Q4 2023 Snowflake Inc. Earnings Call
Hello, and welcome to the Q4 FY2023 Snowflake earnings conference call.
My name is Elliot probably coordination your cold stacked.
I'd like to register a question during the presentation, you mentioned slipped by pressing star one on your telephone keypad.
I would like to hand over to Jimmy section head of Investor Relations close Yours. Please go ahead.
Good afternoon, and thank you for joining us on the Snowflake Q4 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 product, who will join us for the Q&A session.
During today's call, we will review our financial guidance.
The fourth quarter and full year fiscal 'twenty, four and our results for the first quarter and full year fiscal 2023 during.
During today's call, we will make forward looking statements, including statements related to the expected performance of our business future financial results strategy.
And features long term growth our stock repurchase program 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 our SEC filings, including our most recently filed Form 10-Q, and the Form 10-K for the fiscal year ended January 31, 2023 that we will file with the SEC. We caution you to not place undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements.
As a result of new information future events or changes in our expectations. 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 condition to and not as a substitute for it.
Financial measures calculated according to GAAP.
Please see the reconciliation of these non-GAAP financial measures. Please refer to our earnings press release distributed early earlier today, and our Investor presentation, which are posted at investors definitely Doug.
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 on the call.
Q4 product revenue grew 54% year on year and for the fiscal year grew 70% totaling 1.9 billion Q4 net revenue retention was 158% we continue to be on track for our 10 billion.
Dollar product revenue goal in fiscal 'twenty nine remaining performance obligations grew 38% totaling $2 7 billion, we saw a measure of bookings reticence with certain customer segments in Q4.
Reflecting a lack of visible visibility in their business and preferring a cautious short term stance versus larger longer term contract expansions the contractual plus your focus off sufficiently enabling consumption growth in the near term.
This was more pronounced among international SMB and commercial customers and much less so at the high end of our customer base.
We made substantial progress on our efficiency metrics non-GAAP operating margin for the quarter reached 6% non-GAAP adjusted free cash flow margin for the quarter was 37% for the.
Full fiscal year 'twenty, three non-GAAP adjusted free cash flow margin was 25% totaling $520 million.
Our data networking growth as measured by Soco stable, Ed just grew 93% year over year, 23% of our customers now have at least one stable edge up from 18% a year ago.
Among 1 million dollar consumption customers, 65% of them at an average fixed stable I just.
Flex marketplace listings grew 8% quarter over quarter and now total over 300.
During Q4 Snow Park for Python reached general availability status early traction is promising 20% of customers have now tried snow Park Snow Park is initially focused on the adoption and migration of workloads.
Workloads for data engineering and machine learning spark jobs, typically around cheaper and faster on snow Park with the added benefits of superior governance and operational simplicity P.
Oh see activity is ramping fast and benchmark results. So far indicate superior comparative results. The fortune 500 customer loads 1 billion transaction records into Snowflake everyday this organization save $1 million after migrating work from spark to Snow Park. It financial services customer is my.
Workloads from spoke to Snow Park Snowflake and.
In snow broke around eight times faster at 30% of the cost.
We entered the private preview status with what we call Streamlet and Snowflake. This is the re platforming of Streamlet inside a snowflake.
Extremely popular application development framework for the Python developer community, especially those focused on machine learning applications.
Streamlet enables the use of machine learning models and applications by a general business audience.
Q4, we announced our intent to acquire mobilized that's snow convert.
Snow converged proprietary conversion tools enable migration from legacy platforms snow convert also helps migrate spark workloads to snow Park.
The ability to accelerate migration to snowflake and the strategic nature of this acquisition.
We are operating in a vast and growing market generating free cash flow and maintaining a strong balance sheet, we focus on the businesses and the outcomes. We can control we are prioritizing positions that directly support the core mission of the enterprise resources will continue to be concentrated on the rules that sell support and build our products.
With that I'll turn the call over to Mike. Thank you Frank Q4 product revenues were $555 million, representing 54% year over year growth in remaining performance obligations grew 38% year over year totaling $3 $7 billion of the $3 $7 billion in our P. O we <unk>.
Spect approximately 55% to be recognized as revenue in the next 12 months. This represents a 48% increase compared to our estimate as of the same quarter last year.
Net revenue retention rate of 158% includes 13, new customers with $1 million in trailing 12 months product revenue and it reflects durable growth among our largest customers.
Performance in Q4 was driven by longest tenured customers. We continue to see the greatest contribution from the financial services and media and entertainment verticals. We continue to focus on growth and efficiency, we generated $215 million and non-GAAP adjusted free cash flow outperform.
Our Q4 target.
Full year fiscal 2023, and non-GAAP adjusted free Covid free cash flow margin was 25% Q.
Q4 bookings underperformed versus our expectations pipeline conversion of the final two weeks of the quarter diverged from historical norms International territories drove the largest under performance relative to plan and multiyear bookings declined 15% year on year, while we are not okay with this outcome customers bookings.
