Q3 2023 Snowflake Inc. Earnings Call
[music].
Yeah.
Good afternoon, and thank you for attending today's Snowflake Q3 fiscal 'twenty 'twenty three earnings conference call My.
My name is Austin and I'll be your moderator for today.
All lines will be muted during the presentation portion of the call the an opportunity for questions and answers out there yet.
I'd 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 Sexton head of Investor Relations with Snowflake Jimmy Please go ahead.
Good afternoon, and thank you for joining us on Snowflakes Q3 fiscal 2023 earnings call with me in Bozeman, Montana, or Frank Sullivan, Our Chairman and Chief Executive Officer, Mike Scarpelli, Our Chief Financial Officer, and Christian Klein, Our senior Vice President of product, who will join us for the Q&A session. During today's call. We will review our financial results for the third quarter fiscal 2023.
Discuss our guidance for the fourth quarter and full year fiscal 2023, and discuss our fiscal 2024 outlook. During todays 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 do.
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 fiscal quarter ended July 31, 2022, and the Form 10-Q for the quarter ended October 31, 2022 that we will file with the SEC, we caution you to not place undue reliance on forward looking.
We 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 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.
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 Dot Snowflake Dot com a replay of today's call will also be posted on the website, but that I would now like to turn the call over to Frank.
Thanks, Jamie and good afternoon, everybody stuff like continues to drive strong growth of scale, coupled with strength in unit economics operating profit and free cash flow, while we acknowledge the weakening global macro context, we remain resilient in terms of our results. We believe this resilience reflects the importance of data strategy and modern enterprises and institutions.
<unk> data is becoming deeply ingrained in how global enterprises stink.
And strategize relying on anecdotal observations will increasingly take a back seat.
Driven operations the company is reporting $523 million of product revenue growing 67% year on year, our remaining performance obligations for RP O grew 66% year on year, two 3 billion.
On a non-GAAP basis product gross margin came in at 75% operating margin of 8% and adjusted free cash flow margin at 12%.
Shelf life data cloud strongly resonates in large enterprises and institutions. The idea of getting your data silos again in a public cloud stack holds limited appeal data cloud maximizes the power and promise of data science and artificial intelligence are high priority in the modern enterprise.
In the quarter, we added 28 global 2000 customers product revenue from the global two thousands outpaced the company as a whole growing 40% quarter over quarter.
Global 2000 customers now represent over 40% of revenue.
<unk> is the data cloud the single data universe across geographies data sources compute clouds and cloud regions.
Single point of inquiry analytics and intelligence maximum enablement of data science analytics and intelligence.
Today Snowflake operates across 37 regional deployment year over year, we've expanded our footprint by more than 30% customers are embracing division, 22% of customers have at least one stable edged up from 17% a year ago, 66% of customers with over $1 million in trailing 12 month.
Product revenue.
At least one stable edge.
Snowflake marketplace listings grew 11% quarter over quarter now with more than 17 hundreds data listings.
Our strategy is a global data sharing network, coupled with limited workload enablement work needs to find its way to the data instead of the historical habit of moving data to the work much of the work and the announcements you've seen from snowflake in recent years reflect our progress in and across the workload spectrum data engineering did at Weyerhaeuser.
The data science, the data applications and transaction processing.
We recently announced the general availability of Python for Snow Park. This is foundational for many workloads and user types Global 2000 customers Charter Communications, EDF energy and Northern Trust and have adopted snowflake for Python.
Earlier next year, we will offer native streamlet integration in private preview with STREAMWAY, we're helping developers and data engineers to build applications and snowflake.
Since acquisition the STREAMWAY community has grown more than 60% and now has approximately 70000 developers.
We're enabling data science work closely with Snow Park optimized workhouses warehouses now when public preview.
Optimize warehouses represents a step function improvement for compute intensive workloads and allow customers to bring ml training into snowflake.
Q3, we hosted our data cloud World Tour, which brought our product announcements to a global audience. We traveled to 18 cities across 12 countries and reached over 12000 Smbs.
In November we hosted our annual developer conference built our virtual kickoff had over 4000 attendees and local breakouts are scheduled in 16 cities across 10 countries.
