Snowflake Inc. (SNOW) Earnings Call Transcript & Summary

And maybe you can drill down on that a little bit more because Cocos creating a great unlock just in terms of migrations, moving data over, just how it's benefiting the whole business in this cycle that's benefiting you guys? .

Yes, it's interesting. When I talk to CFOs and CEOs about where we're at on our AI Gentech journey of change in the CFO organization. One of the things I try to stress is like all this is within a year. And so no one's behind. You just got to get started. And so CoCo, and then also talk about this is more of a human transformation than technology transformation. So the biggest thing is just really driving adoption through the organization and to get people to use it. And people, depending upon what organization they're in, use it for a number of different things. And so for instance, in our group that does our migrations, they use it to actually help migrations. And so the -- we've got a whole bunch of skills and agents that can actually take the migration time down. We're around 10 or 11 months. Now we're around 6 months. There's some customer dependency there, so we can't get that down to 0, although we'd like it. But we're currently working as much as possible to bring down the migration time frame. For myself, I use it for, call it, like analytics and business intelligence. And so we actually canceled all of our BI analytics contracts. And so I use cocoa to stream let and can spin up dashboards in a heartbeat with whatever I want around the business, whatever time period, they aren't static, they are active because of the MCP stuff, I can then turn that into an e-mail and that's straight out of CoCo. And so there's 2 different things that we're using that for. One of the things that comes up prior to me getting here, 1 of the things that the company talked about was optimizations impacting the revenue. And 1 of the top 10 use skills is a cost optimization scale. And so 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 that this unknown time bump, if you will, in our customer base. for them getting build way more than they otherwise should. And so our account executives, 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.

And when you contemplate new customer and new customer growth, -- how much of that is new products, new projects, excuse me, versus migration of more traditional data warehousing technology. And relative to that more traditional data warehousing technology, how much is left in terms of migration opportunity.

Yes, we are just starting to scratch the surface. One, there's just -- there's a ton of data being produced, but there's so much legacy workloads and the legacy solutions. And then there's a lot of sort of solutions today that are AI billed. And 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. And so 1 of the things I talked about at Investor Day, we're in a market that is roughly going to $300 billion in the next 5 or 6 years. And that doesn't include all the analytics and business in, that doesn't include all the other stuff around it. that you can do with CoCo and co-work and so forth. And so -- that's what's super excited for us at Snowflake. And that's 1 of the reasons that was what helped print, we talked about 50% of the beat was related to our AI products and 50% was related to the core. And there's these secular tailwinds sort of an 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 don't 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're like, I want that now. And so when I joined Snowflake over a year ago, I wasn't having any of those conversations. I probably spend 25% of my time now talking to customers. I'll be in New Zealand, Austria, Australia on a customer trip. Starting to hold CFO roundtable to discuss how AI has impacted businesses. And so there's a number of things where the interest level is so high and there's so much curiosity that that's really driving demand as well.

And I thought 1 of the big surprises coming out of your Analyst Day, Brian, was the fact that I believe it's 6 quarters from now, but that you're going to achieve GAAP profitability in the fourth quarter of next year. And it is a more contentious comment than I thought because there's some that applauded it and said, "This is great, and there's others who said, "No, you should be leaning in. Now you're 1 of the very few AI acceleration stories subscription revenue or consumption revenue has been, what, 4 or 5 quarters now, you've seen that acceleration -- why is this the right move at this time to push towards GAAP profitability because you got a pretty big competitor out there that's running at free cash flow breakeven.