Behavior does not dictate their consumption patterns customers have the contractual right to sign smaller deals to bridge them to their contract end date.
Confident that our customers are committed to snowflake.
Kris singly focused on better managing their business during more uncertain times.
Q4 represented another quarter of continued progress on profitability, our non-GAAP product gross margin was 75%.
Gail in our public cloud data centers continued growth in large customer accounts and more favorable pricing with our cloud service providers will contribute to year over year gross margin improvement non-GAAP operating margin was 6% benefiting from revenue outperformance and savings on TNT and lower bad debt expense our non-GAAP .
Adjusted free cash flow margin was 37% positively impacted by strong collections. We received some large customer payments in January that were expected in February we ended the quarter in a strong cash position with $5 $1 billion in cash cash equivalents and short term and long term investments.
With no debt as noted in the press release.
That went out earlier today, we have expanded our partnership with AWS over the next five years more than doubling our previous spend commitment to $2 $5 billion as part of the new AWS as part of the New agreement AWS is committing to support joint go to market efforts more favorable pricing.
This partnership is aimed at driving growth and innovation now, let's turn to our guidance as of today, we have completed the graviton to migration and all of our active commercial AWS deployments.
We remain committed to driving towards greater profitability. We are focused on growing revenue, while expanding operating and free cash flow margins.
With the change in existing customer purchasing behavior lower than expected new logo bookings and slower expected ramp from our youngest cohorts has led us to reevaluate our FY 'twenty for outlook for the first quarter, we expect product revenues between 568 and $573 million representing year over year.
Our growth between 44, and 45% turning to margins, we expect in a non-GAAP basis zero percent operating margin and we expect 361 million diluted weighted average shares outstanding.
For the full year fiscal 2024, we expect product revenues of approximately $2 7 billion.
Representing year over year growth of approximately 40%.
Turning to profitability for the full year fiscal 2024, we expect on a non-GAAP basis, approximately 76% product gross margin, 6% operating margin and 25% adjusted free cash flow margin and we expect 363 million diluted weighted average shares outstanding.
I would also like to announce that our board of directors has authorized a stock repurchase program of up to $2 billion over the next two years. This program reflects our conviction in the business and allows us to use our expected free cash flow to manage dilution over this period our share count guidance does not include the impact from the stock.
Repurchase.
During fiscal 2023, we added approximately 1900 net new employees, we view the current hiring market is favorable for snowflake and will continue to prioritize hiring and product engineering and sales, we expect to add more than 1000 employees in fiscal 2024, we remain.
On track to achieve our fiscal 2029 $10 billion product revenue target, we look forward to executing against our growing opportunity and lastly, we will host our investor day on June 27th in Las Vegas in conjunction with Snowflake Summit, our annual users conference if you're interested in attending.
Please email IR at Snowflake Dot com with that operator, you can now open up the line for questions.
Thank you if you would like to ask a question. Please press star followed by one of your telephone keypad.
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<unk> ask your question and please enjoy device is on mute locally.
Our first question today comes from Mark Murphy from JP Morgan Your line is open.
Well. Thank you very much Mike I'm curious if you have any insights into the consumption patterns that you saw generally but including during the holiday periods.
MLK weekend and Presidents' day week is it is there anything any.
Noteworthy change there and then I have a quick follow up.
There was nothing really noteworthy around the holidays as we said going into our Q4 guidance, we are factoring in the holidays.
We were 3% above our guidance.
Our actual results and I will say President's day was slow but February is off to a very good start it's kind of was where we were expecting it to be.
Okay.
Follow up Frank I wanted to ask you on the topic of generative AI and enlarge language models could you frame up the opportunity there for snowflake, because I would think.
With the UD store, you could probably handle all these chat logs.
You could you could be training some of these models on on very large datasets I would think that snow pipes can can pull in social media feeds.
It kind of helps you improve those models do you see any customer activity around that vector or any tailwind do you think there could be developing in time.
Well you know it's still early.
And the cycle, obviously like everybody else, we're all over it in terms of Gabelli.
Evaluate evaluating.
Where these technologies can make a difference I mean, the things that we have sort of honed in on short term.
Completion optimizations things.
Things that are very very clear business returns.
One of the challenges with these new technologies that people come up with a lot of interesting questions, but without a solid business model.
That's not going to take off so we take a very pragmatic view.
We do anticipate that snowflake data that will be a very very big driver of large language model in conjunction with many many other data sources. So we think that the gravity around data that will drive a lot of this action and activity to our platform.
Okay.
Excellent. Thank you very much.
Yes.
We know times here Kirk <unk> from Evercore ISI. Your line is open.
Hi, yes, thanks for taking the question congrats on a great quarter. Mike can you just talk about you know the internationals are underperforming it's actually a really good quarter is there something specific about the region in terms of how people are consuming over there versus the U S or was this.
Just a maturation of your sales organization that needs to continue over in that region.
