Snowflake Inc. (NYSE:SNOW) Q4 2024 Earnings Call Transcript
Snowflake Inc. (NYSE:SNOW) Q4 2024 Earnings Call Transcript February 28, 2024
Snowflake Inc. beats earnings expectations. Reported EPS is $0.35, expectations were $0.17. Snowflake Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Q4 Fiscal Year '24 Snowflake Earnings Call. My name is Alex, I'll be coordinating the call today. [Operator Instructions] I'll now hand you over to your host, Katherine McCracken, Senior Manager, Investor Relations. Please go ahead.
Katherine McCracken: Good afternoon, and thank you for joining us on Snowflake's Q4 fiscal 2024 earnings call. With me in Bozeman, Montana are Sridhar Ramaswamy, our Chief Executive Officer; Frank Slootman, our Chairman; Mike Scarpelli, our Chief Financial Officer; and Christian Kleinerman, our Executive 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 fourth quarter of fiscal 2024, and discuss our guidance for the first quarter and full year fiscal 2025. During today's call, we will make forward-looking statements, including statements related to our business operations and financial performance. These statements are subject to risks and uncertainties which could cause them to differ materially from actual results.
Information concerning these risks and uncertainties is available in our earnings press release, our most recent Forms 10-K and 10-Q, and our other SEC reports. All our statements are made as of today, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During today's call, we will also discuss certain non-GAAP financial measures, the reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release and an accompanying investor presentation are available on our website at investors.snowflake.com. A replay of today's call will also be posted on the website. With that, I would now like to turn the call over to Frank.
Frank Slootman: Thanks, Katherine. Welcome, and good afternoon. Right now, you've heard the great news about Sridhar becoming our next CEO. Before we get to that, I would like to highlight our fiscal 2024 results. FY '24 product revenue grew 38% year-over-year to reach $2.67 billion. Non-GAAP product gross margin expanded to 77.8%. Non-GAAP adjusted free cash flow was $810 million, representing 56% year-over-year growth. We continue to pair high growth with efficiency. The year began against an unsettled macroeconomic backdrop. We witnessed lackluster sentiment and customer hesitation due to lack of visibility in their businesses. Customers prefer to wait-and-see posture versus leaning in to longer-term contract expansions. This reversed in the second half of the year and we started seeing larger multi-year commitments.
Q4 was an exceptionally strong bookings quarter. We reported $5.2 billion of remaining performance obligations, representing accelerated year-on-year growth of 41%. Our international theaters outperformed the company as a whole. We continue to see success in our effort to campaign the largest enterprises globally. We added 14 Global 2000s in the quarter, and eight of our top 10 customers grew sequentially. Meanwhile, Snowflake has announced many new technologies that let customers mobilize AI, Streamlit in Snowflake, Snowpark ML Modeling API, and Cortex ML functions are all generally available. We also received FedRAMP High authorization on the AWS GovCloud. This enables Snowflake to protect some of the Federal Government's most sensitive and classified data.
Now, on the topic of CEO transition. I was brought to Snowflake five years ago to help the company breakout and scale. I wanted to grow the business fast, but not at all costs. It had to be efficient and establish a foundation for long-term growth. I believe the company succeeded on that mission. The Board has run a succession process that wasn't based on arbitrary timeline, but instead, looked for an opportunity to advance the company's mission, well into the future. The arrival of Sridhar Ramaswamy through the acquisition of Neeva last year represented that opportunity. Since joining us, Sridhar has been leading Snowflake's AI strategies, bringing new products and features to market at an incredible pace. He led the launch of Snowflake's Cortex, Snowflake's new fully-managed service that makes AI simple and secure.
Prior to Neeva, Sridhar lead all of Google's advertising products. During his 15-year tenure at Google, he helped grow AdWords and Google's advertising business from $1.5 billion to over $100 billion. With the onslaught of generative AI, Snowflake needs a hard-driving technologist to navigate the challenges the new world represents. Sridhar's vision for the future and his proven ability to execute at scale made it clear to us as a Board, he is the right executive at the right time to lead Snowflake. This marks my retirement from an operating role. I will remain on duty as Chairman of the Board, and look forward to working with Sridhar and the team going forward. With that, I will pass it over to Sridhar.
Sridhar Ramaswamy: Thank you, Frank. I'm honored to have been chosen to lead this great company. The success that Snowflake has achieved is a testament to the great customers, employees, and partners who have contributed along the way. And of course, Frank has been a huge part of getting us here, which I gratefully acknowledge. Snowflake is a once-in-a-generation company that will revolutionize the world with its cloud data platform. This has become more true in the past year with the rapid technology innovations we have seen. Generative AI is at the forefront of my customer conversations. This drives renewed emphasis on data strategy in preparation of these new technologies. You heard the team say it many times, "There's no AI strategy without a data strategy." And this has opened a massive opportunity for Snowflake to address.
