SNOW Q4 FY23 Analyst Q/A 02/22/2023
Frank Slootman, CEO
Michael Scarpelli, CFO
Christian Kleinerman, SVP Product
SInce this is the first board post re: SNOW’s results, I’ve attached the earnings release press release and slide show at the end of this post.
The CFO stated the following response several times, and sounded short/frustrated by analyst’s questions after stating this re: the reason for the slowdown:
Younger customer cohorts coming into SNOW are ramping at a slower pace than the original SNOW consumers previously ramped. These newer customers are ramping consumption, just at a lower rate. As base gets bigger, growth naturally slow down. Customers are still consuming.
Q Insights into consumption patterns during the holiday weekend, MLK and Presidents day.
A Nothing really noteworthy. Were 3% above their guidance. Feb was slow, but March was off to a fast start.
Q AI chat logs, social media feeds, etc.
A Very pragmatic view. Snowflake language will help greatly in this regard.
Q International underperformance. How they’re consuming vs. US
A Customers being more cautious and buying as they consume. Japan historically has done this. Did see in North America, customers who had consumed their existing consumption and they extended and kept consuming.
Q Shared edges w/ financial co’s and telco’s.
A SNOW’s largest customers are telcos. Running massive amounts of data. Telcos are their biggest consumers.
Q Color re: overall guide -what’s baked in and what’s changed?
A Younger customer cohorts coming into SNOW are ramping at a slower pace than the original consumers. They are ramping consumption, just at a lower rate. As base gets bigger, growth naturally slow down. Customers are using SNOW more efficiently, consumption is more methodical, but not seeing customers decrease their spend in any material way, just growing at a slower pace. Partners who have been using SNOW for some time are getting better at migrations and that’s also part of slowing down SNOW’s revenue growth.
A We have a rep productivity issue in some of our international markets. Large enterprises are going strong, but will be doing things to get reps more productive during this year.
Q 158% Net retention. Expansion momentum and how it’s changed in the last 90 days.
A 158% was the exact NRR of SNOW when they first went public. Customers are using SNOW more efficiently, consumption is more methodical, but not seeing customers decrease their spend in any material way, just growing at a slower pace.
Q Verticalization. What are you seeing in terms of growing/slowing verticals?
A Financial Services is their biggest vertical, next is media, technology, entertainment. Newer technologies we’re seeing a slowdown. Seeing a slowdown in venture capital led companies.
Q Update on top GSIs and revenue expectations next year and correlations
A Top 15 GSI’s booked $1.6B last year. Re: Concrete relationship between their spend and SNOW’s revenue -He’s not going to guide on this.
A I don’t even look at billings, because
Relationship between OM and FCF, OM will expand at a much faster rate. Clearly just guided to 6%. Will update this at their investor day presentation.
Q Thinking back to the Q3 ramp, there were some large enterprises that you expected to ramp. Did they? Has it changed based on Q3 announcement?
A Converted 90% of current weighted pipeline. Normally it’s higher than that. Customers are just buying more on a quarterly basis. CEO doesn’t focus on booking. Revenue is their leading indicator. Customers are simply ramping at a slower pace to conserve as much as possible.
Q Insight on adoption.
A Definitely have unleashed a full court press. Any spark shop that uses SNOW is really theirs. Will challenge any Spark shops. Can see clearly from their own data who’s doing what, and they’re clearly using SNOW. Lot of POC activity. Super encouraging results. Their sales force is really excited about it.
Q Legacy migration from On Premise. Is macro changing any sense of urgency. Will new acquisition of Snowconvert improve this?
A Have been working with snowconvert for a long time. Not really seeing slowdowns on migrations. Customers are doing contract extensions. Customers don’t want to get too far over their skis. Migrations are happening fast and furious.
Q Revenue exposure in start-up tech/venture capital led companies?
A In some companies you can see slowdowns in Rifs. No correlation between this. CFOs are looking at ways to cut costs either in headcount or other ways.
Q 40% product growth guide, how to think re: seasonality and slower ramp times?
A More recent adoptors are ramping slower. Macro is a factor and it’s a factor that newer customers aren’t necessarily venture-backed.