I think its customers being a little more cautious in their business and just buying as they consume which they can do under their contracts as well too we've always seen that in Japan in particular, those customers tend to do that but I.
I would say part is also around execution as well too, which we're working on.
Yeah, I will say, we did see we did see as well in North America.
Number of customers some of our larger customers, who had consumed their full contract amount, but still had a contract in place and just bridge themselves rather than do big deals right now and I think that's just a function of.
Uncertainty in their business, but their consumption still continues to grow on stuff like that.
And then just one quick one for Frank Frank on the Telecom cloud that you guys have.
So I was just kind of curious your thoughts there how how fast do you think that could ramp obviously financial services and some of the other verticals that you're focused on and then been really strong to your to your point around some of the shared edges that you've seen in your bigger customers just any thoughts on how fast that could ramp for you guys.
Telco is really important segment for us I mean, our largest customers some of our largest customers are in that segment.
They're running massive amounts of data very focused on managing the service experience cross selling across very very large customer bases.
This is our fifth industry cloud that we have announced and it's really focused on bringing our telco specific datasets data assets to it data practices applications, and then really bringing in that ecosystem of telcos people that interact with each other and you'll have the opportunity.
To have the benefit of a data network like like Snowflake. So we're very high on I mean, obviously telcos are the cornerstone of every modern economy and especially in a lot of secondary markets. You mean telcos tend to be the biggest consumers for us.
Okay. Thank you all.
Yeah.
Our next question comes from Brent Thill from Jefferies. Your line is open.
Yeah.
Thanks, just as it relates to the overall guide. He can you just give us a little more color kind of what you baked in Mike and ultimately.
Kind of what what what's been the big change from your perspective.
You know the big change is really the we're seeing the younger cohorts that are coming into <unk>.
Snowflake really ramping at a slower pace than what some of the early adopters of Snowflake did.
There is still consuming these tend to be large organizations as we've been focused on those large gtk's and they just move slowly, but there's still ramping their consumption just at a lower rate.
And I think snowflake is being deployed more efficiently.
For these customers and.
I also just think to us there as our base gets bigger that growth naturally slows down.
And the business, but customers are still consuming.
And just from a rep productivity perspective, Mike is there anything changing there where youre seeing a rep's productivity slow or is that consistent to what you've seen historically.
I would say, we have a rep productivity issue and some of the international markets.
And we are slowing down some of our hiring or we don't see the productivity, but theres other areas, where productivity is doing well. The large enterprises is definitely doing well for us North American enterprise continues to be strong for us.
And we're going to deploy resources, where we think we can get those reps productive over the next 12 months.
Great. Thanks for the color.
We now turn to Keith Weiss from Morgan Stanley . Your line is open.
Okay.
Great. This is tier two.
On for Keith.
You put up a 158% net retention this quarter, which is still an impressive number but slowing sequentially I would love to understand what you're seeing between the different customer cohorts in terms of expansion momentum, but also it maybe optimization and how that sort of changed over the last 90 days any way you could sort of parse that out.
<unk> between 1 million plus customers and then the rest of your customers.
First of all the 158 was the exact net revenue retention just as a reminder, when we went public.
I think there was a little bit of a reacceleration in our business in 2021, 2022, where theres a lot of customers that maybe had spending out of control now that costs are much bigger focus with that almost every company today I think people are using snowflake more efficiently customer.
They are having very detailed methodical deployment plans in south Lake, which is slowing down that growth rate of a cut.
Customers consumption as they're going through their implementations, but we're not seeing any customers.
Decrease their spend in any material way in South Lake, Yes, we still had those three we pointed out at the beginning of last year that a few of those have dropped out of our top 10.
But those guys have stabilized but in general most of our customers continue to grow with us, albeit at a lower pace and I think that's more of a nature of controlling costs.
Okay, Great got it and then just quickly on your <unk> I mean, clearly that's a big focus for you and I think the AWS partnership expansion sort of reiterate that effort.
Way you can sort of explain what you're seeing in different verticals are there any of that slowed that are stabilizing now.
It might be accelerating and sort of how you're thinking about different verticals. So when it comes to your fiscal 'twenty guide.
Well I would say as I mentioned in my remarks, and I've said before financial services is definitely our biggest vertical.
That's where we have the most data sharing going on.
Next is media and.
Technology Entertainment.
That's a huge hum.
<unk> for us.
Clearly some of the newer technology companies, we have seen a slowdown in some of those ones, which we had highlighted last year and I do think you're definitely going to see a slowdown and a lot of the venture back companies that may have been growing very quickly, we're definitely seeing cost controls and those companies as well.
With large global 2000 continue to grow.
Our next question comes from Raimo <unk> from Barclays. Your line is now open.
Hi, This is Shaun mcmeans on for Raimo. Thanks for taking our question. You've recently discussed the top 15 GSI have done around $1 4 billion and services spend around snowflake and that was year to date is as of Q3 I was wondering if we could get an update on that and then how should we think about the attach to those services.