Aside from our World class scale performance and economics, Snowflake differentiation with a relentless focus on enterprise grade High Trust implementation, where security and compliance capabilities enable the largest enterprises institutions worldwide to deploy snowflake for the most critical use cases and applications.
Privacy and compliance of course have become far greater challenges in recent years and created new challenges and data operations. For example, our data clean room operations, which originated in the wall of advertising are now spreading to other vertical industries.
Snowflake continues to deepen and strengthen its industry orientation, we expect to understand your customer challenges solve their problems and speak their language, leading industries for snowflake or financial services advertising media and entertainment, followed by retail and consumer packaged goods technology and health care and life Sciences.
In Q3 product revenue from the financial services industry grew 13% quarter over quarter.
So the financial services client, the Depository Trust and clearing corporation or DTC recently announced our use of snowflake marketplace, providing clearing and settlement services DTC has access to a vast amount of training data.
<unk> allows clients to engage with this data through snowflake to better understand market liquidity and investor sentiment.
During the quarter at advertising week, we announced our investment in open AP advanced advertising company. This will accelerate the development of the open AP data hub, which is a new cross publisher and cross platform clean room solution for the TV industry.
Snowflake.
Additional snowflakes validates the commitment Fox NBC Universal Paramount.
Warner Brothers Discovery May two transforming the television industry.
We're off to a weakening macro economy customer behavior informs our outlook on investment approach.
Three we demonstrated our ability to execute through different economic environments. Our focus remains on revenue growth balanced with free cash flow generation, we are well positioned to drive efficient durable growth, which Mike will discuss further.
The opportunity is massive and we will take years to unfold.
I will turn the call over to Mike. Thank you Frank Q3 product revenues were $523 million, representing 67% year over year growth in our remaining performance obligations grew 66% year over year totaling $3 billion.
Of the $3 billion in IPO, we expect approximately 55% to be recognized as revenue in the next 12 months. This represents a 68% increase compared to our estimate as of the same quarter last year.
Our net revenue retention rate of 165% includes 14, new customers with $1 million in trailing 12 month product revenue and reflects durable growth among our largest customers.
On the acquisition and growth of the largest enterprises in the World. We added 28 global 2000 customers in the quarter. Our largest quarterly addition in the last five periods, we have confidence in our growth opportunity in these accounts because GTK customers only represent $1 3 million of trailing 12.
Product revenue on average this compares to an average of $3 7 million among customers over $1 million in product revenue.
We will continue to grow these accounts through value selling and workload enablement. We're seeing this in our largest accounts today quarter over quarter six of our top 10 customers grew faster than the company. Overall, we are monitoring our key business metrics, which we believe are leading indicators of the macro economy impacting our business.
In the quarter, we saw varying degrees of strength and weakness worldwide, making it challenging to identify a consistent trend our largest segments North America, and EMEA outperformed SMB P. J.
Strength in North America includes the headwind from the consumer Internet companies. We mentioned earlier. This year. This shows the resiliency of Snowflake as enterprises continue to prioritize data operations.
Taking a closer look at specific industries financial services, our largest vertical grew faster than the company overall advertising and media Entertainment grew slower technology as this sector underperformed in the quarter.
Each geography, and vertical had unique circumstances in the quarter, which will always happen with a consumption model with that being said Q3 results reflect strong consumption overall.
We did experience a foreign exchange revenue headwind in the quarter less than 5% of our revenue is invoiced in currencies other than the U S. Dollar 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%.
Scale in our public cloud data centers and continued growth in large customer accounts contributed to year over year gross margin improvement operating margin was 8% benefiting from revenue outperformance and favorability on head count and marketing spend our adjusted free cash flow margin was 12% positively impacted by <unk>.
Collections, we ended the quarter in a strong cash position with $4 $9 billion in cash cash equivalent and short term and long term investments.
Now, let's turn to our guidance. We mean, we remain committed to driving towards greater profitability. We are focused on revenue growth, while expanding operating and free cash flow margins over the past six weeks, we've seen weaker consumption and APG and SMB segment. However, recent consumption patterns gives us confidence that our largest and more.
