SNOW will report 1Q23 earnings this week on Wednesday, May 25, 5:00 PM EDT. I thought it might be beneficial to recap their earnings call from 4Q22. I will not attempt to provide analysis or my expectations for their upcoming report. This is simply a reminder of what they said last quarter during the prepared remarks. I did take notes of the Q&A, but I will not attempt to summarize. If you want to dig deeper, here’s a link to SNOW’s investor relations page where they provide links to a transcript and a recording of the webcast: https://investors.snowflake.com/overview/default.aspx
4Q22
CEO - Slootman, CFO - Scarpelli, Sr VP Product - Kienerman
CEO:
Revenue >$1.1B ? 106% YoY
RPO $2.6B ? 79% YoY
NRR 178%
Add 14 Fortune 500 customers Add 21 Global 2000 customers
$150M Free cash flow
Python on Snowpark in private preview, JAVA on AWS general release
“Stable Edge” grew 130%. 18% of customers have 1 or more SE ? from 15% last year
Data marketplace grew 195% with more than 1,100 listings from 230+ providers
Four Priorities
- Enhance & expand work load types
- Expand verticals
- Address industry verticals important to largest customers
- Deepen and broaden geographies
CFO:
Product revenue $360M ? 102% YoY
RPO of $2.6B accelerate to 99% represents 85% of YoY growth (implies 2023 growth of $1.59B)
NRR 178% with 15 new $1M customers.
Q4 had largest bookings ever
Q4 had 184 customers >$1M product revenue, ? from 148 (24%)
Non-GAAP product GM 74.9% ? 500 basis points. Operating margin was 5%
Adjusted free cash flow margin 27%. FCF is seasonal Q1 & Q4 strongest expect “outsize” FCF in Q1
Year end FCF ~$5.1 B being used to settle employee vesting RSU keeping dilution < 1%
GUIDANCE
2Q23 Product revenue $385M - $388M representing YoY growth of 79% - 81%
Non-GAAP op margin -2%
359 M fully diluted shares
2023 product revenue $1.88B - $1.9B representing YoY growth of 65% - 67%
Product improvements provide benefits to customers, but expected to cost ~$97M lost revenue
2023 expect 79.5% product GM, 1% OM, 15% FCFM
360M fully diluted shares
Adding 1,500 employees
18 Likes
Hi brittlerock,
I believe what Bert wrote and published on Seeking Alpha compliments your note well and specifically these few things are fundamental to why I hold Snowflake my largest position at 23% currently
Bet Hochfeld-
Last quarter was a record quarter for Snowflakes bookings (RPO growth) which I consider to be the most useful way of looking at short-term revenue growth potential. The company’s backlog of $2.6 billion is 34% greater than the company’s product revenue guidance. 52% of that backlog is current which will be recognized in fiscal year 2023. Given just how much users wind up increasing their commitments to Snowflake applications, I think the logic of expecting growth at higher rates than the company’s current forecast is difficult to dispute.
Also…
Snowflake, even in considering its Q4 results, is still spending a high proportion of its revenues on sales and marketing and development. Last quarter, the company’s non-GAAP product gross margins were 75%. The non-GAAP gross margin has continued to improve, although the company is not forecasting additional improvements in that metric in the current fiscal year based on the potential impact of what are the equivalent of unit price cuts.
Sales and marketing expense last quarter was 39% of revenues on a non-GAAP basis. The sequential growth in sales and marketing expense was 11.6%, substantially below the 14.6% sequential increase in revenues. Research and development expense was 16% last quarter and was up by 9% sequentially. General and administrative expense was 11% of revenue and rose by 13% sequentially. Operating expense ratios have all seen favorable trends during the course of the fiscal 2022 year. Based on the consistent improvement in cost trends, it seems possible that the company’s forecast of 1% non-GAAP operating margins could be significantly exceeded.
