SNOW - Snowflake Inc. (SNOW) Presents at Barclays Global Technology Conference (Transcript)
2023-12-07 19:36:02 ET
Snowflake Inc. (SNOW)
Barclays Global Technology Conference
December 07, 2023 03:45 PM ET
Company Participants
Mike Scarpelli - Chief Financial Officer
Conference Call Participants
Raimo Lenschow - Barclays
Presentation
Raimo Lenschow
Hi, guys. Thanks for joining us. I'm really looking forward to have Mike here.
Mike, to get everyone back on the same page. You guys had, like follow [indiscernible]. Just from your perspective, what were the highlights? How did it play out for you?
Mike Scarpelli
We saw good performance, and it was very broad-based from large customers to small customers, we talked about on the call that we really saw a stabilization in consumption patterns and going back to a little bit more historical consumption patterns. We called out that September after Labor Day had some of our largest week-over-week growth within our customers, continue to see strong assumption in October and November. And just for the holidays in November, and, you guys feel good about what we're doing right now. I'm not saying this is a recovery, and you're going to expect a lot of upside. But really, we've seen more stabilization, no big optimizations. I'm not hearing of any big optimizations. I will say and I've said this so many times though, optimizations will always happen in normal cycle.
Like, I know two of our big customers that really started to ramp last quarter, looking in the ramp over the last few, and they were doing big in prem migrations. It is very typical that when a customer starts migrating a lot of work, their assumption spike, and then they, go into production, and it kind of moderates and comes back to make more data, and it goes up. You'll see those trends, but then it's better than normal trend within our customer base.
So, now, I feel given it's broad-based across industries financial services continues to do well, health care continues to do well, technology is doing well. I will tell you the one area that has a lot of upside. There's little downside because it's a small piece is FedRAMP high. And, literally, the PMO and the federal government has said, we have our FedRAMP high, and it will be, you'll see it on our website every day we're checking.
Okay. And that will open up a lot of new opportunities. And we have a healthy pipeline within the federal business that we've been working on for the last two years are waiting for this.
Question-and-Answer Session
Q - Raimo Lenschow
Yes. Okay, that's interesting. And then we met in London last month, in October, it's like and you just did the big customer, a global tour then. I think you were in New York and London. What was your conversations like there?
Mike Scarpelli
So, it was New York, London, and Stockholm. I would say, New York and London were very much financial services. And I actually did the dinner with a bunch of the chief data officers at the big banks, and, their excitement around Snowflake was streaming tables and iceberg tables. They all want iceberg. They all want to be able to have their data. And you can understand why, so that they don't have to pay for the cost of storage twice.
And it actually will make Snowflake cheaper for them too, and they can do more work on like, by having all of their data in an open format. Nobody wants to get locked in on their data. Everyone wants to have their data in open file formats, but it's easy to move the data. It's easy to move the data in, it's easy to move the data out, and it makes it cheaper to run your queries on that.
Raimo Lenschow
Did you notice quite a difference in terms of how far customers are down the adoption curve, if you think about Europe versus…?
Mike Scarpelli
Yes. I would say the U.S. customers in general are further along in their adoptions mostly across the enterprise. I would say in Europe, it's more early. Certainly, there are customers that are very well established there, but in general. I don't think I have a single European customer in my top ten yet. I don't have a single Asian customer in my top ten yet. I have some that will be close to getting in there, but they're not there yet. You'd expect to see at least a couple Asian and European ones over the long-term in there.
Raimo Lenschow
And do you think it's just timing?
Mike Scarpelli
Yes. Timing.
Raimo Lenschow
And is there, do you notice when you were having the client conversations, is there differences on the intermount there at the moment? Or it's, like, globally, it's tough times now, everyone's kind of living in tough times?
Mike Scarpelli
Yes. I would say the European customers and some Asian by region are a lot more concerned about data residency and sovereign clouds because of their I mean I was not it is driving service now. The whole company turning over all of their customer data to the U.S. government. They have been revived a bit lately, and we're working on strategies with different sovereign clouds.
Raimo Lenschow
Yes. You talked a little bit about the last quarter as well about the shifting mix in the top customers that you have more established guys there, like, where are we on that journey?
