking and people are going cloud.
I'm sure they have their own reasons, but a lot of it is what you said as well is that they are going to get left behind you can't take advantage of innovations that are only available on the cloud.
So if anything.
I tend to agree with you that we're going to see acceleration out of this as opposed to people holding back.
Thank you.
Thank you.
Next question is from the line of Brad Zelnick with Deutsche Bank. Please proceed.
Excellent congrats guys on a really strong quarter and navigating.
Crazy environment out there my question for you guys maybe for Frank.
If we think about just data cloud is the Holy Grail and data sharing being a really important element to that and I look to the metric on stable edges number of customers with at least one stable edge I think it was 20% you said versus 15% a year ago, which I think is unchanged from what you had also said in Q1 can you just give us a sense of.
How you would expect to see that progress.
When we look back one day, maybe where might the peak.
Yes, I think.
There is.
Natural progression and these things as you said.
Lots of people are.
Preoccupied with the migration.
That takes a lot of time, there's a lot of risk there is a lot of people want to get their core capabilities.
Place.
They want to deal with their their backlog all of the things that they need to do.
Before to sort of move on to more aggressive more ambitious.
Projects, where they are really starting to execute on their strategies and the vision that they have for themselves.
So.
I think that the data cloud is an incredibly important positioning element.
US, but also for our customers because if you don't adopt a posture you will end up re silo in your environment in the cloud and you will basically.
Load up on the same set of problems that we historically have had and it's a much bigger problem now because data science and the promise of data size the ability to generate.
Predictive insights and prescriptive solutions really depends on your ability to join and blend and overlay data regardless of data types data source of where it's coming from and you can't predict so it's really really important.
You don't throw up new barriers between data sources.
She will not only frustrate your data science teams you will you will literally not be able to realize the potential that is now there. So we draw a line in the sand on that.
Youre going to go silo by silo than you will you will be on the cloud, which you will.
You will not have set yourself up for the promise that is now thats now in front of us.
Excellent. Thank you so much.
Yes.
Thank you.
The next question is from the line of Willpower with Baird. Please proceed.
Great. Thanks for taking the question and again congratulations on the strong numbers.
It looks like really strong upmarket success, I think a record number of $1 billion or at least new billion dollar customers I just wanted to get more color. If there are any common variables, helping drive that upmarket success. It sounds like there's a correlation with data sharing what percentage of those customers that are deploying stabilizer. So any further color on that front would be great too.
Yes, it's Frank again.
I think as Mike said earlier I mean, a lot of these million dollar accounts can be years in the making and a lot of the work that we've done in previous years is now culminating is becoming visible in this particular manner. So.
It's not an overnight.
<unk> success these things.
Time data.
Data sharing.
It is incredibly important every industry and sub industry has its own unique data networks and their own reasons and use cases, where we know why they need to share data and new financial services for example.
Of course, an industry that you're all very familiar with I mean, the need for sharing.
Is extremely pronounced and it's a daily preoccupation between institutions need to share data.
So snowflake is really become a de facto platform for financial institutions on how to share data.
So that becomes a very very powerful thing we feel the network effect from data sharing in certain verticals that are really more advanced more mature in terms of the adoption of data sharing done some others that are taking more time to get into that.
And what I will add to is we have 510 global 2000 customers. The average revenue from them today is $1 2 million.
That's up from $1 million 50 last quarter and that will continue to grow those large customers.
Driving those million dollar plus customers for us and we don't see that slowing down.
Great. Thank you.
Thank you.
The next question is from the line of D. J Hynes with Canaccord. Please proceed.
Hey, guys. Thanks for taking the question Mike I wanted to ask you about the.
The margin trajectory of the business I mean.
Can you do to impressed with the cash flow operating Leverages, showing you raised the guidance to 17% this year.
Given the trajectory, we're not miles off from that longer term, 25% target what what's the philosophy from here.
<unk>.
Reinvest the growth and the upside that we're seeing into the business to drive.
Sales productivity in.
Accelerated investment there.
Or does some of that flow through the bottom line and maybe that 25% margin target.
Is achievable ahead of schedule.
Well, we're going to get.
Get to that number before we even think about changing it.
And with regards to investing in the business, we are continuing to invest in the business as you can see the head count we're adding.
Principally head count as the main investment we're doing in the business because thats what drives R&D, that's what drives sale, but we're very thoughtful about where we invest those dollars and how quick we do and we think we're investing at the adequate pace and we will continue with that.