Yes, it's -- I'll answer the reverse way in the sense of say, did I do anything that put constraints on the business to be able to make that comment -- and the answer is absolutely not. Like we're spending as much as we want to spend in the business. We go in to these large enterprises and our gross retention rate is really high. The core of our business really comes from customers 6, 7, 8 years ago because they get on Snowflake, they move more and more into Snowflake. Now with stuff like CoCo, more people within the companies are actually using it. And we're seeing -- so you can imagine as a customer builds, which such -- we have a good great net retention rate on 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. There's nothing -- it's sort of a misnomer that to grow fast, you can't get operating leverage in the business. I think if you look back at my history, sign. When I got there, we're in low single digits. We took the operating margin up very I'm not going to say it because I don't want to apply anything. -- but we tripled quadrupled the market cap of the company under my CFO tenure, did the same thing in a number of different companies. And I'm a real big believer that you can drive accountability and execution in the company to get top line growth as well as bottom line leverage. And what's great about Sridhar as being a business partner, he's in a 10% agreement. And so -- and I think this really starting to play out, and we talked about it a little bit at Investor Day, but it's a little bit too early to see it. But on this earnings call, I talked about we just -- quarter -- or sorry, when we reported the call, the number of heads that we've hired this year compared to the number of heads we hired last year really shows us. So we're reaccelerating revenue. We increased our full year guide from 31% year-over-year, 36% year-over-year, so increase about 500 basis points in just 1 quarter. And at the same time, year-to-date, this year, we've added roughly about 330 people of which 170 to 180 of them came from observe acquisition. So 150 million compared to the same period last year. there's roughly about 940 people. And so we're doing that with a lot less people as well.

And you were 1 of the first execs at least that I interact with that talked about the now disconnect between revenue growth and bodies that you are driving massive efficiencies within your business. So maybe you can double-click on that a bit relative to where you're actually finding those efficiencies and able to drive them.

Yes. So the good news is you find them -- it's all around the business completely. And so 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. And then 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 1 to 2 years college experience who are AI pilled that can actually prompt and buy code and be more productive at a fraction of the cost. So all around the business, like to me today, I got this thing, I talked about called the good morning CFO skill. I run it. 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 prop that data to actually give me more and more information all the way down to like a SKU level or a customer level within a region I can look at it over whatever time period I want. So 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 and you don't have to do that as you don't have to do that anymore. And so that's 1 area. We got something called Snowflux. 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 our earnings call, we're doing our long-term planning through a lot of agents and less people. And so it's all over, we have an agent in our sales force called Raven. And basically, you can go in and ask Raven anything. So the amount that it would time that would take for an SCR or BDR to actually go prep and AE before a call, is now done automatically through our sales agent. And so 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. And so like for that sales agent, then the time enablement materials into it, then tie that into like sales force, and you can actually put a probability to something and it can help be a check on the forecast -- and so we're trying to drive those changes all across the business. One of the things I stress to my team is when we first started using AI what I noticed was people was actually using AI -- sometimes they call today what an AI, but they're using AI like things to just redo the work that they're doing and part of the process, and it's -- you have to get into the details of it, but part of the process I've gone through with each 1 of my directs and has spent a big chunk of my other part of my time doing this, redefining how work gets done. And so work by default was created based on limitations and technology and certain handoffs, but you can actually break a lot of that down and change the ability of people to process work to just make decisions. And so we're in the process of doing that, which is super fun. Great. And last quick 1 for me. You made the comment that more and more customers are pushing for fourth quarter renewals.

And obviously, that's coming up. So 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?

Yes. So not uncommon to really any software business, right? Fourth quarter is always big. It aligns with the budget season when they're budgeting for next year. And so we've signed seasonality-wise, we've got the majority of our contracts in the fourth quarter, and that's happening. -- it's -- when you're a consumption business and your rep and that's your livelihood, you're talking to those customers the time, right, talking to them about how to use AI, how to use our AI gateway or AI functions, co-work, cocoa, 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. And so our reps are in with those customers literally on a weekly basis. And so the timing of a renewal is just it's not like a major event. It's just a normal event for us, and they're already working on that as we get up to that renewal. So I don't have any concerns with that.

Okay. So we're going to have a breakout across the hall with Snowflake. And surprisingly, it was 1 of the more requested names. So please join us there, and we'll continue the conversation.

Appreciate it. Thank you. Thank you so much.