All right. We'll go ahead and get rolling. I am Rob Owens. I head our technology research practice at Piper, and I also cover infrastructure and cybersecurity stocks. I am very happy to welcome our first company this morning, Snowflake. With us from the company, we cannot forget Katherine McCracken, who is sitting in the front row, and CFO, Brian Robins. Brian, welcome.
Thank you for having us here today, Rob.
Thank you for coming. Maybe just start with a little bit of perspective. A year ago, you had signed on as the Snowflake CFO, but came here in the capacity of GitLab on a kind of going out, I think it was your last week, effectively.
It has been a hell of a year.
Oh, it's been a fun year.
Catpocalypse, you name it, everything else. Maybe a little perspective about year one at Snowflake for you, looking back.
Yeah. I guess I would start with what my priorities were, and what I've done for a long time, and really the focus on go-to-market execution, revenue growth and just operating efficiency in the model. One of the reasons why I joined Snowflake, sort of what do you want to do when you grow up type story, I wanted to be at a company that was really at the center of AI. I read or heard somewhere, you have to have a data strategy, you have an AI strategy, and you look to see what Snowflake was doing and all the customers that were putting their data into Snowflake. That, coupled with the fact that Snowflake had just recently had a CEO change, and Sridhar was just really, really well-known in the industry for product innovation, product velocity, and so forth.
For me, those elements were extremely compelling and interesting. It's been a year and we've had great operating leverage in the model. We committed to being GAAP profitable in 4Q of next year. In addition to that, we've also re-accelerated growth. We just had a tremendous print this last quarter, and doing it in a number of different areas, doing it in the core business, as well as in a number of AI products that we're releasing.
Speaking of what you want to do when you grow up, you are obviously not new to this. You have worked at a scaled enterprise before as CFO, and in Verisign, high growth in GitLab, both public companies. Maybe speak to walking into Snowflake day one, and what it was like there, some of the puts and takes, and differences versus prior companies, because it had scale and growth.
Yeah, absolutely. My first 90-day priorities at Snowflake was, one, spend a lot of time with the team. The outgoing CFO was transitioning out for a period of time, so I wanted to make sure that I could spend time with all my directs and folks that report to them and so forth. Spending time with the team was super important. I also wanted to get out and talk to a lot of customers. I think being a CFO when I was a financial analyst out of grad school and sitting in a cube, I said, "Man, if I ever make it to the CFO office, I really want to be out in the field talking to customers," as I think that really helps you on resource allocation and where to allocate dollars around the business.
I sort of made a career working closely with the CRO, so had met with a lot of customers to understand why they are using Snowflake. But most importantly, I would ask them, "Where can we improve? What could we do to be better? And how are we differentiating?" Then third, was meet with investors. Obviously, we are here due to our customers and our investors, and really wanted to understand what was on investors' top of mind, what things were going well, what was not going well, and if there is anything that I could influence and change in my first 90 - 180 days.
You mentioned you wanted to be at a company that was at the center of AI.
Clearly, I think with new leadership, Snowflake's affected a lot of change from a product strategy standpoint, and has become that AI leader. In fact, a couple of weeks ago, when you reported, it was one of the strongest quarters we saw across our entire coverage universe. Maybe talk about those elements of the business that are going right right now.
Yeah. We're super fortunate to have built this database technology about 10 years ago that is super scalable and cost-effective for our customers. So you had to have a really good foundation to do that. That, coupled with just the amazing leadership that we have across the entire company, Sridhar, CK, Vivek, Denise Persson's been our CMO for, Yash, for about eight or nine years. So we've had really, a lot of the people at the company have been there for a while with really deep leadership. We had the ability to infuse AI into what we already had. What was the most impressive thing about what's happened is, I probably talk to three to five CFOs or CEOs a week now, either existing customers or potential customers, and talk about how I've changed the way I work and how AI's really impacted myself.
So with AI, we talk a lot about CoCo, but we have CoWork, we have a number of different things. It's amazing. I interact with my computer. I use WhisperFlow, so I talk to my computer now, and I just prompt my computer most of the day.
Does it talk back, or?
