Good morning, everyone. My name is Brent Thill, and I will be one of your hosts this week. Thanks again for your support of the Jefferies Conference, and we're here for you. If you need anything, reach out to us. Really happy to kick off with Jimmy at Snowflake. Catherine's here too, in the front row. I asked her on stage, but she said she's going to sit in the front row. Jimmy's been with Snowflake for six years and was with ServiceNow for seven prior to that. Tremendous experience in the industry. Jimmy, coming off a really good quarter, maybe we just start there. Your thoughts about what surprised you, what maybe was not a surprise? Give us a sense of.
Yeah. Yeah, yeah, yeah. So look, it was great to start the year in a position of strength. I think everyone remembers the last 12 to 15 months with the Sridhar transition and all of the changes that we've been implementing as a team. I think you really saw us hit our stride in Q3, and being able to continue that momentum through Q4 was great. If we look at the actual drivers of our performance, it was quite broad-based. It wasn't concentrated in an individual customer. We called out retail and technology being segments of strength. I think we're hitting our stride in EMEA. And then as it relates to just different kind of hyperscalers, you're seeing nice growth on Azure for us. It was pretty steady throughout the quarter.
I think there was a moment there during the quarter, especially when we were on the road talking with investors, where we were kind of waiting to see some disruption from some of the macro noise. We really could not identify anything driving positively or negatively in our business. I would say it was just a really smooth quarter on the consumption side. On the booking side, I know we will talk about it in a little bit, but we saw some large deals and two north of $100 million deals in the financial services sector. We gave the call out in Q4 that some customers signed shorter duration deals, and we were expecting those to close in Q1. It was great to see those close.
I would say really just strength on the bookings and consumption side across the board, which was great to see.
Anything surprise you that you weren't expecting?
I think intra-period, we were waiting to see any changes in trends. I think if you go back a few years when there was some macro noise, everyone remembers we did see some negative impact as customers were kind of tightening their belts. I think for us, what was positive intra-period was looking at the profile of our customers kind of skewing more large enterprise. The growth curve for those customers is much smoother than our customer cohort from a few years ago. I would not say that it was a positive surprise, but I think we were kind of waiting and seeing. As you know, we look at our consumption patterns on a per-customer basis on a daily basis. I would say that that was positive.
I think if you look at our free cash flow margin in the quarter coming in at 20%, that was where we had expected that to come in. I think that was not viewed as a negative from our perspective. If you look relative to history, externally looking, you'd probably think that could be viewed as a negative. That was really the duration impact of the Q4 bookings that did not close. Those would have been February collections. You will see our free cash flow be more back half seasonal, which was expected, but relative to history, was a little bit lighter on the margin front.
One of the comments you made to me just was more around diversity. Last time we went through an economic down cycle, it was tech heavy. Now you've got diversity in your base. We can't see that diversity, but maybe describe what you're seeing in terms of this customer base.
Yeah. I think the digital native cohort was a popular term a few years ago. I think the food delivery companies or the cryptocurrency companies, those represented meaningful growth for us in calendar 2021. We accelerated growth sequentially in Q3 of calendar 2021, driven by a lot of those customers. They were all in the top 10 of our customers. Now, if you look at our top 10 customers, they skew much more Global 2000. Think large banks, large telcos, large healthcare companies. Their growth, albeit, I would say, slower in their earlier years, if you just look at the cohort, they have a much longer tail. The terminal value of those customers to us is much higher. They have much more operational rigor on purchasing and budget than I say some of those other companies did.
We benefited from the massive growth of those companies a few years ago. They were the first to optimize because they were clearly growing inefficiently. You can, we believe, make the argument that the large North American banks are scrutinizing budget every single period, not letting that get away from themselves. It is much more durable, in our opinion.
Back to the two elephants, as we call them, the $200 million deals. Tell us, what does a customer do with $100 million worth of Snowflake?
Yeah. Traditional analytics, our bread and butter. Those two companies are in the financial services sector, massive on-prem, think data warehouse estates, and been on the platform for a few years. It is really just a matter of time. The Snowflake journey with these types of companies is really start with one on-prem data estate and then slowly tick those down because you have the ability to take smaller bites of the apple upfront. That follows with massive PS engagements over a multi-year period. It is really the traditional Snowflake data warehouse migration that is driving those. Customers will just slowly purchase those over time because they are really cumbersome projects. You have heard Sridhar talk a lot about a huge focus for us and for him is making those migrations more seamless, especially through the use of technology like AI.
If we can make those easier, we think that should accelerate those migrations, which would be more revenue for us sooner.
You mentioned during the quarter year, we're looking for the static, and you didn't really hear it, but you didn't see it.
Yep.
Everyone's asking us, what is inherently in your forecast, in your view? Are you embedding any static? Are you saying, hey, we're not seeing this, we're not forecasting in our numbers?