Mike Scarpelli
It is continuing. I will have at least one new customer this quarter because industry is growing really fast, and, potentially, another one doesn't mean those other customers aren't doing good. They are just -- I'm just getting big test part is a lot more mature. If I look at our top customers, early on, we used to have the likes of Lacework, and Instacart, and Coinbase. Early adopters of Snowflake are Top 10. Now I just have, Instacartists, so with my Top 10, they continue to grow. There is not big stuff six months ago that everyone those guys continue to grow with us. It is just I have more mature, I got a telco that's moved up in there, so I have two telcos in there, more banks, and they are large banks.
Raimo Lenschow
And if you think about it, Ed, what does it mean from a capability perspective? Like, earlier this year, in fact, -- having to do almost like emergency kind of thinking about that stuff.
Mike Scarpelli
That's what I like about large enterprises that are more mature. They have always been cost conscious. And it is more predictable, their business. They are also a lot more methodical in how they do their migrations, and they share that with us. So, I know, like, talked about next quarter, I will have bank move into my Top 10. We have a road map over the next three years. We have been working with them on migrating data, and they have hundreds of on-prem data, the warehouses.
Raimo Lenschow
And so is it. Okay. And from your perspective, the visibility, like I am more now kind of going more like to a CFO. Is it contract with it, or is that kind of more like you talk about a road map and...
Mike Scarpelli
The road map I am talking about is on the technical level with our PS people and our sales engineers with the customer on the migration. There are contracts with these customers, which is their commitment they are making with Snowflake.
Raimo Lenschow
Okay. And then, if you think about it, like, I would agree with you there is this data mart, data warehouse is still inside. Like, the one question I get a lot is like, paternity was never that big, so why Snowflake kind of where do you see these workloads coming from? What is there any new workflows in there as well?
Mike Scarpelli
Yes. A lot of people think we just replaced Teradata. When we are doing a Teradata migration, we are generally replacing a lot of -- a lot of SQL server, a lot of different things, and then there is a lot more new use cases that customers determine. I talked about this one telco that's been ramped. They have been a customer for almost eight years now, I think, or six years speak for my time. They never started with an on-prem migration. They started doing some new use cases in the cloud. In the last six months, they have decided they have been their data integration. So, it's all over the board.
Raimo Lenschow
Yes. Okay. Perfect. And so, it's like that's the thing, man. I used to cover them, like I think Saturday was only a number four in the market. Like, it did because, yes. They were high-end, but I wanted to do them. But, like, it's so much Oracle, much stuff…
Mike Scarpelli
It's kind a like ServiceNow. It really is very similar to the that everyone that ServiceNow was a market. The market is $1.6 billion market. What the big it is today.
Raimo Lenschow
Yes.
Mike Scarpelli
It's clearly, there's a lot more that were much broader. Data warehouse is just one workload. Data sharing is one of the key different features of Snowflake, and I think people do not appreciate financial services and the financial service providers. I think it would be BNY Mellon, the State Street, Fidelity, BlackRock, BTCC are all standardizing in Snowflake and doing data sharing with everyone. It's a huge network effect to get new customers because of that.
And it was by four years ago, we were trying to get Bloomberg data into Snowflake and get Bloomberg in now. Took so long with Bloomberg data, data not all of it yet. We're working on that. It's available for customers to use data sharing and get it installed.
Raimo Lenschow
That's things like that. Data sharing is, like, the one thing that everyone and they appreciate. And then the shifting here a little bit. Like, there's the Snowflake. Now we have, like, Snowpark. Like, how do you like, maybe where are you on, what are you trying to achieve at Snowpark and where are you on that in Snowflake?
Mike Scarpelli
I think we're still very much in the early piece of Snowflake. Now it's available in multiple languages to work with now that we have Python. There's still more of them. There's still different versions of Python. Snowflake's about a, $70 million run rate now pass today, so it's starting to get, meaningful. Really, what our salespeople have been focused on is Spark configurations. And more else is almost a low hanging fruit, because we can see the workload customers are running in Snowflake using open-source Spark, Databricks, EMR, and those are the ones that we've gone after in doing migrations.
As Snowpark container services it comes out next year, it will be used more heavily in app development for people. What you got to understand with Snowpark and what work is a migration call, and that takes time so we can quickly go on a window POC, and then you need a customer to get lined up to do the migration. Some of those migrations take months and months to do depending on how complex the system it takes time. And we're now starting to see some of those things come on production.