The attach of future consumption onto those services is there any framework. We can think about to help inform next year's revenue expectations. For example is there a correlation between the growth rates or can we think about the magnitude of that GSI spend with some sort of lag.
Yeah, I'll just say in the top 15 GSI is the spend was in deals they've booked is over $1 6 billion.
Last year based upon the data that my alliances team is reporting.
In terms of trying to get any concrete relationship between their spend and snowflake revenue I really don't have that data and I would be guessing anecdotally looking at specific customers. So I'm not going to guide towards that but it's generally.
<unk>.
A number of them.
A number of times bigger than what the revenue is associated with it in year one.
Got it and a quick follow up how should we think about the relationship between operating margin and free cash flow margin going forward, particularly when considering the increasing <unk> leverage you guys are getting on larger accounts and the greater role of expansion revenue versus net new that might may affect commissions and then you mentioned.
There was some lower bookings duration and I was wondering if billings duration played into that as well.
First of all I don't even look at billings because in our model people are just buying capacity and that capacity may be for three months it could be for one month or could be for one year and it really varies by customer and they have the right to do that.
In terms of relationship between operating margin and free cash flow well definitely as your operating margin expands I expect our free cash flow to expand but the operating margin will expand at a more rapid pace given it's a much lower number.
And we will update the longer term model as part of our Investor Day in June we clearly just guided to 6% non-GAAP operating margin and 25% adjusted free cash flow full year this year.
Got it thanks.
Now to answer your Gregg Moskowitz from Mizuho. Your line is open.
Okay. Thank you for taking the question, Mike you mentioned that weaker net new bookings.
With an expected ramp from your youngest cohorts impacted the fiscal 'twenty guide, but thinking back to the Q3 call. You had also spoken about some significant customers that you were expecting to materially ramp in fiscal 'twenty four and you also said today that the enterprise has generally held up pretty well. So I'm wondering you got three months later, maybe looking at it from a bottoms up.
<unk> can you share with us how youre thinking about these particular customers and the ones that.
There was this potential line of sight in terms of them ramping in fiscal 'twenty. Four just wondering if that's changed at all in terms of that viewpoint.
Well those customers are definitely still ramping but what I will say what is different in literally week 10 of our quarter, we converted 90% of our weighted pipeline into bookings, where historically that's been a 140%.
In Q4, and Thats typically because deals are understated and deals get pulled in that did not happen. This quarter. We also had a number of customers big customers, who rather than they consumed everything and rather than do a big multiyear deal literally just bought enough capacity to get them through to the next.
A quarter or two.
Do have two of my biggest customers.
I know they run out of capacity within the next six months that they will have to do something but once again, they could do big deals or they could just do that.
Buys a sufficient capacity on a quarterly basis, because their contracts still haven't expired. They just don't have any capacity left on them. So that's why I don't focus too much on bookings and focus more on revenue and why I think that's the leading indicator, but as I said, we definitely do see a.
A number of our newer customers in the cohort still ramping but ramping at a slower pace.
And then what historically they have and I think that is a function of the cost controls that are going on within companies to make sure. They are conserving.
Conserving as much money as they can from an expense standpoint.
Okay very helpful. And then just for thanks, Mike in for Frank on Snow Park for Python. So we've heard of a lot of customers that are kicking the tires a lot of small tests that are taking place, but you did call out a couple of customers that are really ramping and it sounds like theres a lot of robust plc activity just be helpful to get a little bit more insight in terms of how youre thinking about.
How this plays out over the course of fiscal 'twenty four in terms of adoption. Thank you.
Well, we definitely have a sort of unleashed a full court press because our basic.
Last year is that.
For example, any any spark job runs into snowflake orbit, either putting data into snowflake or taking data out of a snowflake pork for consumption analytics machine learning purposes is really ours, that's sort of the attitude that we take towards it and we will we will challenge existing spark jobs and we will.
So we are really taking ownership for the action and the activity that is happening.
Our hemisphere, so to speak so it is all over the map, we can see very clearly from our own data, which customers are doing what because they're touching a snowflake. So we really mobilized ourselves as an organization.
Got that and you clearly seem to have picked up on the wall.
The activity is a huge amount of stuff and <unk>.
It's really rolling out in waves and there is a lot of plc activity going on there as customers wanted to see whether we can verify.
Some of the somebody outcomes that we're anticipating and so far those results have been super encouraging in our sales force is pretty good.
About the opportunity based on the results that we're seeing so we're quite excited about this is really.
Really the biggest expansion if you will of our scope as a company since we first came out in 2015 timeframe. When we went after hadoop workloads and things of that sort.
Great. Thanks very much.
We now turn to Derrick Wood from Cowen Your line is open.
Great. Thanks, Frank legacy migrations from on premise.
A key growth driver for new customers for you guys is the macro causing any change in urgency for for those kinds of migration projection.
Given the you guys acquired snow convert.