Yeah.
How do you?
Yeah. Same way we forecasted looking at usage patterns we've seen to date. Whether or not it is impacting our customer base, I'd say we can't identify anything that's driving our customer usage, positive or negative, from a macro behavior. We're just still rolling forward what we're seeing from the customer base today. There isn't some sort of plug for, I would say, macro positive or negative.
Maybe go back kind of 40,000-foot view. I mean, this is our thesis. When Sridhar came in, it seemed like you had nailed the go-to-market. Maybe some of the product things needed to be tweaked. It seems like he has both skills, go-to-market and product. Everyone viewed him as being more of a product individual and kind of shoring up some of those capabilities. So many ask us, where do you think you're at now with Sridhar's arrival to now where you're on and some of the technical aspects of where you want to be?
Yeah. I think he would call it continuous improvement. Interestingly, last year when he came in, the belief was that he was going to spend little time on go-to-market, a lot of time on product. I would say that if he was sitting here, he'd tell you he spent most of his time on go-to-market last year. I think the beautiful thing about Sridhar is that he does not have any religion on enterprise go-to-market because he had never managed it before. This idea around accountability at a very granular level is something that he has brought to the table, which is measuring activity and productivity on a much shorter duration, like a weekly basis, not a quarterly basis. It kind of uplevels the expectations that every single employee has at the company, regardless of what group they are in.
Catherine and I joke that he spends every day talking to us, to marketing, to sales, to product. He is really dialed in across the entire organization. I would say on the go-to-market front, we feel good. Mike Gannon, obviously, coming on board was a change for us with Chris Degnan departing the business. I think he'll bring another level of rigor. On the product side, I think the elevation of Vivek to run engineering, working closely with Christian, and then rolling out leads for each of our different workloads. I think we have the structure in place that will scale us to the next level. I think a lot of that is driven by Sridhar's identifying places where we could have improved.
There's a lot of new products that he has been focused on. I guess if you laid out a couple of the ones that you're most excited about.
Yeah. Yeah, yeah, yeah. The four buckets we think of in terms of our product set is data engineering, analytics, AI/ML, and then apps and collaboration. You'll hear Christian and Sridhar talk about this next week at Summit. Within those, there's a number of different features. The Cortex suite of products rolls up under AI/ML. We're super excited about that. Going from basically zero customers 15 months ago to over 5,200 customers using that on a weekly basis is really exciting. Modest contribution from revenue. Ultimately, we believe adoption is the leading indicator for future revenue. I think the investment that we made a few years ago in fully supporting Iceberg was a big shift for us culturally.
That not being a net headwind and actually being a net tailwind to date since last June, going GA is super positive for us and allows customers to have choice. I think more tactically, data engineering is the largest revenue contributor outside of core analytics. Think moving upstream in the data management lifecycle around the data transformation. That would be the features that you've heard us talk about, like Snowpark and Dynamic Tables. The contribution metric we gave in Q3 was $200 million run rate, obviously outpacing the business. We'll disclose more of those metrics on a milestone basis. We want to simplify the way that we're talking about the products with investors because I realize when we're releasing 125 features a quarter, it's hard to keep up.
You mentioned the conference next week, which is June 2nd through the 5th. Sam Altman's on the agenda.
Yeah.
Everyone would love a teaser.
I don't know what Sam's going to say. I'm sure he and Sridhar will talk about very forward-leaning AI use cases. OpenAI is a great partner of ours. I think they believe data is at the center of a lot of positive outcomes for AI. We are well positioned. I don't have the inside track to what Sam is going to say.
OK, no teasers. I thought I'd try. Many ask us, is Snowflake an AI story or more of a traditional data story?
Yeah. Yeah, I think majority of our business is traditional data. We're not standing still on that front either. We are investing and still delivering a market-leading product in core analytics. If you're a data company, in order to be relevant longer term, you have to have a product roadmap that supports next-generation use cases, whether or not enterprises are willing to adopt them right now. When we think about customer conversations, what are they going to do with Snowflake 5, 10 years out? You need to be able to speak to those use cases and be ready for when customers want to use those features. I would say in terms of enterprise AI, we believe we're best in class.
I mean, the Cortex family of products, being able to access market-leading frontier models natively in the service without data leaving the service is incredibly attractive. I think the adoption would support that of those use cases. In terms of revenue contribution, no surprise, majority of that is coming from the analytics and data engineering.
When do you think AI would be more meaningful to the business? Is it 2026, 2027? How do you?
Yeah. I mean, look, we guided to 25% growth this year to call it $4.3 billion of product revenue, majority of that being core. When the core business is growing that quickly, what does material mean? It's hard to exactly say. You saw Snowpark and Dynamic Tables and data engineering get up to a couple hundred million dollar run rate as of last Q3. I don't view that number as material as it should be. I think I'm not going to make any predictions on next year. I know that we have high aspirations for it to become material.