Raimo Lenschow
I'm glad you were here, because my kind of me out of the room. Like, container services, like, why is that so interesting? I should know that.
Mike Scarpelli
The big thing about container services is it will enable people in your container to bring your own application at the Snowflake to run. You need to play in the snowflake. You don't have to worry about all the security because we provide all that security that I'm giving you in a very simple form, and it also will enable technology side or have an accountant. You can also bring your own large language model of choice Snowflake to be able to fine tune model on the data.
That's what's really exciting, and we talked about Cortex coming out, which makes it easier for the average analyst to be able to do that. If you're headed for data scientists. You'll use Snowpark direct or container services to do that directly. It will also enable new applications to be developed very easily in Snowflake. So, Frank always talked about it's about bringing the applications to the data versus the data to the application. That would be data, state, if it's your government environment.
Raimo Lenschow
And then you have Streamlit as well, which kind of build?
Mike Scarpelli
Streamlit will enable people to develop applications. This also gives you a visualization there. Within my finance department, there's a lot of dashboards that I look at. It's more than just a dashboard. It's dynamic. But I used to do everything in Tableau. Now I've switched everything over to Streamlit. That's how first thing I do every day when I wake up is to go into my Streamlit, dashboard, and I look at my revenue for the prior day. And then I look at all of our customers to refocus. I can drill down into anything. I can see how Snowpark credits were consumed yesterday, how many streaming dynamic table credits were consumed.
Raimo Lenschow
On that note, and I wanted to ask that later, but I might as well just squeeze it right now. If you think about the forecasting and the maturity of your forecasting, I appreciate it. It's tough because consumption trends, so you can't fix them. Like, how does that you know, like, the how does that like at the Cadence, I'll change for you over the last couple of years?
Mike Scarpelli
Yes. We developed an in-house model. We're doing our forecasting and your model is based upon historical data. Your model has never seen a downturn. It's hard for it to. And so, over the last actually, nine months to 12 months, we knew our model had overgrown, our business had overgrown our model and we developed a new model that we just went live at the beginning of I guess it was the end of Q2. We were running it in parallel with at the beginning of Q3, which was the Siri, we call it our ensemble model, it's a different model looking at the different cohorts to predict their business and it seems to be a much more accurate model specific customer level than what our old model was. And now we have all the data around the downturn, so you can when you see customers slowing down, what's happening.
Raimo Lenschow
Will it ever be, like…
Mike Scarpelli
No one is ever get to be…
Raimo Lenschow
Yes. But, like, it seems like you never know what's next thing.
Mike Scarpelli
And by the way you still have to have human intervention. Even when we had our model before, we're creating one thing that we believed, and we would make top side adjustment. I would say with our ensemble model, they make a lot of sense.
Raimo Lenschow
If you like that so in the downstream, you kind of put another layer on, and then we is that kind of the way to do that?
Mike Scarpelli
I would just say it's more of a detailed model that better splits out our business. And we will stay as we become bigger, it becomes easier to predict.
Raimo Lenschow
But one customer coming down…
Mike Scarpelli
Yes. One customer like [indiscernible] as big of an impact today as it did two years ago.
Raimo Lenschow
I wanted to speak to you a little bit. So, think about new products. We have a lot of, that's coming out from your perspective. You mentioned some of that already. Like, if you kind of, I don't want to, it's like picking a fever child. But can you kind of bring what's coming out there? What's kind of the one that we should see moving the picture?
Mike Scarpelli
No. In the next 12 months, near the last three months, it's probably the most new product feature releases that we were adding some history. We now have streaming this 1 GA a few weeks ago. Streaming dynamic table in public preview. You have, Iceberg Tables is in private preview. You have container services is private preview. UniStore to private preview or public preview. We actually have 10 customers that are actually using for production environment.
Iceberg tables will be, a lot of those things will be GA by next year in June is what the goal is. And, I think the one that I am the most continue to be bullish on Snowpark and what it can do for us longer-term. Container services is a big one because, as we talked about, that's going to enable both native app developers from Snowflake to easier develop. And by the way, we have a lot of customers that are re-platforming their business on Snowflake. Think of, like, Bluey Andre. There's a bunch of others. They all want container services. We also have a number of customers that want to be able to fine tune their large language models on their Snowflake data in Snowflake, and container services will enable that to happen easily in a secure, governed way where you know your data is never leaving Snowflake.