Strategic customers will continue to grow with the holidays approaching an uncertainty with how customers will operate we believe taking a more conservative approach as responsible as we resource plan for Q4 and fiscal 2024, even with slower than expected growth, we are committed to generating meaningful free cash flow for the fourth.
We expect product revenue between 535, and $540 million representing year over year growth between 49% and 50% turning to margins. We expect on a non-GAAP basis, 1% operating margin and we expect 360 million diluted weighted average shares outstanding for the full.
Full fiscal year 2023, we expect product revenues between $1 91, nine and $1 92 4 billion.
Representing year over year growth between 68%, 69%.
Turning to profitability for the full fiscal year 2023, we expect a non-GAAP basis, approximately 75% product gross margin, 3% operating margin and 21% adjusted free cash flow margin and we expect 359 million diluted weighted average shares outstanding.
Year to date, we've added over 500 net new employees, we view the current hiring market is favorable for snowflake and will continue to focus hiring and product engineering and sales. While we are currently in our planning cycle, we would like to discuss next year's growth outlook based on the consumption. We're seeing today for the full.
Fiscal year 2024, we expect product revenue growth of approximately 47% and non-GAAP adjusted free cash flow margin of 23% and continued expansion of operating margin. This outlook includes a slowdown in hiring which we evaluate on a monthly basis, but assumed.
Adding over 1000 net new employees, our long term opportunity remains strong and we look forward to executing with that operator, you can now open up the line for questions.
Yes.
Thank you as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
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We do ask that all participants please limit themselves to one question per participant.
And if youre using a speakerphone, please remember to pick up your handset before asking your question.
We will pause briefly ask questions are registered.
Our first question is with Raimo <unk> from Barclays.
Brian will you limit your line is open.
Hey, Thank you.
Sure.
Congratulations on bolt ons and effective use of capital.
My question was as you think about next year, how should we think about existing customers versus new customers you obviously have them.
Our record new customer add.
What are you seeing in terms of customers' willingness to jointly looks like normally in the olden days.
And.
People would stay with the.
And come then in tough times.
And on the hatches et cetera, it seems to be different for you. So could you speak a little bit of what you're expecting.
New customers.
Existing customers in that guidance. Thank you.
Yes, well raimo in terms of.
From a revenue perspective, most of the revenue is really driven by our existing customers because it takes customers time to get their data into snowflake and ramp up production, but with that said, we're still very much focused on landing new customers. It's not really the quantity is the.
<unk> of new customers, we tend to focus very much on the largest enterprises in global 2000, as one of the metrics that we give but it's not just global 2000, it's large public sector clients as well as a lot of the big private companies in the world as well too.
So we're going to continue to do that and as you can see by the global 2000.
They're still willing to do bringing new vendors.
Okay. Thank you.
Our next question.
<unk> <unk> from Evercore.
Your line is open.
Yes, thanks very much.
Mike you mentioned that there werent any patterns. There is tough to decipher just given you guys are across a number of different verticals and geographies.
I was curious.
The verticals are doing well like financial services.
Like are you starting to see that the network effects.
That come along with Snowflake are really helping those verticals do well despite the.
The macro backdrop, it's just interesting to note that youre stabilizers are up and I expect those verticals, where we've really built out.
Industry specific functionality is playing out and perhaps those customers are able to grow faster just because of that.
More locked in across the entire industry can you just talk about that thanks.
Yes.
I'll start and then I'll, let Frank will clearly the network effect is important and we really do see that in financial services, which have the biggest concentration of stable edges.
And you can see that in the outperformance of financial services, but definitely we are seeing the network effect and it's really the data sharing is one of the things that things that is driving that.
Yes.
Kirk is every industry has its own unique set of.
Dynamics I would call them in other words things that are driving.
Data networking relationships between between entities for example in health care as the relationships between payers and providers.
And entertainment. There is there is enormous amount of data sharing going on there in terms of consumer packaged goods advertisers retailers and so on so there are all a little different as Mike said financial was very much driven by the fact that historically in financial services.
Institutions are pumping massive amounts of data around every single night to all these different destinations, especially in asset management and sub sectors like that so we really view I mean data networking plays out differently in every industry sector and sub sector, but they become there's a lot of data gravity what is what we call it.
As that starts to happen.