Thank you and nothing has changed in our philosophy, we will continue to show leverage year after year.
Thank you.
Our next question is from the line of Brent Thill with Jefferies. Please proceed.
Thanks, Frank Mike I hope, you're well on verticals, where theres. Some standouts this quarter, we've heard energy has been a hot topic.
Just as an example, any other any other big verticals you'd call out that you saw a particular strength that you were excited by.
Yes energy is not a very big vertical for it yes, we have some good customers, but theyre not huge consumers.
Of Snowflake really financial services is the number one vertical.
It's about if you look at it from a.
Revenue perspective about 2021% of our revenue is from our financial services vertical and then closely behind that is the media and.
Entertainment and technology is right after that as well about the same those are our three biggest and then healthcare is pretty big but it can grow a lot bigger retail retail CPG.
As a meaningful segment as well, but financial services is very large and those are very large stable edges that data sharing that goes on in financial services.
And when we talk about big accounts, we landed in Europe , a big telco.
Landed a big bank, we landed a big insurance company.
And we continue to land bigger.
Big accounts in these verticals.
Okay, and one quick follow up just on <unk>, you've seen salesforce dot com take down guidance.
Ill take down guide everyone's asking it seems like the industry is taking that guide down, but youre seeing incredible strength, no stretch out deals or duration.
What do you think is going on or you're just taking share or is it just early on is how would you characterize.
What youre seeing I would say it seems.
Yeah, I would say most SaaS companies when they land an account they typically license.
Most of the users and in account when we land, we land small and they go workload by workload and they just keep moving stuff over to snowflake that drives that and that's a multiyear journey.
Within our customers and I don't see any of our customers that are fully saturated.
Where I think some SaaS companies may be saturated.
Very clear thanks.
Thank you.
The next question is from the line of Steve Cohen Koning with SMB Ste. Please proceed.
Hey, guys. This is <unk> on for.
Steve Thanks for taking the question two quick related questions from US first and you described the near term opportunity in analytics beyond your core data warehouse use case and which of these other workloads would you expect to become most prevalent in the near term and then as a second I'm wondering if you can talk to the clients to break into the operational use cases, and how many times bigger is that market opportunity in the near term compared to the.
Heritage EDW market. Thank you.
Shrink.
One comment I'll give Christian.
Think about some additional.
Comment.
We started out in this in this business with what I've referred to as a workload modernization, where we're taking existing workloads for moving to the cloud and we're running a much faster because of all the architectural innovations that snowflake as representatives and is it really helps customers when I mentioned this in the prepared.
March really helped customers a 24 hour cycle, two very reliably deliver data to their to their business users and that's been a long time coming we know the customers have struggled with that enormously and then we hear about it.
Every single day.
But that's that's just reporting yesterday's news and.
These days I will tell you that nine out of 10 conversations with customers are not about that okay. They are about very specific industry challenges and industry opportunities. For example, we have pharma customers they are seeing opportunities.
To reduce their clinical trials.
It takes on average 12 years to bring a drug to market and you've got five years left to monetize that they can take in a whole year offer that you redefine the economics of an entire industry healthcare is trying to go to to an entirely predictive modeling treating people for disease. They are trying to predict who is going to get sick.
What prevented the protocols they can put in place to help people.
Steered clear of that so these are very different conversation than what we're doing in advertising for example, with clean room technologies.
We are doing totally different things now and we are enabling these industries.
To navigate all the issues around privacy and compliance and so on so to characterize.
As a data warehousing company I've said Theres a million times.
You know.
That is probably five years out of date by now and you can keep doing that but it doesn't make it that doesn't make it the reality of our business because it's not anymore.
Part of it we announced at our user conference in June Cyber security is a workload that is doing very well for us and partnering with the largest Saddam announcement was around snowflake for data applications, and perhaps being an application platform, that's where the opportunity for the operational.
Database capabilities fit into and we see tremendous interest from both customers and partners.
Just a quick follow up snowflake has become de facto a cloud application development and runtime platform people are building and deploying applications on snowflake.
Customers like Western Union, who are starting whole businesses on top of a snowflake those are the conversations.
That we are having with customers workload modernization will be doing that until the end of times, but thats no longer the reality that dominates our daily existence.
Super helpful. Thank you guys.
Thank you.
The next question is from the line of <unk> Kidron.
With Oppenheimer. Please proceed.