Can you talk about how that may help simplify or accelerate migration projects.
Well you know on stock converts I mean, we've been working with Dr technology for four years and years, we're super familiar with us and we're actually.
Really happy that we now have full control over that technology, because its not just about migrating customers is also getting them to consumption faster, which is why it matters.
To our to our model not really seeing slowdown on.
On migrations I mean, all of my comments. So far is really about all the customers are continuing to do contract extensions to just have you know a.
More reticent posture around in the past it was all about enabling growth as hard and as fast as they could because that was the dynamic of the times now we're sort of living the opposite dynamic where they're looking to not get too far over their skis and they are enabling the growth. They are foreseeing an ongoing few steps at a time, but migrations are keep on <unk>.
And Youll fast and furious.
Great Mike.
Given all of the head count cuts happening in the tech sector is.
Is that having any material impact to your assumptions around consumption activity.
And you did allude to kind of the startup tech pressured.
Pressured any.
Some sense for how much revenue exposure you have there.
Yeah, well first of all when I make the comment about companies are definitely looking to save on their spend when youre doing a RIF you are generally not just looking at reducing costs and head count you're also looking at other areas of your business you can reduce costs. So I definitely think and some customers you can see ones that are public.
Publicly announced drifts we've seen some.
A real slowdown in the revenue yet others.
I can't name their names, but there is another one that announced.
If in one of our top 10 customers their consumption has actually gone up and snowflake. So there is no direct co relation between risks and our customers consumption and snowflake.
But I will say.
<unk> companies are definitely looking for ways to cut costs.
And either through head count or other things.
Right.
We now turn to Alex Zukin from Wolfe Research Your line is open.
Hey, guys. This is Alan Rykowski on for Alex Zukin. Thank you for taking the question.
Just one quick one for me for.
For your 40% product growth guide.
24, how should we think about the seasonality through the year.
And perhaps how has that changed relative to your view last quarter. After now seeing slower ramp times with your more recent adopters of the box.
Well as I said the more recent adopters in the platform are definitely see them.
Ramping slower theyre taking.
Longer in terms of Theyre not growing euphorically like some of the earlier ones and I really do think that is a factor of it could be the macro that they want to conserve it could be that there are depending on the customer that they're being more efficient in how they roll snowflake out as theres, a bigger population of people who have been using snowfall.
<unk> in the market.
And it's also a factor that a lot of the new customers that we're signing up arent necessarily these venture backed startups that had unlimited capital they tend to be more of these mature companies that have always been disciplined on their spending so it really does vary in terms of seasonality.
We just guided for the quarter you can see what.
We guided we guided 44% to 45% growth in Q1, and guided 40% for the year I'm not going to give you the quarterly guidance for the other quarters, because we will give you a Q2. After Q1 finished as we've always done.
Yeah.
Thank you.
Yes.
Now turning to Sterling Auty from SPP. Your line is open.
Yes. Thanks, Mike you gave a couple of reasons for the slower growth in our newer customers, but I'm also wondering.
Our new customers, reducing the number of use cases, initially and if so what are the use cases that you see them ramping with first and what things maybe are they putting on hold.
There is no reduction in use cases use cases continue to expand.
What are the most common use cases, it really depends.
Migrations are a big one in on Prem, but it's an on Prem data warehouse a lot of them. Some of them, though are still were still replacing some of those first generation cloud data warehouses think redshift and things like that.
I really haven't seen any.
Slowdown in use cases.
The average deal sizes remained relatively the same hasnt changed.
Yeah.
Makes sense. Thank you.
Now turning to come out of Zurich from William Blair. Your line is open.
Okay.
Hi, Thanks for taking my question.
Your free cash flow margin reached your long term target of 25% can you provide a little more color around how you think about that shorter term tactical decision to balance margin and revenue growth.
Assuming the macro environment.
Later this year.
How do you think about bringing down margin.
Reaccelerate revenue.
Free cash flow margin is not directly related to our growth our growth is more on the expense side and looking at productivity and will not grow our revenue faster unless we see productivity increase in the sales organization and when we see that increase.
Productivity will add more heads there and we think we're adding at the appropriate pace based on what we're seeing in the business today.
As I said, where most companies are cutting.
Added 1900 people last year net and we will add over 1000 people this year, while still generating improvement in operating margin and having very good free cash flow next year again.
Yes.
Yeah.
Okay.
That's helpful and a quick follow up.
I realize it's still early but can you provide some detail around the traction youre seeing with the unit store product and how you expect that piece of the platforms evolve over the next few years.
Yes. This is Christian it is as you say, it's still very early on.
We're still in private preview with.
Tens of customers validating air flooding his feedback.
We received quite positive.
The feedback and encouragement, but it's early for us to have any meaningful draw rollout for adoption.
Okay.
Got it thank you.
Now turning to French Lee from Credit Suisse. Your line is open.
Hey, gentlemen, thank you very much for taking my question.