Fits us enormously it really lowers the friction.
Getting access to new accounts and you see that very pronounced.
In verticals like financial services.
Yeah.
Thank you.
Our next question is with Keith Weiss from Morgan Stanley .
Keith Your line is open.
Thank you for taking the questions is this still just seeing for Keith I wanted to go back Mike to some of the guidance framework that you laid out for us, particularly with respect to fiscal year 'twenty. Four I think you talked about 47% growth. So anyway, you can sort of.
Draw the bridge for Us in terms of next quarter, you're guiding to think about 49% at the high end.
And then for the full year next year.
Approximately 47% what sort of gives you the confidence that your.
Q4 exit growth rate is going to be durable going into next year.
Sure well I'll say Q4 is.
Is it is a quarter that has a lot of holidays in it and we do think we've lived through Covid that people are travelling more and there is a big human component as well too. So we all along have been forecasting that Q4, we'd see the impact of that but we also have a number of significant customers that we have signed up that.
We see them ramping up next year on snowflake as well as some of the things we're doing with snow part with Python and we're starting to see traction in that as well too, but we think that's going to be more of a 2024.
Impact.
It makes total sense and then I was wondering if you could.
Give us a little bit of a sense of the <unk>.
Sumption.
Cohorts and how they're sort of behaving so you've talked.
Positively about the top 10 customers and obviously new customers don't contribute even though thats coming in at a very fast clip, but if we strip out just the top 10 customers and the new customers that sort of sort of core customer base. How does those underlying expansion trends are materializing.
Over the quarter.
And as we've gotten past the October quarter into November December what are the underlying trends for the for the for the core of the business outside of the top 10.
Yes, well, let me clarify something on the top 10, when I said six are growing faster than the pace of the company. We actually have three that are actually sequentially were down in the quarter, which was expected and those are some of those companies. We talked about early in the year and Theyre all in the technology sector.
Would it surprise you if you knew their names.
But what I will say is we continue to see strength in particular in financial services, the advertising and media space.
Where we do see weakness as we do see weakness in AP Jay.
And a lot of that has to do with the fact, the FX is really impacting them.
And then you do see weakness I didn't see it in the bookings spinning consumption and the more of the SMB customers, we do see that.
We call them, our corporate accounts, but these are the 500 or less employees.
Definitely did see some consumption weakness, but I want to stress I didn't see it in the bookings that they have that added our po the depth out of consumption.
That's super helpful. Thank you really appreciate it thanks.
Okay.
Okay.
Our next question is with Alex Zukin from Wolfe Research.
Alex Your line is open.
Hey, guys. Thanks for taking the question so I guess if I.
It sounds like Theres, a lot of nuance across a lot of different industries.
And customer sizes and geographies, if we think about the guidance for next year.
Are you guiding to you mentioned the guide for next quarter, it's prudent to assume a more.
Riskier.
A more prudent scenario around the continuation of macro trends.
What are you assuming for next year is there linearity, where youre, assuming a second half better than the first half we're continuing to get worse walk us through some of the puts and takes.
Around around that guidance trajectory.
I'm factoring in that we're going to continue to stay consistent where we are right now through the balance of next year and if the things turnaround that's upside for us and as I said. This is just as we're doing planning right now.
We're not expecting things to change and I really don't know it probably maybe you have a better sense, but.
I can do is forecast based upon what we see today.
Got it and for some of the customers are cohorts that youre seeing where like there sequentially declining are you are you starting to see kind of we're working with them around the new baseline like basically when do some of these.
Optimization patterns.
Rebase and start growing in some of these new areas like streamwood.
And others that you are.
Out there in the market with.
Well, what I would say is these are three customers that's unique to them with the challenges that they have been placing or had in their businesses that have been pretty public.
And I think to one of the reasons why as I said technology has underperformed we are seeing a lot of technology companies Youre hearing in the news that are either freezing hiring are cutting head count and they're definitely looking to optimize on cost, but the these three customers in particular I think were at their baseline right now.
And as long as their businesses kind of stabilize and grow then we will see some growth out of them, but I'm not factoring any growth on them this quarter.
Perfect. Thank you guys.
Our next question is with Brad.