Thanks.
Nice quarter, Mike I wanted to piggyback to the comments you made earlier that it takes months for customers to get into production even after they sign up with you I guess with that being the case in the current environment being what it is what is the risk that six to 12 months from now we'll see a little bit of a lull in your growth is whatever slowdown in activity that's happening in with them right now.
Translates into a smaller number of forklift transitions into the cloud how much visibility do you have into the prep work customers are doing with respect to workload transition.
Well, we have a lot of that you can see in the number of cap ones that we landed last quarter. It was north of 600 all of those customers. They signed up on snowflake to move workloads to us and we know based upon discussions we have with many of our top customers their plans what they're planning on doing.
As an example, we have a number of our customers that are just chomping at the bit for Snow Park to go into GA with Python, because they wanted to do more on snowflake. So that's what gives us the confidence and we spend a lot of time looking and engaging with our reps, we're talking to our customers to get a feel for.
Or what is consumption going to be like over the next three months six months with our customers. So just a quick follow up I actually think the dynamic that you're describing them and we're going to see the exact opposite of that we think people because of the nervousness that they may have about the macro they are going to accelerate to a cloud computing platform.
And the reason is these are elastic models. These are consumption models right. So it's much better to be in the elastic model, where you only pay for what you use.
You can run on demand than when you have to make large upfront commitments to vendors. So if anything I think people are going to get a move on instead of hold off.
Very good thank you.
Okay.
Thank you.
Next question is from the line of Ari <unk>, Jonathan with Cleveland Research. Please proceed.
Thank you for taking the question and congrats on the great results.
You alluded to earlier for Aegon.
No part in Python support I was just hoping if you could provide a little bit more color on the feedback youre getting from customers on Python for Snow Park as well as the announced.
The announcements you made around depace at the user conference curious.
When do you think those can start to drive consumption for the platform.
When youre expecting contribution and what types of projects that you're currently not involved in what kind of use cases that could open up for you. Thank you.
I'll start and maybe Christian can.
And finished but.
<unk> is snowflake for Python is red Hot and people are chomping at the debt.
For us to declare it.
Which is something we have customers that are really wanting us to let them use it in production now some of the largest customers that we have so the pressure is on but just.
The demand is there.
The thing about the iceberg open table formats.
Really.
No.
Implicitly opened snowflake up.
To be for snowflake tables to be used by by anybody and everybody that can support that format.
We're seeing incredible results in terms of performance snowflake executing against a small format.
So these are all very very.
Very promising.
Elements for Us and I think the pressure is on for us to declare these things generally available because people are trying to rip them out of our hands right now.
As we said at Semicon, France, we expect those to be GAA. The end of this year, so meaningful contribution to consumption will happen next year.
Yes, that's right and qualitatively the feedback is extremely positive which is why as Frank said, we get this many requests to both production and <unk> as soon as we can.
Excellent. Thank you.
Thank you.
No question will come from the line of Tyler Radke with Citi. Please proceed.
Thank you. So we made it almost a full hour without talking about graviton.
Actually just wanted to ask you, how you're thinking about new projects or new workloads in response to some of the optimizations.
Any change to your assumptions I think you'd talked about kind of $60 million of net new spend coming online just curious how that's tracking and your expectations for the second half of the year. Thank you.
No changes too.
Our assumptions are and we always expect it the biggest impact is that in the second half of the year.
All of those and then Christian yes.
Luis continuously looking at how to deliver price performance advantage to our customers.
Every time happened to be one of the more.
Significant changes, but any quarter, we have tens of changes they grow and improve performance for a different workloads and we're also constantly evaluating hardware advancements in our commitment to our customers is to do that research and that we haven't delivered a best price performance.
And if I could sneak in a quick follow up I guess, just what type of workloads are you seeing customers bring on with those lower.
Price.
Price point is it is it kind of new workloads that you weren't able to.
Handled in the past just any any way to characterize that thank you.
Yes, we're seeing a lot of.
Lower latency higher concurrency use cases, like slicing and dicing with it on migration from jewelry, which is very low latency use cases recently.
In part because of the better economics, but in part because of their performance and they are obviously highly correlated we're also seeing a lot of.
Data engineering data transformation spark migration is coming on to <unk>.
All because of a price performance that we offer.
Yeah.
Thank you.
Thank you that concludes the question and answer session as well as today's call. Thank you for your participation you may now disconnect your lines.
Yes.
Yeah.