To deliver on the opportunity ahead, we must have clear focus and move even faster to bring innovation on the Snowflake platform to our customers and partners. This will be my focus. I look forward to working with the team, and I'm extremely excited for the opportunity. With that, I'll pass it over to Mike.
Mike Scarpelli: Thank you, Sridhar. Q4 marked a strong finish to a challenging year. Product revenue was $738 million, growing 33% year-over-year. Similar to prior years, we experienced significant holiday impacts in December and January. Holidays make it difficult to discern meaningful consumption trends. In the quarter, younger customers led revenue growth. These accounts are adding new workloads in migrating from legacy vendors. Financial Services and retail were our largest revenue contributors, and we are seeing emerging momentum from the EMEA region and technology vertical. Customer optimizations returned to a normal level, with eight of our top 10 accounts growing sequentially. We proactively engaged with customers to help them optimize their Snowflake usage and we'll continue to do so.
History has shown that optimizations expand our long-term opportunity. We now have 83 customers with trailing 12-month product revenue greater than $5 million, up from 75 in Q3. Q4 was an exceptional booking quarter for us. Bookings are not leading indicator of revenue; they do signal an improving macroenvironment. Remaining performance obligations grew 41% year-over-year to $5.2 billion. Of the $5.2 billion in RPO, we expect approximately 50% to be recognized as revenue in the next 12 months. We signed our largest deal ever in Q4, a five-year, $250 million contract with an existing customer. Our international territories returned to meaningful growth, outperforming expectations for the first time in a year. We made significant progress in delivering margin expansion.
Non-GAAP product margin at 78% was up approximately 300 basis points year-over-year, improved terms from the cloud service providers have contributed to margin expansion. Non-GAAP operating margin of 9% was ahead of expectations. Operating margin benefitted from increased hiring scrutiny. Non-GAAP adjusted free cash flow margin was 42%. Bookings outperformance increased collections. We ended the quarter with $4.8 billion in cash, cash equivalents, and short-term and long-term investments. We did not repurchase any shares in Q4. We have approximately $1.4 billion remaining under our original authorization of $2 billion. Now, let's turn to outlook. Consumption trends have improved since the beginning of last year, but have not returned to pre-FY '24 patterns.
We have evolved our forecasting process to be more receptive to recent trends. For that reason, our guidance assumes similar customer behavior to fiscal 2024. We are forecasting increased revenue headwinds associated with product efficiency gains, tiered storage pricing and the expectation that some of our customers will leverage Iceberg Tables for their storage. We are not including potential revenue benefits from these initiatives in our forecast. These changes in our assumption impact our long-term guidance. Internally, we continue to march towards $10 billion in product revenue. Externally, we will not manage expectations to our previous targets until we have more data. We are focused in executing in FY '24 to ensure long-term durable growth.
Now, turning to FY '25 guidance. For the first quarter, we expect product revenue between $745 million and $750 million, representing year-over-year growth between 26% and 27%. For the first quarter, we expect non-GAAP operating margin of 3%, and 366 million diluted weighted-average shares outstanding. For the full year, we expect product revenue of approximately $3.25 billion, representing 22% year-over-year growth. We expect Snowpark to contribute 3% of product revenue. We are not including any other new products in our forecast at this time. For the full year, we expect non-GAAP product gross margin of 76%, non-GAAP operating margin of 6%, non-GAAP adjusted free cash flow margin of 29%, and diluted weighted average shares outstanding of 368 million.
We plan to add approximately 1,000 employees this year inclusive of M&A. For expenses, our forecast assumes meaningful investments in our AI initiatives. We expect approximately $50 million of GPU-related costs in fiscal year '25, approximately $10 million flowing through cost of product revenue. For the purpose of forecasting, we're not including any incremental revenue associated with these features. We've also evolved our go-to-market motion. As we compensate more reps on a consumption quota, we will see increased commission expense. Consumption-based commissions are expensed immediately rather than amortized over a five-year period. This has no impact on cash flows, but is expected to have approximately $30 million impact to P&L. Lastly, I would like to acknowledge Frank's retirement.
Working with Frank for the past 17 years has been an incredible learning experience and I'm grateful for our time together. Frank's contributions to Snowflake has set the company up for long-term success and I look forward to being part of that journey. I have committed to Sridhar and the Board that I will be with Snowflake for at least the next three years. Before closing, we will host our Investor Day on June 4th in San Francisco in conjunction with Data Cloud Summit, our annual users conference. If you're interested in attending, please email ir@snowflake.com. With that operator, you can now open up the line for questions.
Operator: Thank you. [Operator Instructions] Our first question for today comes from Mark Murphy of JPMorgan. Your line is now open. Please go ahead.
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