<unk> from Deutsche Bank.
Brad Your line is open.
Yeah.
Okay.
Brad Zelnick from Deutsche Bank. Your line is open you May proceed.
Okay.
Okay.
Our next question will be with Gregg Moskowitz from Mizuho.
Greg Your line is open.
Okay. Thank you for taking my question and congratulations on delivering very healthy product revenue in this environment. My question relates to Q4.
The product revenue guidance was below where consensus was and I'm curious how much of this Mike is a reflection of a moderation in consumption in the month of November or over the last six weeks as you said, an ATK and across the F&B as opposed to embedding more conservatism amid the existing macro uncertainty would you say it's tilted.
More towards one versus the other.
Well the way we do our forecast is based upon our historical performance and we definitely did see a slowdown in the month of October .
That dramatic, but we typically would see week over week growth and we saw a number of weeks, where it was pretty flat I will say.
November is starting to tick back up again.
And that's all factored into the guidance.
Given the macro backdrop, we have right now.
Great. Thank you.
Yes.
Our next question is Simon Leopold from Raymond James.
Simon Your line is open.
Hi, This is Victor Chu in for Simon.
Previously your commentary seemed to imply that slowing consumption and a weaker macro environment will be more concentrated around specific customer groups verticals.
Is that still the case it seems that thats still the case, it's going to confirm.
And I.
I guess has changed versus your expectations in the past.
What kind of trends are you observing that.
Falling out of what you were.
Expecting previously.
Well to be clear it hasnt changed that much from what we've been expecting all year.
As I said there are certain verticals that are not performing as well.
<unk> being one of them that we mentioned from where we were six months ago.
Financial services doing extremely well and expect that to continue actually we landed a very nice deal in the financial services sector that that customer will ramp in the second half of next year and will be a meaningful customer.
It will be a top 10 customer one day.
And the other area that as I mentioned is doing very very well.
Advertising media space and a lot of that is driven by our clean room technology, and what we're doing there as well too.
I would say the only thing Thats really <unk>.
Change to this quarter and it's a very small piece of our overall revenue is the SMB segment, you are really seeing a slowdown in consumption by those customers.
It's not going away, but it's just not growing like it was at the pace of <unk>.
Growth.
And same with a P J.
But U S verticals large enterprise doing extremely well.
Okay.
That's helpful. I guess can you just give us an update around some of your newer initiatives like Snow Park in unstructured data in.
Just kind of the traction and progress you're having with those machines.
Yes, sure Christian planning here.
No Park, San Diego on November seven.
And as a percentage of customers that are evaluating the technology. It's a very healthy rate the consumption has not yet materialized because theyre planning for integration is doing puc's et cetera.
Quite promising and as Frank mentioned extremely will be in private preview at the beginning of the year, which we also think we will have.
A good number of interesting use case to our customers.
Okay. That's helpful. Thank you.
Our next question is with Neil.
From William Blair.
Neil Your line is open.
Hey, Thanks for taking my question.
You've done a great job growing the sales force this year the pace of hiring things have accelerated in the quarter can you talk about where you're focusing incremental investments and should we expect these new hires to begin to contribute in fiscal 'twenty four to revenue or will the impact of the common 18 to 24 months given the time it takes for our new customers.
Well, we're very much focused this year on our hiring in our sales force to go into existing markets. We're not opening many new territories. This year and it's really to go deeper into core markets both verticals.
North America, but in particular in Germany, France, and the UK as well as Australia, and Japan, and AP, Jay and we do believe these people will be contributing to bookings or in the second half of next year and remember when a booking comes in.
It takes a while before you really start to see meaningful revenue from those customers generally it's a six month lag before they really ramp up.
Yes.
That's helpful. A quick follow up could you update us on.
Are you seeing any changes, particularly on the private side.
Sorry, I didn't quite get the update on what.
The competitive environment.
Frank.
I would say that.
Competitive dynamic is substantially unchanged.
No.
I think the balance of partnership versus competition.
Shifts.
Marginally.
From one period to the next I think we've said publicly that.
Our partnership with.
With AWS Amazon <expletive>.
Been incrementally stronger.
And less competitive over time and that continues.
Microsoft has been healthy.