Sometimes. I talk to my computer most of the day. What is super interesting, we acquired a small company called Natoma. With MCP connectivity now, we now have this harness that I actually work out of. I can do the orchestration, the optimization. I do not have to go to all these different applications, and it is tied into my calendar, it is tied into Gmail, it is tied into Slack. Every piece of data around the company, because we are Snowflake, so it is a data company. It is role-based access, has security, has governance. It just makes it a different way of working than how I worked the previous 30 years.
Relative to Snowflake and the performance, which has been very strong in the last couple of quarters, the Street is all hung up on this 3% mark, which I think your model kind of-
What is 3%?
tunes to. You have probably never heard that before. Coming off two 5% + beat quarters-
Right
what is really driving this underlying inflection in the business, and how durable is this growth rate, and how come as you have come in as CFO, your predictability has gotten worse because you are beating by more?
Thank you, Rob.
Yes, you are welcome.
Such a sweet guy. I am super fortunate to have inherited such wonderful people at Snowflake who have worked there for a very long period of time. In my FP&A organization, I have a data science team, and they have been forecasting the business. They have been there seven, eight years, about eight of them, for a long period of time. When they first started forecasting the business, you could really understand the degree of variability. But literally every single night, we run several machine learning models. The pipelines run for about four hours. At 5:00 A.M. every morning, Sridhar, myself, and a number of people, Katherine, a number of people around the company, get a very detailed forecast email. We are a 100% consumption business, so not the easiest business to forecast. It is not a waterfall of licenses or what have you.
That forecast is based on customer level as well as product level rolled up to every single region. That part of the business, since the team has been doing it for so long, gets forecasted with a very tight range, so standard deviation is very small. For new products, it is a little bit more difficult. We have years and years of launching new products, and we obviously save all that data and can go back and look at the pattern recognition of what has happened early on, and then we actually try to map that against what is happening. Snowflake CoCo, being one of the most successful product launches in the company's history, has grown way faster than a number of those other products.
When you have a very short period of data, and so when we always talk about our guidance, one, we say that we have not changed our guidance philosophy or forecast methodology. You go back and you look at the observed behavior. With just a short amount of data with high numbers, I think it would somewhat be reckless to extract that out and just apply that to guidance. We take that number and apply a haircut to that, and then that is what comes up with the number. In the first quarter obviously, we had about a quarter's worth of data. Now we have two quarters worth of data, so we are getting closer to what that number is. But we are really happy with how we have had adoption across a number of different accounts.
On the call, we talked about roughly 9,100 accounts have adopted Snowflake CoCo. A little over 5,000 have adopted Snowflake CoWork. What we are trying to focus on now is get our sales team to go in and talk about the use cases that drive deeper penetration in those accounts so we can get more users. That is what we are in the process of doing. But it is really the 5% comes down to the core business is doing well, and it is accelerating. We are also seeing benefit in the core because of AI, and Sridhar did a post on LinkedIn a little while ago, and I think it was something to the effect that when someone adopts Snowflake CoCo or AI, we are seeing 11% uplift to their core business that they would do otherwise. Both of those are contributing to the beat.
Maybe you can drill down on that a little bit more because Snowflake CoCo is creating a great unlock just in terms of migrations, moving data over.
Yep.
Just how it is benefiting the whole business in this cycle that is benefiting you guys.
It is interesting. When I talk to CFOs and CEOs about where we are at on our AI agentic journey of changing the CFO organization, one of the things I try to stress is all this is within a year, so no one is behind. You just got to get started. Snowflake CoCo, and I also talk about this is more of a human transformation than a technology transformation. The biggest thing is just really driving adoption through the organization and to get people to use it. People, depending upon what organization they are in, use it for a number of different things. For instance, in our group that does our migrations, they use it to actually help migrations.
We have got a whole bunch of skills and agents that can actually take the migration time down. We were around 10 or 11 months, now we are around six months. There is some customer dependency there, so we cannot get that down to zero, although we would like it. We are currently working as much as possible to bring down the migration timeframe. For myself, I use it for call it analytics and business intelligence. We have actually canceled all of our BI and analytics contracts. I use Snowflake CoCo to Streamlit and can spin up dashboards in a heartbeat with whatever I want around the business, whatever time period. They are not static, they are active. Because of the MCP stuff, I can then turn that into an email and send that straight out of Snowflake CoCo. There are two different things that we are using that for.