Best
Jason
15 Likes
Brittlerock, thanks very useful exercise. I also listened to the call again last week in anticipation of the upcoming results and one thing stood out for me above all else. You did mention it but I thought it perhaps bears repeating and highlighting, especially in this environment. The CFO said:
“Our adjusted free cash flow margin was 27%, positively impacted by strong collections and operating margin outperformance. We do experience free cash flow seasonality, and Q1 and Q4 will continue to be our strongest free cash flow quarters. Given the record bookings in Q4, you should expect to see outsized adjusted free cash in Q1 of this year. We are proud of our free cash flow progress, and we will continue to invest for growth with a focus on efficiency. We are committed to showing leverage year-on-year.”
I think that strong free cash flow generation is currently disproportionally important, and SNOW will deliver the goods while improving leverage, based on the comments above.
-WSM
(Long SNOW)
20 Likes
WSM,
Yes, Scarpelli, the CFO did mention that free cash flow was expected to be “outsized” in Q1. Later in the Q&A he mentioned it again, but emphasized that the Q1 number should not be taken as representative of what to expect for the year. It is obvious from the comments, and the fact that he took pains to mention it a second time that they are expecting FCF to dip significantly during Q2 and Q3. Q4 will likely see an uptick due to seasonality.
I am somewhat concerned about the way the give up current revenues via various enhancements that benefit the customer base with the expectation that they will be rewarded in the future with expansion of data migrations and increased work loads. While I am confident that this strategy does better cement their customer base to the platform, I wonder if they would experience any attrition if they weren’t quite so aggressive with respect to sacrificing revenue.
I know, it’s an impossible question. There’s no way to answer it, but the facts are that the lost revenue is not insignificant. Even if it comes back in the future, it begs arguments regarding the time value of money.
I have trimmed my position in SNOW going into earnings and redeployed the funds to CRWD. I think with the current emphasis on cyber security from the White House and the fact that CRWD already has Fed Ramp approval bodes well for the company’s revenue and hopefully the stock price as well.
5 Likes
I no longer hold Snowflake but will be watching its ER closely on whether my concerns are addressed. I am thinking that its rate of revenue decline may be a bit more steep than what investors expect. its NRER is now at 178 but they expect it to come down to above 150 in the coming quarters - that is a pretty steep drop. I want to see what this means for its revenue growth before getting back into this stock.
The caveat is that because of their “unique” method of calculating the NRER, it is backward looking and that drop in the NRER may already have been reflected in the current revenue growth. I am not 100% sure but we shall see.
4 Likes
You said:
I no longer hold Snowflake but will be watching its ER closely on whether my concerns are addressed. I am thinking that its rate of revenue decline may be a bit more steep than what investors expect. its NRER is now at 178 but they expect it to come down to above 150 in the coming quarters - that is a pretty steep drop. I want to see what this means for its revenue growth before getting back into this stock.
The caveat is that because of their “unique” method of calculating the NRER, it is backward looking and that drop in the NRER may already have been reflected in the current revenue growth. I am not 100% sure but we shall see.
Your acronym NRER, I believe, should be NRRR. See below taken from Snowflake’s investor site:
Snowflake Q4 and Full Year FY22
Revenue for the quarter was $383.8 million, representing 101% year-over-year growth. Product revenue for the quarter was $359.6 million, representing 102% year-over-year growth. Remaining performance obligations were $2.6 billion, representing 99% year-over-year growth. Net revenue retention rate was 178% as of January 31, 2022. The company now has 5,944 total customers and 184 customers with trailing 12-month product revenue greater than $1 million. See the section titled “Key Business Metrics” for definitions of product revenue, remaining performance obligations, net revenue retention rate, total customers, and customers with trailing 12-month product revenue greater than $1 million.
Source:
https://investors.snowflake.com/news/news-details/2022/Snowf…
3 Likes
On the flip side, this is a company growing revenue at an 85% clip that will
have a P/S ratio below 30 at the open tomorrow.
4 Likes