Yes.
<unk> has been.
About the same.
Most of our competitors.
Reality, if you will is really dominated by the public cloud companies and that's been true.
For as long as we've been here.
Okay.
That's helpful. Thanks again.
Our next question is with Derrick Wood from Cowen <unk> Company Eric.
Eric Your line is open.
Great. Thanks.
Like that you guys highlight the average UK spend I think you said it was $1 3 million.
As you look at other companies that are more mature and larger revenue scale or even as you look at your own more mature customers. What do you think the longer term level of spend out of an average GTK customer could be down the road.
And then I guess more specific to the quarter you did have a strong <unk>.
<unk> AD strongest in five quarters are you seeing any any pickup in migration activity or anything to call out in terms of strength this quarter.
Yes, I'll just say on the <unk>.
There is no reason why <unk> can't spend well north of $10 million a year on snowflake and Thats a conservative number.
But it will take time to get there.
This is really a marathon, it's not a sprint for our customers.
And it will take time.
And we are starting to see very large customer relationships, we did sign a $100 million contract in the quarter again with an existing customer on renewal and we will have $100 million plus contracts. This quarter in Q4 with customers that I know, we're running out of credits.
And want to lock in for a long term so.
It's just going to take time to grow these customers just like it took us I think.
Capital one is one of our is our largest customer it's taken them five three years to get to where we are now most of our top 10 customers with the exception of one developing 455 years old customers.
You get into that top 10, and we think that trend will continue but it will take customers that long to ramp to get to.
Those sizes.
And then sorry Derek.
Part of your question.
Yes.
Strength in the U K adds in the quarter.
And it was and then the call out if you are seeing perhaps a pickup in kind of legacy migration activity.
No what I want to remind you, though too is selling into a global 2000 is not a one or two quarter event. These are one to two year sales cycles. So it wasn't surprising to us that we landed these we've been working on these for quite some time just like we have a very healthy pipeline of one's for all of next year what.
The land is really hard to say, but even if I land them. It takes six to nine months to ramp them.
So we're very focused on those and we know who they are and we have reps assigned to them.
Great color. Thanks.
Our next question is with Sterling Auty from SBB.
Your line is open.
Yeah. Thanks, Hi, guys I'm, just wondering the macro uncertainty if youre seeing any customer behavior changes in terms of the type of data that they are ingesting or even if they modify and reduce some of the data ingestion that maybe they were doing previously.
This is Frank.
Not really seeing that.
We have done a lot of traveling during the quarter inside and outside the country.
One of the sentiments that have run into is that.
We're sort of past.
The bleeding edge earlier Doctor class of our customers that we have acquired over the last whatever 567 years.
And we're now into the people that didn't sign up early on.
Theyre overwriting sentiment is.
In a sense, a fomo, where fear of missing out and they're looking at us like we can't be left behind help us help us catch up and.
A lot of times the challenges around that.
Based on their ability to harness the technology in terms of the skills.
And the expertise so in other words, our mix of tools is going to evolve to really help customers.
Address that gap.
Because anything they want they want to they want to accelerate do you want to lean in and they want to move faster to literally overriding sentiment as we're afraid to be left behind this is how important this is clear.
Clearly identifying what they think is holding them up in terms of getting there.
Makes sense. Thank you.
Our next question is with Brad Reback from Stifel.
Brad Your line is open.
Great. Thanks, very much Mike as we think about the macro backdrop, what if any impact do we expect.
To that for that to have on our RP O in <unk>.
I don't see it having a big impact in Q4 based upon the pipeline of deals and knowing the number of customers I know are running out of credits.
And I should say from our current RP O. The big question is whether customers in this environment. We will do multi year deals are just choose to renew for one year, which they have the option to do as well too.
That said I know Q4 will always be our largest addition to our Po and based upon all the sales calls that we have I feel pretty good about that right now where we're sitting but obviously, there's still two months left in the quarter.
Got it thanks very much.
Yeah.
Our next question will power from Baird.
Your line is open.
Great. Thanks.
It was great to see the higher free cash flow guidance I guess this year and initial expectations.
For next year and I guess the.
Longer term target looks looks pretty conservative I guess in light of that.