You've both been very clear about managing the business for the long term and considering this operating philosophy.
<unk> behind the $2 billion share buyback versus pouring more gas into the company's R&D engine and doubling down on product. Thank you.
Yeah sure Ed It's Mike we have $5 1 billion in cash on our balance sheet. We've had 5 billion. Since the time. We went public we have made a number of strategic acquisitions and M&A deal. So we feel we have more than enough capital in the business to fuel our growth through <unk>.
Both these small tuck in M&A as well as invest in head count, but you can only add so many people at a time and get them productive and an engineering organization and I am not hearing our engineering leaders claim they need more people in.
It's not growth at all costs. This company, yes, we are a growth company, but its efficient growth as well too and we'll continue to do that and we expect we're going to generate close to 2 billion over the next two years and given the $5 1 billion we have.
We think it would be great to manage dilution through that.
And we still have the opportunity if we find great candidates to hire faster if we so choose.
That's very helpful. Thanks, Thank you Mike.
You May now Sanjay <unk> from Stifel. Your line is open.
Yeah.
Yes.
Great. Thanks, very much Mike over the last three years, you've added 18% to 19 hundreds of customers each year. So as we look into 'twenty four should we expect that to continue in a similar sort of growth and revenue per customer or will it skew more towards revenue per customer.
Yes.
First of all I don't really focus on the total number of customers as I've said, many times I'd like to focus on quality customers. We tend to focus on large enterprise or they can be small that have the ability to be significant customers.
And so.
Clearly the number of customers is going to grow whether we add 802500, I really don't know next year I'm going to focus more on what those right customers are and.
You will see the revenue per customer growing yes, our million dollar plus customers have stayed flat at $3 7 million, but we also added a number of new customers and there are global 2000, now are up to one $4 million in trailing 12 months they were at $1 3 million.
Last quarter.
Quarter, yet, we still added more global 2000 so.
I do think the revenue per million dollar plus customer in <unk> is going to continue to grow.
Over time, and I think youre going to see more growth out of those global 2000 numbers.
That's great thanks very much.
Okay.
Our next question comes from Brent <unk> from Piper Sandler Your line is open.
Thank you good afternoon, Frank 20% of customers have tried snow Park Snow Park Python.
When do you think that those use cases and workloads.
As you move from testing and experimentation to actually driving.
Acceleration in the business do you think this is.
Potential lever in the second half or do you think it might take a year for a lot of these customers to work out some of these use cases from a workload drivers perspective. Thanks.
Yes.
In terms of what we're already seeing in terms of the velocity of consumption notice coming from Snow Park, we think it'll be in the second half at some point.
Where we're going to.
We're going to see what we think is as material impact.
From that.
Early days.
We're growing from a very small base. So yes, we are seeing high velocity.
Still need to persist before on our revenue scale it becomes material.
Said, another way, Brian Mike Real quick our guidance.
<unk>.
Our guidance for this year is not material, what we have for snow park, but I do think longer term, we'll be much more materially it could give us upside, but it is still too early.
Very helpful. And then Mike I wanted to go back to the margin comment here I get recession.
Impacting the drag on the growth business for 100% usage model, but you are guiding to 25% free cash flow margins at call. It $2 5 billion dollar scale.
Are you rethinking.
Profitability of this business at $10 billion scale, just thinking through.
Margins today, and what the potential could be at much larger scale.
Well, you're just going to have to wait for June our Investor day, when we give an update on that model, but clearly there is upside to what we said last.
Investor Day.
Yes.
Great. Thank you.
Announcements you Tyler Radke from Citi. Your line is open.
Yes. Good afternoon. Thanks for taking the question, Mike going back to your comments on the bookings slowdown at the end of the quarter, how much of that was driving the lower outlook the lower outlook for the full year versus actual.
Actual consumption slowdown that you saw.
And I guess secondly, as you think about that booking slowdown are you incorporating lower close rate assumption just given that this was the first quarter that you converted.
Below 100% of the weighted adjusted pipeline. Thank you.
Most of that bookings was really just a duration customers and buying and its capacity to get them through yes. There were customers that we did not land some new ones that.
Have deferred and into this year to do deals that does have an impact in the second half of the year on revenue, but the biggest thing on the revenue guide is really we are seeing.
The newer customers take longer to ramp and these are some of our big customers that are large global 2000 that are very methodical in the way they do things.
Unlike some of the early adopters that we do everything as possible to get everything on snowflake as soon as possible.
Yeah.
Helpful.
We're now turning to Simon Leopold from Raymond James Your line is open.
Hi, guys. This is Victor Chu in for Simon.
Regarding the behavior of the new cohorts.
Do you anticipate that consumption.
Accelerated returns to previous consumption rates and a more normalized environment or is this a structural shift around how new cohorts are kind of approaching their implementations and this is how we should think about it as kind of a status quo going forward.
Well, what I would say is we're in a consumption model that literally the.
