Snowflake Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 29, 2023

Key Takeaways

  • Snowflake reported Q3 product revenue of 34% year-over-year growth to $698 million and raised full-year fiscal 2024 product revenue guidance to ~$2.65 billion (37% growth).
  • Non-GAAP adjusted free cash flow reached $111 million, up 70% year-over-year, and the company repurchased $400 million of shares in Q3 (2.6 million shares), bringing year-to-date buybacks to $592 million.
  • Snowflake unveiled its AI/ML push with Snowflake Cortex for LLM inferencing and Snowpark Container Services for custom model deployment, with over 70 customers in early preview.
  • New workloads accelerated: Snowpark consumption grew 47% quarter-over-quarter, unstructured data usage rose 17x year-over-year, and ~1,500 customers are testing the Dynamic Tables streaming feature in preview.
  • Short-term margins face headwinds from amortization of new product development costs and upcoming hardware improvements, pressing Q4 non-GAAP product gross margin below recent levels.
AI Generated. May Contain Errors.
Earnings Conference Call
Snowflake Q3 2024
00:00 / 00:00

There are 16 speakers on the call.

Operator

Afternoon. Thank you for attending today's Q3 FY 2024 Snowflake Earnings Conference Call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Jimmy Sexton, Head of Investor Relations at Snowflake.

Operator

You may go ahead.

Speaker 1

Good afternoon, and thanks for joining us on Snowflake's Q3 fiscal 2024 earnings call. With me in Bozeman, Montana are Frank Slootman, our Chairman and Chief Executive Officer Mike Scarpelli, our Chief Financial Officer and Christian Kleinerman, our Senior Vice President of Product, who will join us for the Q and A session. During today's call, we will review our financial results for the Q3 fiscal 2024 and discuss our guidance for the Q4 and full year fiscal 2024. During today's call, we will make forward looking statements, including statements related to the expected performance of our business, future financial results, strategy, Products and features, long term growth, our stock repurchase program and overall future prospects. These statements are subject to risks and uncertainties, which Could cause them to differ materially from actual results.

Speaker 1

Information concerning those risks is available in our earnings press release distributed after market close today and in our SEC filings including our most recently filed Form 10 Q for the fiscal quarter ended July 31, 2023 and the Form 10 Q for the quarter ended October 30 2023 that we will file with the SEC. We cause you to not place undue reliance on forward looking statements and undertake no duty or obligation to update any forward looking statements as a result of new information, future events or changes in our expectations. We'd also like to point out that on today's call, we will report both GAAP and non GAAP results. We use these non GAAP financial measures internally for financial and operational decision making purposes and as a means to evaluate period to period comparisons. Non GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP.

Speaker 1

To see the reconciliations of these non GAAP financial measures, Please refer to our earnings press release distributed earlier today and our investor presentation, which are posted 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.

Speaker 2

Thanks, Jimmy. Welcome and good afternoon. Q3 product revenue grew 34% year over year to reach $698,000,000 Non GAAP adjusted free cash flow was $111,000,000 representing 70% year over year growth. Results reflect strong execution in a broadly stabilizing macro environment. While Snowflake's global revenue mix It's highly diverse in terms of industries and geographies.

Speaker 2

The company derives an ever larger revenue share from mainstream enterprises and institutions. This As compared to a newer crowd of digital natives, we've made up many of Snowflake's early adopters. We added $351,000,000 Plus customers during the quarter, 9 of our top 10 customers grew sequentially. Generative AI is at the forefront of Customer conversations, which in turn drives renewed emphasis on data strategy in preparation of these new technologies. We said it many times, there's no AI strategy without a data strategy.

Speaker 2

The intelligence we're all aiming for resides in the data and hence the quality of that underpinning It's critical. Meanwhile, Snowflake has announced and showcased the plethora of new technologies that let customers mobilize AI. We've introduced Snowflake Cortex To leverage AI and machine learning on Snowflake, Cortex is a managed service for inferencing large language models. This opens up direct access to models and specialized operations by translation, sentiment and vector functions. Business analysts and data engineers can now use AI functionality without the fractured highly technical challenges of the AI landscape.

Speaker 2

Last summer, we introduced Snowpark container services, which also serves as the 2nd pillar of our AI enablement strategy. Developers can access any language, any library and flexible hardware inside the governance boundary of Snowflake. More than 70 customers are already using container services in preview with many more waiting in line. Snowflake makes the common AI use cases easy and the advanced use cases possible. We are well positioned for AI based on the scale The scope of our data cloud programmability and governance framework.