Great just to get kind of a perspective on kind of the key upside drivers there relative to where you were previously anticipating.
Well part of it is just what we guided to this year is going to come in where we thought it was going to come in for the second half of the year, but a lot of it is driven by customer consumption with some of our largest customers and knowing the RPI than they have in the timing of when those things are going to get billed.
But coupled with the fact that we are slowing our hiring down next year, we're seeing very positive gross margin improvements I do think there's more opportunity next year for gross margin improvement, but wait until we guide just based upon some things were in discussions with the cloud providers.
And I feel pretty good about those numbers sitting here right now on our preliminary planning for next year.
Thank you.
Our next question is with Mike <unk> from Needham and company.
Mike Your line is open.
Great. Thanks for getting me on guys I had a question about the optimization trends that we're seeing from customers and really it relates to the cohorts here, but.
Given the current macro backdrop.
Is it fair to think that newer customers, who maybe were on boarded in the most recent six or nine months and are on that growth trajectory.
Okay.
At a slower rate versus previous cohorts can you can you elaborate at all as far as what the more recent cohorts are are demonstrating from a growth perspective.
I really haven't looked at that but I'm not what I will say is customers today, we spend a lot more time with them on making sure they use snowflake.
Efficiently and Theres a lot more people that have experience with snowflake.
I think the customers that we're growing on self late today that are starting out are much much more efficient in how they use stuff like but I'll turn it over to Christian who actually talks to a lot of our customers were very focused on helping our customers do not go through the cycle grow optimize grow optimize but just being a smoother curve all along.
And it is as Mike said.
Spectation, setting, explaining and training and all that material, but also product enhancement.
And we're seeing that type of behavior.
With existing and new customers.
Got it thank you and one more housecleaning.
But.
Sorry, housekeeping, if I could but can you just remind us what the revenue exposure is from a contribution standpoint from that SMB segment that we had called out.
It's less than 10%, it's right around 10%.
Terrific. Thank you guys.
Our next question will be from Steve Koenig from SMB see Steve.
Steve Your line is open.
Great Hey, Thanks for taking my question guys.
So your ability to grow revenue, 67% year on year in this environment speaks to very strong long term adoption trends.
But I'm wondering more on a short term basis. If we look on if we look at quarter on quarter product revenue additions.
I think it's kind of gone flat flattish in Q3 year on year and May go negative next quarter. So I'm wondering how do you think about planning your sales additions.
And maintaining sales productivity I'm curious about your thought process there that that's all I have thanks very much.
Yes, I will say in a consumption model quarter over quarter additions is not as meaningful because so much of the consumption is tied to what customers are doing at specific times in their business and also Q4 as I said is one that has seasonally higher number of holidays with people, taking and remember about.
70% of our revenue is tied to human interaction with their system, 30% is really driven by schedule jobs. So that has an impact but also I want to remind you that a lot of the stuff we've been doing around.
Hardware improvements and stuff is really hitting us in Q4.
Okay, great. Thank you very much.
Our final question Shelby from Brent <unk> with Piper Sandler.
Brent Your line is open.
Thank you good afternoon. Thanks for squeezing me in here.
Totally get how consumption could slow here just given some of the challenges in these verticals.
We see recessionary headwinds.
I'd be curious and more curious to here.
Offset to consumption, which is expanding number of use cases, so do you have any sites or visibility into how.
And in a recessionary environment.
<unk> appetite to expand either the new departments or expanded the data science some of our job postings data suggests that there are people aggressively hiring for sounds like data science scenario, So I'd love to get it.
The view here on how quickly over the next year or two you could see use cases drive a offset to consumption.
Yes, just having visited with lots of customers during our data cloud World Tour, we see.
Pretty high interest on a number of new use cases, the snow part for data engineering as well as the assigned.
Cyber security is a new workload, we see a lot of interest from our customers.
And <unk>.
Even though it's a little bit later when he did materialize on our end unit store and the ability to build applications and snowflake is definitely driving a lot of interest.
No.
The willingness to expand the use cases seems unaffected.
Unaffected by the broader context.
Yes.
Helpful color. Thank you.
That concludes today's call. Thank you for your participation you may now disconnect your lines.