The beginning of the day, we have zero revenue and customers choose to use snowflake and a tight macro environment I think people are watching their cost, but just as quickly as they can turn stuff like off they can ramp it up very quickly as well too.
And so we're seeing a.
Customers as I said before use snowflake more efficiently be more methodical in how they roll snowflake out to make sure they're doing thing, but theres really.
No big change customers are still consuming they're just not growing at the rate they were they're still growing.
And you see that in our net revenue retention.
Okay. That's helpful.
And just one quick follow up can you help us understand a little more.
Around your R&D priorities, maybe help us understand what your preferences are between adding new features versus entering new markets, just trying to get a sense for.
Where you see opportunities.
Our R&D your R&D efforts.
I'll, let Christian talk about that.
We continue.
<unk>.
Dave three broad vectors that we've discussed in the past one is continued progress on analytics Sakhalin one is around calibration worthiness sharing clean room space.
Third one is the broader category.
Northland enablement.
Computation to come closer to the data, that's where snow are extremely many other initiatives fit in so we continue investing and making progress on all three fronts.
And on the product side Erin market side.
We will have fed ramp high very very soon.
That the public sector, we're going to be able to go after and that's what we're working on IL five.
And I expect we will have.
Public sector will start to be more material to us this year in terms of new deals.
And in terms of new markets.
We continue to explore China with this strategy for our global multinationals, who operate in China and that is something where we will be in there this year.
And then the other thing that I would say to us we're not opening any new countries.
And we're going to invest more in some of the bigger international markets like Japan, where we're seeing huge opportunity there they just move slower.
That's helpful. Thank you.
Okay.
Our next question comes from will power from Baird. Your line is open.
Okay, great. Thanks.
It looked like a really nice comprehensive agreement with AWS I guess I wonder.
In that vein, if you could provide any update as to the azure relationship the offer opportunity their go to market currently it looks like and then.
Mike just as it pertains to margins this year.
Margin guidance, a bit higher than where you were previously despite the lower revenue outlook, just maybe any other color on kind of the key lever is helping to enable that.
Well I'll start with the margins first.
Clearly when we we like many of our customers started looking at.
Our costs and we slowed down some of our higher.
This year.
And so that's really driving the margin outperformance as well as efficiencies in the way we do things.
And.
We are committed to continuing to operate the company as efficiently as possible. So do expect longer term more leverage in the model there in terms of the relationship with the cloud vendors I would say.
The new AWS agreement is a great step forward in improving an already really good relationship with AWS to begin with.
We had a $1 2 billion of our commit now we have.
$2 5 billion commit over the next five years and it's much better alignment in go to market between the two.
AWS we're still.
Azure, we're still two and a half years into that five year contract.
We will start discussing with Azure.
Trying to get better terms.
I don't know if those talking pricing I'm talking go to market working together with one another.
And there is no change in GCB today, I'm hopeful there could be something in GCB longer term, we will come to the end of our <unk> contract in May of 2024.
Tracking to fully consume what we committed to with GCB, but we're clearly running ahead with Azure and AWS and that's why we did an early renewal or a new contract with AWS.
Great. Thank you.
I mean, how sensitive front half mile from Macquarie. Your line is open.
Hi, Thank you.
Mike I wanted to go back to an earlier comment you made about some of your newer customer cohorts being more methodical in their approach to ramping up the snowflake can you provide a little more context around what you're seeing there in terms of what Theyre doing is this something around the perhaps.
Budget related oversight internal change management or anything and then trying to square that also are not square it rather but understand that in context with the description you gave that the enterprise segment is performing quite well. Thank you.
Well I'm, just telling you they're not growing as quickly as what they did but we saw in 2021 and 2022, where I think it was a little bit more euphoric with companies didn't have as much cost discipline around spending and youre seeing people being more cost conscious in how they do things across the board.
Not just on Snowflake, that's why you're seeing these companies do risks out there and as a result, we do see these companies growing, albeit theyre growing at a more methodical pace.
We're not seeing these crazy spikes in consumption and customers.
And Thats also a function of people are using snowflake more efficiently in terms of really planning out the rollout of South Lake also Rps resource so as they're actively involved with customers. Our partners are getting better trained on how to do snowflake migrations. This just is.
This isn't really a maturing of our.
Our partner ecosystem at us.
Thank you.
Our next question comes from Michael <unk> from Wells Fargo. Your line is open.
That's great.
Hi.
Hey, great. Thanks, sorry, I can't hear you.
Even with.
Yes, sorry can you start.
Thank you.
Yes, yes, yes, no happy to even with some of the impacts you're mentioning the NR is still holding strong at 158%.
Not lost on us, but any change in how you're thinking about target levels realized there's variability that you said you expect those to remain above 130% for a long time, just anything youre seeing currently that could cause that metric to dip more meaningfully or anything you can add there is helpful.
We're not forecasting it to dip to that level anytime soon but clearly as the numbers get bigger.
It becomes harder.
<unk>.