Just on Forbill plus a rev, everyone says, single-digit margin, come on. That's a little pitchy.
Yeah.
What I say is you've got the best margin upside of anyone in large cap because you put a lot of investments in the last year.
Yep.
Do you believe that there's now a natural floor set where hopefully we don't go back to the low?
Yeah. I think you've heard Mike and Sridhar talk a lot about the commitment to showing leverage. Last year, you recall taking, what, a few points off the product gross margin line to invest in a lot of the AI infrastructure. Subsequently, seeing operating margin down last year was investing ahead of the curve. The 8% guide for this year we feel very comfortable with. The levers where we can get more margin expansion will come from, I would say, one, R&D. If you think about how we've invested in R&D historically, we've really built out a strong management layer. I would say very talented, expensive employees from the likes of Google and Meta at the more managerial level. If you look at where we're hiring now on the R&D side, it's much more early career. Less expensive and kind of supporting that management layer.
That is a really, really big focus for Vivek and Christian. Then our own internal use case for AI and how we're using some of these productivity tools. Sridhar said it publicly many times that he thinks we'll get a lot of leverage in that line. Beyond that, the revenue growth supports, I would say, attractive operating income that'll flow directly to the bottom line. Absolutely, we feel comfortable with the ability to show operating margin leverage.
We get the question, and maybe you'll spend more time in the next week talking through this. But the growth and margin framework, is there an easy way we should think about this over the next three years and how you think of it?
Yeah. Growth comes first. We are committed to efficient growth. If there is opportunity, we are going to go after it. I think that starts with sales and marketing accountability. You will hear Mike Gannon talk about this. Productivity has trended well for us over the last year. You saw us bring on a lot of sales and marketing heads in the first quarter of this last reported period. That is as a result of us seeing strong productivity and believing there is a massive opportunity to go after. As we see these newer features contribute over time, we will continue to invest more in those resources. I think that we can do that while still showing operating margin expansion, which is how we think about the medium to long-term profile.
Just on that point on the sales team, Mike Gannon just joined the CRO in March. Anytime you bring a new CRO in, everyone on our side goes, wait, what's he going to do to the sales team? Is he going to tweak it too much? Are we going to have a quarter off where things go offline for a moment and then comes back online? How do you think about what Mike's going to do?
He's spent the last couple months, or I guess he joined two months ago, meeting with a lot of customers. Kind of listening and hearing. I think he's really happy with what he's hearing. In terms of the actual structure, he has a really strong background in focusing on the GSIs. I think we believe we can do a lot better on that front in having joint alignment and goals. We realize that to get into the largest enterprises and be meaningful in the largest enterprises, you need to have a stronger presence, not only with us, with them, but also with their investment in their Snowflake practices. He's highlighted that. You'll hear him talk next week a lot about kind of owning the entire customer journey end to end from sourcing all the way to the customer support.
I think, look, the difference between he and Chris is Chris got us to where we are. Chris knew every deal, very detail-oriented, kind of just through the ranks of growing with Snowflake. That was his personality. Mike is bringing much more of an operational focus to how you enable, how you structure different go-to-market territories, and then how you partner in the field. We are looking forward to that. I think people will be very impressed when they hear from him next week.
Just speaking of partnerships, you talked about the Microsoft partnership. You're working with others. Just give us a sense of what's happening, what's new.
Yeah. On Azure, I would say the partnership, Christian, Mike, and Sridhar have said this, it's never been better. We're working with them on making that relationship even closer. I think everyone understands that if you want Microsoft to play nicer with you, their reps need to get fairly compensated for selling your product, whether that's through their marketplace or direct. We're working on that. I think us becoming a larger customer of theirs with bigger commits will help that over time as a larger percentage of our business is on Azure. We have announced the integrations with Cortex and accessing SharePoint and Teams and all of those features definitely benefit the relationship longer term. AWS is still 70% plus of Snowflake's business. Azure is the fastest growing at low 20%, and the balance being GCP at 3%.
I think we view Azure as a very important partner for us longer term.
There's a new kid on the block called Salesforce. They have this little thing called Data Cloud. Everyone asks us, it was interesting because Databricks said less about you and said, we're really going after Salesforce because they're trying to take our workloads. They're easy to fight. We can beat them. What do you think about what Salesforce is doing with Data Cloud?
Yeah. We're a close partner of Salesforce. We're also a close partner of Informatica. Ultimately, customers choose where data goes. Fortunately for us, Snowflake is a destination that customers want to put their data because they want to combine that data with all sorts of other data, whether that's Workday data or ServiceNow data or AWS data. That's not a trend that we see changing. Clearly, Salesforce has big aspirations with the Data Cloud. We hear a lot about it in practice, in the field. It's not something that we see competitively when we look at our competitive opportunities. It's still very traditional for us. I completely understand why Salesforce is doing what they're doing.