One of the things that comes up, prior to me getting here, one of the things that the company talked about was optimizations impacting the revenue. One of the top 10 used skills is a cost optimization skill.
In a consumption business it's really the last thing we want a customer to do is be surprised about how much consumption they have. We want the customer to know exactly how much they're consuming, what they're getting out of it, and we really need to drive that sort of positive ROI for the customer, so there isn't this, Sridhar announced it there, this unknown time bomb, if you will, on our customer base for them getting billed way more than they otherwise should. Our account executives and our sales team spends an enormous amount of time with our customers, really trying to work with them on the use cases, the ROI, the savings that they're getting out of it, and so forth.
When you contemplate new customer and new customer growth, how much of that is new projects, versus migration of more traditional data warehousing technology? Relative to that more traditional data warehousing technology, how much is left in terms of-
Yeah, we're-
migration opportunity?
Yeah. We are just starting to scratch the surface. One, there is a ton of data being produced, but there is so much legacy workloads in the legacy solutions. Then there is a lot of solutions today that are not AI-pilled. So AI is really going to help the ability to access those workflows, understand your data, get more people to access the data, and so forth. So one of the things I talked about in Investor Day, we are in a market that is roughly going to $300 billion in the next five or six years, and that does not include all the analytics and business intel. That does not include all the other stuff around it that you can do with Snowflake CoCo and Snowflake CoWork and so forth.
So that is what is super exciting for us at Snowflake, and that is one of the reasons that was what helped our print.
We talked about 50% of the beat was related to our AI products and 50% was related to the core. There are these secular tailwinds in industry now, sort of pushing towards getting your data in a database such as Snowflake, so you can actually get value out of it. When I talked about, and I do not mean to harp on this too much, but when I go talk to CFOs and CEOs, and then show them what we can do, they are like, "I want that now." So when I joined Snowflake over a year ago, I was not having any of those conversations. I probably spend 25% of my time now talking to customers. I will be in New Zealand and Australia on a customer trip, starting to hold CFO roundtables, discuss how AI has impacted businesses.
So there is a number of things where the interest level is so high, and there is so much curiosity that that is really driving demand as well.
I felt one of the big surprises coming out of your Analyst Day, Brian, was the fact that, I believe it is six quarters from now, but that you are going to achieve GAAP profitability in the fourth quarter of next year. It was a more contentious comment than I thought because there are some that applauded it and said, "This is great," and there are others who said, "No, you should be leaning in." Now, you are one of the very few AI acceleration stories. Subscription revenue or consumption revenue has been, what?
Right.
Four or five quarters now you've seen that acceleration. Why is this the right move at this time to push towards GAAP profitability?
Sometimes-
Because you've got a pretty big competitor out there that's running at free cash flow breakeven.
Yeah. I'll answer it the reverse way in a sense and say, did I do anything that put constraints on the business to be able to make that comment? And the answer is absolutely not. We're spending as much as we want to spend in the business. We go into these large enterprises, and our gross retention rate's really high. The core of our business really comes from customers six, seven, eight years ago, because they get on Snowflake, they move more and more into Snowflake. Now with stuff like Snowflake CoCo, more people within the companies are actually using it, and we're seeing. So you can imagine as a customer builds, we have a great net retention rate, one of the best in the software industry. Because of that, the core of our business is older customers, and we're doing everything we want to do.
It's sort of a misnomer that to grow fast, you can't get operating leverage in a business. I think if you look back at my history, at Verisign-
I've never called you cheap to your face.
Spend wisely. Verisign, when I got there, we were in low single digits. We took the operating margin up very high. I'm not going to say it because I don't want to imply anything. But we tripled, quadrupled the market cap of the company under my CFO tenure. Did the same thing at a number of different companies. I'm a real big believer that you can drive accountability and execution in a company to get top-line growth as well as bottom-line leverage. What's great about Sridhar is, being a business partner, he's in 100% agreement. I think this really's starting to play out, and we talked about it a little bit at Investor Day.