That number is still going to be a very high number.
And it really all depends upon the customers, we land today and the ones that we landed over the last two years that will come into our cohort next year, but clearly.
And that's the beautiful thing of a consumption model just as companies can really control their spend on snowflake.
They open up their budgets more they can ramp very quickly existing customers on stuff like that could drive that up but we're not seeing a precipitous drop off longer term in the net revenue retention it will potentially come down longer term, but it's going to still stay very high.
Sorry, I can't hear you very helpful. Just one more if I may.
Sorry.
That's helpful.
Any any.
You mentioned, the new customers ramping floor I think we can appreciate the environment. We're in but are there things youre contemplating either from a product or go to market perspective that could change that dynamic at all or is it more a matter of being patient letting them come to you.
This all evens out over time from your perspective.
Yeah, I also want to stress too that's on average there are some customers who are ramping very very quickly, but that was the whole strategy behind there's snow convert.
The acquisition of mobilized and Thats really to help enable migrations faster. That's also why we are spending a lot of time certifying and training our partners. So they can work on this we are doing everything we can to continue to see customers.
<unk> on snowflake and to be clear they continue to ramp at a very good pace, albeit not euphoric pace that they were in the past.
That's very clear thank you.
Our next question comes from Microsoft costs from Needham <unk> Company. Your line is open.
Hey, guys. Thanks for getting me on the call here.
Wanted to see if I could parse back the guidance construction that you guys have I know a couple of other folks who then.
Asked about maybe total customer rates and I know Mike you commented that you guys are looking to focus on the quality customers.
If I just look at like the global 2000, as an example, I think previously snowflake has spoken about having call. It one to two year sales cycles for some of these customers again, because its a strategic relationship.
Is there any way or can you provide any detail as far as how youre thinking about additions from the global 2000, or where how those net retention rates are expected to trend over the course of the year and then one follow up if I could I know an earlier caller you get asked about.
The company's exposure to let's say the more.
VC backed companies, which are clamping down versus the <unk> growth that you had seen previously can you size up what that exposure is to that customer segment.
So you asked a number of questions, but the first thing is you know.
We land large enterprise global 2000 as fast as we can there are large long sales cycles. They will be lumpy in terms of when we land them, but that is purely the booking the ramping of those guys take time and it is to get them to ramp to revenue.
Have not seen any change in terms of really the average deal size of those global 2000, when we land them.
In terms of net revenue retention you asked about I'm not going to guide to net revenue retention in the future.
And in terms of your question on venture backed companies.
We have disclosed this before and it remains there it's roughly 10% of our business that tends to be the segment that are inside sales really focuses on not all of that and there are some large companies in there as well too. These are some of the unicorns that have been ready to go public for a while but given the markets have chosen not to but when I look.
Look at those large unit cars, they are still very well capitalized.
That's awesome. Thanks, Thanks, Mike and I know that Youre, saying that there is there's no change in the average deal size for when you are lending customers.
You are saying that the newer cohorts are outstanding at a slower rate can you provide like magnitude differences if customers would typically taken I don't know six months to ramp through the run rate.
How is that trending today.
What would that Delta would be if we're thinking about magnitude based on this macro impact you are seeing.
Yeah, I'm not going to disclose that I'm, just saying it's slower.
Got it thank you.
Our final question today comes from Brad Zelnick from Deutsche Bank. Your line is open.
Yeah.
Hey, Thanks for taking the question. This is Dan on for Brad I, just wanted to ask one quickly on some of the hardware and software improvements that were kind of a key focus going into the year and now we've kind of gone through the year and you mentioned the graviton migration is completed how did those kind of play out the impact of that in consumption relative to kind of what you were expecting and then any thing.
Call out looking into next year over the next several quarters in terms of hardware software improvements.
Isn't that would kind of differ from kind of a long term impact.
Impact.
Is that close to half that you've talked about before thanks.
No as I said before we factor in a 5% revenue headwind every year associated with both hardware and software improvements.
And don't see any material hardware improvements happening this year as of today. There are a number of software improvements that we are constantly working on those and so I feel pretty good about that 5% as I mentioned the graviton two deployments are all completed as of today.
We didn't quite get them all done last year. There were a number of them were finished in the first month of this quarter.
And so didn't quite have the full impact as we thought last year, but it's really hard to tell.
But it's baked into our forecast for this year.
Thanks, and then just one last one I was just curious on the international if there were any markets in particular.
That kind of drove the underperformance in international.
So.
EMEA actually had a good consumption.
They were pretty much on plan from a consumption they were a little slower on the bookings side.
And I think thats more of a function of people being more cautious with uncertainty in their businesses I would say.
Japan is doing well for us, but they are very methodical and buy as they go.
And I would say some of the other areas in Asia.
Or a little bit slower, but Asia is such a small piece of our overall business. It's really EMEA that was a little slower than what we would've thought from a bookings perspective and productivity.
Got it thanks.
Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
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Okay.
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