Q Any slowdown in use cases?
A No reduction in use cases.
Q FCF reached 25%. Provide color re: balancing growth and how you think about bringing down
A FCF is not directly related to their growth. When productivity increases they’ll add heads. Where most companies are cutting, SNOW added 1,900 last year with 1,000 adds this year.
Q Unises product in developement
A Still early on. 10 or so customers are evaluating it. To early to have any meaningful adoption.
Q $2B share buyback vs. spending on R&D
A Have $5.1B and started with same amt. Have more than enough $ to do this. You can only add so many people so fast. Engineering isn’t asking for additional people. Can still hire great candidates as they find them.
Q 1,800 tio 1900 new customers per year -future outlook?
A Focuses on quality of customers, not number of customers. $1M customers has stayed flat. Revenue per $1M customer will likely grow per CFO.
Q 20% of customers have used SNOWPARK. When will more customers work out use cases?
A 2nd half of the year they think they’ll see material impact. Growing from a small base. Our guidance for this year is not material. Longer term it will be material.
Q Margin, drag on growth, guiding to 25% FCF. Are you re-thinking $10B
A Just going to have to wait until investor day to find out, but there’s definitely upside.
Q Booking slowdown at the end of the qtr. Lower close rate?
A Most of bookings were customers buying enough capacity to get them through. Biggest thing on revenue guide is they’re seeing large, global 2000 who are very methodical about how they adopt and spend money.
Q Behavior of new cohorts. How to think about it going forward?
A In a consumption model, at beginning of quarter, they start at zero. Customers are still growing per NRR.
Q R&D priorities vs. entering new markets
A Continue investing in analytics, coloration/clean room space and workload enablement. We continue to invest in all 3. Will have Fedramp and public sector will be growing. They anticipate being in China this year. Not opening any other new countries.
Q AWS. RE: Azure please comment. Margins/guidance higher -any color re: key levers enabling that?
A Margins: When SNOW slowed down hiring/managing their costs, do expect longer term margin there. New AWS agreement is a great step forward. Had $1.2B and now have $2.5B. Azure they’re in the middle of their contract. Will discuss better terms, not just pricing. Tracking to fully consume GCP and they’re moving forward w/ AWS and Azure. (obviously left out GOOG)
Q Budget related change mgt -trying to understand better.
A Not growing as quickly as they did in 2021 and 2022. People are being more cost conscious and that’s why you’re seeing crazy consumption spikes. People are using SNOW more efficiently. Partners are getting better at migrations and that’s part of slowing down their revenue growth.
Q Any change in how you’re thinking re: target levels at 158%.
A Not forecasting it to dip to that level. Clearly as the numbers become larger, it’s harder to grow. Will depend on the customers they’ve landed. In 2020, they actually had a net revenue retention rate that went up. That’s the beauty of a consumption model. Not seeing a precipitous slowdown.
A On average, there are some customers who are ramping spend, and some slowing spend. Doing everything they can to ramp spend on SNOW.
Q Guidance construction. Total customer adds. Looking at global 2000, having 1-2 year ramp. Detail re: additions to global 2000. Company’s exposure to VC backed companies and how they’re ramping.
A Ramping to revenue…Have not seen any change in the deal size. Not guiding to revenue retention. Some large companies, large unicorns that are ready to go public are very well capitalized.
Q Hardware and software improvements that were a focus at the beginning of the year. How that played out and same for upcoming FY?
A As I said before, we factor in a 5% increase for hardware and software improvements. I feel pretty good about them. Didn’t get all the graviton upgrades done in 22, but did in January.
Q International -What drove underperformance.
A AMEA had a good consumption, but was slowest, Japan is very methodical/buy as you go. Other areas in Asia are slow, but SNOW doesn’t target Asia.
Snowflake (SNOW) Q4FY23 Press Release
Snowflake - Snowflake Reports Financial Results for the Fourth Quarter and Full-Year of Fiscal 2023
SNOW Q4 FY23 Investor presentation:
Snowflake Investor Presentation (q4cdn.com)
I hope this is helpful information before the transcript comes out later tonight.