It was a little bit too early to see it, but on this earnings call, I talked about when we record the call, the number of heads that we've hired this year compared to the number of heads we hired last year-
really shows this. We're re-accelerating revenue. We increased our full-year guide from 31% year-over-year to 36% year-over-year, so increased it by 500 basis points in just one quarter. At the same time, year-to-date this year, we've added roughly about 330 people, of which 170 - 180 of them came from Observe acquisition. So 150 compared to the same period last year, it was roughly about 940 people. We're doing that with a lot less people as well.
You were one of the first execs, at least that I interact with, that talked about the now disconnect between revenue growth and bodies, that you were driving massive efficiencies within your business. Maybe you can double-click on that a bit relative to where you're actually finding those efficiencies and able to drive them.
Yeah. The good news is you find them all. It's all around the business, completely. We as a company will constantly get economies of scale and stuff that we do with the hyperscalers and all that. But we're using technology, primarily Snowflake, to actually get more out of the existing workforce. Part of our plan to be GAAP profitable was, really in engineering, you don't have to hire senior leaders that require large stock option packages. You can hire people with one to two years college experience who are AI pilled, that can actually prompt and vibe code and be more productive at a fraction of the cost. All around the business, to me today, I got this thing I talk about called a good morning CFO SKU.
I run it pulls data from about 40 different sources and tells me everything I need to know about the business in the morning. Then if I have a question, I can then prompt that data, to actually give me more and more information, all the way down to a SKU level or a customer level within a region. I can look at it over whatever time period I want. If you think about that, typically that would require someone in FP&A a lot of time to go back and forth and get reports and so forth. You don't have to do that anymore. That's one area. We got something called Snow Flux, and so we're doing our monthly close flux analysis through AI as well. It's almost built out. We do our BVA analysis.
We talked about on earnings call, we're doing our long-term planning, through a lot of agents and less people. It's all over. We have an agent in our Salesforce called Raven, and basically you can go in and ask Raven anything. The amount, time that it would take for an SDR or BDR to actually go prep an AE before a call is now done automatically through our sales agent. These things just provide a wealth of information and what's really important is that you don't stop here, that you continue on to actually get more benefit. Like for that sales agent, than to tie in enablement materials into it, then tie that into Salesforce and you can actually put a probability to something, and it can help be a check on the forecast.
We are trying to drive those changes all across the business. One of the things that I stressed to my team is, when we first started using AI, what I noticed was people was actually using AI. Sometimes they called it AI. It was not AI, but they are using AI-like things to just redo the work that they were doing. Part of the process, and you have to get into the details to do it, but part of the process I have gone through with each one of my directs, and I spend a big chunk of my other part of my time doing this, is redefining how work gets done. Work by default was created based on limitations in technology and certain handoffs. You can actually break a lot of that down and change the ability of people to process work, to just make decisions.
We are in the process of doing that, which is super fun.
Great. Last quick one from me. You made the comment that more and more customers are pushing for fourth quarter renewals.
Yep
Obviously that is coming up. How big is that pipeline shaping up to be, and how do you manage some of the inherent risk that comes with a big lump of customers in a fourth quarter renewal conversation?
Yeah. Not uncommon to really any software business, right? Fourth quarter is always big. It aligns with the budget season when they are budgeting for next year. We have signed seasonality-wise, we have got the majority of our contracts in fourth quarter, and that is happening. When you are a consumption business and you are a rep and that is your livelihood, you are talking to those customers all the time, right? Talking to them about how to use AI, how to use our Cortex AI Gateway or Cortex AI Functions, CoWork, CoCo, all of our different AI stuff, about what migrations you can actually bring in, savings that you can get on migrating off legacy software, BI and analytical tools that you can replace.
Our reps are in with those customers literally on a weekly basis. The timing of a renewal is just, it is not like a major event.
It is just a normal event for us, and they are already working on that as we get up to that renewal. I do not have any concerns with that.
Okay. We are going to have a breakout across the hall with Snowflake. Unsurprisingly, it was one of the more requested names. Please join us there, and we will continue the conversation.
Appreciate it, Rob.
Thank you.
Thank you so much.