Raimo Lenschow
How does that -- if you think about the new products, you are kind of broadening your addressable market quite a bit. Like, do you think about it. Do you still, like, think, like, in the old with my TAM? Or, like, do you try to put numbers on it?
Mike Scarpelli
We laid it out at our investor base over a $200 billion market opportunity we are going after and growing it. And there is going to be many, many winners in this space. It's not one person taking home, but data continues to grow. And if you want to get the benefits of generative AI, you are not going to do that on-prem. You are going to do it in the cloud. And so, you are going to have to have your data in the cloud. And in order to get good results out of your large language models, you have to make sure you have clean data. You are running it on. We think Snowflake is the ideal place for that to be done. Will it be the only place? Absolutely not. But we think it will the prime choice for customers too.
Raimo Lenschow
I mean, how do you think about, like, we had worked the service down Snowflake on Salesforce on downstairs on the page as well. They always be they pride themselves because they have these systems of record. There is a lot of data in there. And then see that, like, it was starting to improve during the eye. Like, in a way, you could be the consolidator of data. Like, how do you see that playing out?
Mike Scarpelli
The reality is most customers who use CRM sales force, they use ServiceNow. They use ERPs, whether it's Oracle or MCP, whatever. All of those people are putting their data and stuff like because when you are going to run any type of model, you generally are gonna want to look at a lot of different data from different sources. And Snowflakes, customers will choose what the right place to do, and we see them choose themselves like. We already have a lot of taking ServiceNow data and bringing it just stuff like CRM data. The most common type of data going, stuff like CRM data. We have a lot of large customers that want to have all of their SAP data. Big German companies are really pushing to have all of their data, SAP data, on Snowflake.
Raimo Lenschow
It wouldn't be a product.
Mike Scarpelli
It's funny, actually. ServiceNow puts that's -- and I remember I was the one that made the this particular go with Honda there, on a day right now in Snowflake.
Raimo Lenschow
Okay. That's funny. And then how does this change the competitive like or how do you see that playing out over the competitive market then because it does feel like everyone a little bit comes together because theaters to gravity.
Mike Scarpelli
Is it finding all of us, as you mentioned, their customers, it sounds like too. As I said, I think there is going to be many winners in this. It is not one person. And you can do a lot of competition happening. Just like today, how we compete with AWS, Azure, and Google. We partner really well with AWS and Azure. Actually, I think we just let, AWS reinvent. We just won their winner of the year with it. And so, we really partner with it. And we'll work with we partner well. At the end of the day, I think all of those people are going to want to do what's in the best interest of their customers. And if the customers want that, we'll work together, and we work very well with, all of those companies.
Raimo Lenschow
And then you mentioned AI already a little bit. I think you see that thing up to you or just, are you kind of seeing this, like, as you're the vehicle to consolidated data and then AI gets driven off that or are there other initiatives for you guys?
Mike Scarpelli
There are other initiatives that we're working on. Some we're not talking about. I won't, but there's a lot of at the end of the day, the value of what you get out of your models is going to be based upon how good data you have. The thing is Snowflake is the right place for that. We are working on offering an on-demand GPU model where, even though I have to do it through reservations for 30 days, I'm working on structuring that. I think that'll be an attractive thing and, because people do struggle, especially small companies getting access to GPUs.
With AI, most customers, when you talk to them, still are trying to figure out their AI strategy. But they realized that they have to have their data in the cloud to really get the benefit of it. Everyone talks about Copilot. We announced the Copilot six months ago too. Everyone has one. Those are simple things with AI. But wouldn't it be nice to, and we have a vision where a business analyst can just ask a question, a Snowflake in plain English to be able to get an answer. That's the type of stuff we're working on.
Raimo Lenschow
Follow-on question here. You've always been like we know each other for years, and you've always been a very sober CFO. How do you think about the monetization, especially around these Copilot? Because there's like, there's some firms that go like, oh, I can jack up the price at 60% and for running more queries or creating. How do you think about that particularly?