Yeah. Any questions from the audience? We can take a few from the room. I know Fred's got to have a question. I can keep going. Yes, sir.
Expanded Databricks Snowflake back into what?
Yeah. Databricks was a partner for a very long time. They played more upstream in the ETL space before data landed in Snowflake. Both of us have been encroaching on each other's territory. They started on the left side of the data management lifecycle. We started on the right. We released our Snowpark product a few years ago. They released their SQL product a few years ago. We are now, I would say, going after a lot of the same business in our existing accounts. We have a ton of customer overlap. In practice, if you look at our largest customers and their largest customers, we coexist. That is clear through the growth rates in each of those accounts for both of us. Longer term, we are absolutely becoming more competitive.
I think our key differentiators are the fact that we're highly performant and very easy to use. Historically, they have addressed a much more technical audience. We've addressed a less technical audience. That's kind of been our differentiator as well as performance. Look, we hear about them a lot. They're clearly growing very quickly. We're clearly growing very quickly. I think all data management vendors, you're hearing us say very similar things on being a single pane of glass.
Just on that question, I mean, they haven't been afraid of doing billion-dollar deals. I think they've nicked off three in the last three years.
Yeah.
Why not get more aggressive and roll in some of these smaller AI stories up? They've been more aggressive. Maybe who knows if it's working, but.
Yeah, yeah, yeah. I think we have a very high bar for what we would acquire. It needs to be a very strong team. It needs to have very differentiated, I would say, proprietary technology. It needs to accelerate our product roadmap. It needs to fit the right price. I think we're very thoughtful in how we want to approach inorganic growth. It needs to check a lot of boxes. That's kind of our process. We'll continue to go down that path. Yeah, it needs to make sense on a lot of different fronts for us.
OK, great.
Cloud migrations, obviously a huge top of funnel for you. Microsoft talked a lot about that picking up in the enterprise in their last earnings call. Is the driver of that AI, is the carrot? Is it a lot of the big on-premise estates, SAP, VMware, Oracle, are finally starting to move? What do you see as the biggest tailwinds for that?
Yeah, interesting. We've tracked a lot of this commentary over the years. Sometimes it's correlated to us. Sometimes it's not. It's been very steady for us over the last five years, regardless of quarter. Unfortunately, we're at the mercy of a lot of renewal cycles for on-prem data estates. Like the example that I gave on the $100+ million deal, they've been on the platform, it'll be four years in the fall. They signed an eight-figure PS engagement at the end of last year to take down more on-prem data estates as they came up for renewal. That isn't just the Teradata's of the world. That's also the Hadoop environments. That's kind of why we benefit.
It's hard to convince someone to start a migration and double pay for a long period of time unless that renewal is on the horizon.
Just in terms of next week for investors, anything you're hosting mini day, maybe recap what's happening. We're doing a partner dinner at your favorite restaurant, Spruce. If anyone wants to kind of look me up, we got a.
I might be there.
He's now a GSI.
For next week, the keynotes Tuesday morning, you'll hear at our event. It's 1:00 to 3:00 in the afternoon on Tuesday. It's going to be a couple hours. You'll hear from Sridhar. You'll hear from Christian. And then you'll hear from Mike Gannon, our CRO. We've been messaging to everyone that Mike has a family obligation, Scarpelli. So he's not going to be there. And so we're not going to have a financial section. We feel like we need to host that event once we get through a CFO transition and have someone identified to kind of bless that more longer-term outlook. And so don't expect much from the finance section. But you'll hear how we view the data management lifecycle and where we play and how we view that playing out longer term.
One last quick one. On the Salesforce dynamic, you seem not too concerned because Snowflake is a destination where people want their data. Can you just elaborate on why you're not concerned, why their pitch maybe won't resonate, and what your data is there?
Yeah. I think that they have a very strong foothold in the go-to-market office. I think we see a lot more data in Snowflake outside of go-to-market as well. When you think about a performant market-leading analytics product, that's something we've been developing for 13 years and invest a ton behind. In terms of the technical pillars of that, like everyone or most people know about our data sharing capabilities and how you can access third-party data without actually moving it across cloud, across region. All these different pillars that we've been working on for a very long period of time incentivize customers to put all types of data in Snowflake and enrich it and then run analytics on it. It's not that we don't think what Salesforce is doing is interesting. It's just not something that we're seeing our customers choose us or them.
I'll give you a real-time view. Jefferies has Snowflake, Databricks, and Salesforce. Salesforce is not going to be the landing spot for AI. Snow and the other partners will. Because all of our data lives in so many different systems, it's better populated in these systems to then do the work on top. That's our strategy internally. We're not moving to Agentforce and others. Jimmy, thanks so much for joining.
Thanks for having me, Brent.