Mike Scarpelli
Beautiful thing about Snowflake, we really have the one with four different flavors, enterprise, or standard enterprise business critical in BPS. Most customers are on business critical, and, every new feature we have, you don't get charged for. It's the consumption, the compute that it's using those different features is how we monetize. And so, the more queries you run, the more times you refresh queries. The more often you want your data updated using streaming and dynamic tables, it's going to use more compute. You have to pay for that.
And so, it's truly is a consumption model. And the more features we have. The more that customers use those, it's going to drive revenue. It's not about, we're not going to increase prices. And by the way, if you buy more, you commit more, you'll get better pricing on your price per credit.
We have tiered storage pricing that if you make a bigger commitment, we'll give you a better price on storage. We're going to protect the price per credit, but the storage part seems to get a better response.
Raimo Lenschow
Actually and, I only have a few minutes left, so I need you to kind of get a couple of different questions. Like, you mentioned consumption.
Mike Scarpelli
I don't ask for [indiscernible].
Raimo Lenschow
So that's why I do it. If you think about consumption, like, how sensitive do you think you guys would be if the economy gets better? It's like, what we've seen so far is, like, people were thinking about optimization or maybe I have less data in Snowflake and then save me a little bit of money. If it gets better again, like how sensitive do you think you will be?
Mike Scarpelli
In a consumption model in Snowflake, kind of customers really ramp very quickly, but they can also slow down if they choose. And so, I think a lot of new products we have coming out next year could be a reacceleration in our business. I am not forecasting that right now, and I need more time to see how these things play out before I won't be changing any guidance or anything. I will say a lot of these new things that we have coming out next year will be headwind to product margin expansion. And there's a number of things from UniStore. The economics on that are not as good as, very or product because of the way the system works to get the performance.
There's I can store the data twice, cost we need to take out will get there. It's going to take about six months. GPUs trying to do an on-demand model, it's more challenging and will be an economic headwind, but I think we have to have the GPUs to offer to people because we want to be early to the game on that to get people on Snowflake. There's a lot of things happening with certain customers around the world with sovereign clouds that are a headwind to margin expansion as we're opening deployments, it takes time before you can get through to scale to get to your ideal contribution margin.
Raimo Lenschow
And then, since we're all in margins, like, so that's more on a gross margin level. Like, how do you think about the oil OpEx spending and then operating margin part of that?
Mike Scarpelli
How many years have they known you, 12 years, 14 years? And every year, I always show anything.
Raimo Lenschow
Yes. You did it.
Mike Scarpelli
We will continue to show up pretty much in expansion. It doesn't mean we're not going to invest in the business, but we're going to invest efficiently. And every year we're operating margin expansion. I've said that in investor days, and we're I think we can improve this business very fast without sacrificing growth, continue to show leverage.
The one piece where we're not going to see any mean, individualized, we have a lot of R&D investments we're making next year, and continuing to make with these products. A lot of the stuff around AI, what we're doing, I'm got another $31 million into R&D next year just with what we're doing on GPUs internally.
Raimo Lenschow
And then last question on cash. Like, you're nicely cash flow positive. You had a very strong cash flow. Like how do you think about uses of cash?
Mike Scarpelli
We talked about last February, beginning of March, we the board authorized the $2 billion over my back. We bought back just under $600 million was it $588 million. We did at $147. We will continue to opportunistically, we'd repurchase here. As I said, we're going to try to match it to our cash flow. Does that mean I'm going to use all of the cash, or are there maybe quarters where I go over for the period of time.
A lot of companies say they're going to do buybacks, but they never do them. I always like to do what we say we're going to do. So, we're going to continue to do that. We continue to look at M&A, but all of the M&A we're seeing that continues to be the smaller M&A, and it's more teams. We can bring on it, and I would say Nevo was an amazing acquisition for us with the talent we got out of that, really, really strong talent there.
Raimo Lenschow
I mean, you're in a good position. You're growing organically really well and just there is nothing to buy. Like, what do you want to buy?
Mike Scarpelli
Yes. And we don't need to buy a revenue stream. Any company that has revenue, really don't want it.
Raimo Lenschow
Yes. Perfect. Time is up, Mike thanks. I really enjoyed conversation.
Mike Scarpelli
Thank you.
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Snowflake Inc. (SNOW) Presents at Barclays Global Technology Conference (Transcript)