Speaker 2

There are hurdles challenging enterprise adoption of AI and ML. The first is broad access to quality data. Snowflake addresses this challenge through its data sharing architecture. 28% of All our customers share data, up from 22% a year ago and 73% of our $1,000,000 plus customers are data sharing, Up from 67% a year ago. AI models can only be as smart as the data they are trained on.

Speaker 2

Security and governance present another challenge for Enterprise adoption of AI in the mail. Snowflake Horizon offers a unified security and governance solution built for AI. Horizon strictly and consistently enforces user privileges on data across use cases including large language model applications, Traditional ML models and ad hoc queries. As part of Horizon, we introduced universal search, which enables customers to search the data cloud. Customers can now discover data and metadata that exists across their accounts and in the Snowflake marketplace.

Speaker 2

Snowflake continues to win new workloads outside of its traditional scope. Snowpark consumption grew 47% quarter over quarter. Consumption in October was up over 500% since last year. Over 30% of customers used Snowflake to process Unstructured data in October. Consumption of unstructured data was up 17x year over year.

Speaker 2

Our newest streaming capability, Dynamic Cables, entered public preview earlier this year. Approximately 1500 customers are using the feature And additional adoption is outpacing expectations. We have a number of major new capabilities becoming broadly available in Q4. Our native apps framework will go GA, Unistore for transaction processing, Snowpark Container Services and Apache Iceberg Tables will all enter public preview. These products unlock substantial new workload expansion opportunities.

Speaker 2

We are campaigning globally to expand our audience. This fall, our Data Cloud World Tour traveled to 26 cities worldwide. In person attendance at these events Reached 23,000 nearly double from last year. Next up is our BUILD developer conference in early December, where we anticipate 35,000 registrations. Build is focused on building apps, data pipelines and AIML workflows.

Speaker 2

We hope to see you there. With that, I will turn the call over

Speaker 3

to Mike. Thank you, Frank. In Q3, we saw strong consumption from a broad base of customers. Outperformance was evenly split between large and small accounts. Our largest customers stabilized as expected.

Speaker 3

Migrations drove growth in Q3. Our 2 fastest growing customers were both migrating workloads from a legacy vendor. One of these accounts is in their 2nd year on the platform, the other in their 8th year on the platform. We added 4 customers With more than $5,000,000 in 2 customers with more than $10,000,000 in trailing 12 month product revenue in the quarter, Growth in September exceeded expectations. For 3 weeks, consumption grew faster than any other period in the past 2 years.

Speaker 3

Consumption continued to grow in the month of October. Q3 represented a strong quarter for bookings execution. Remaining performance obligations grew 23% year over year to $3,700,000,000 Of the $3,700,000,000 in RPO, we expect 57% to be recognized as revenue in the next 12 months. APJ and SMB drove growth in net new bookings. We are making significant progress in delivering margin expansion.

Speaker 3

Non GAAP product gross margin of 78% Was up approximately 300 basis points year over year. Improved terms from the cloud service providers have contributed to margin expansion. We also benefit from increasing consumption of higher priced additions of Snowflake. In Q3, price per credit increased 4% year over year. Non GAAP operating margin of 10% was ahead of expectations.

Speaker 3

Operating margin benefited from revenue outperformance and increased hiring scrutiny. Non GAAP adjusted free cash flow margin was 15%, benefiting from favorable timing of collections. We ended the quarter with $4,500,000,000 in cash, cash equivalents and short term and long term investments. Our strong cash position allows us To opportunistically repurchase shares. In Q3, we used $400,000,000 to repurchase 2,600,000 shares.

Speaker 3

Year to date, we have used $592,000,000 to repurchase 4,000,000 shares at an average price of $147.50 Now let's turn to guidance. For the Q4, we expect product revenue between $716,000,000 721,000,000 Representing year over year growth between 29% 30%, we are increasing our full year guidance to approximately $2,650,000,000 Representing 37% year over year growth. Consumption trends have improved. We are seeing stability in customer expansion patterns. Our guidance is based on observed patterns and assumes continued stability of consumption.

Speaker 3

For the Q4, we expect operating margin of 4% And 360,000,000 diluted weighted average shares outstanding. For the full year, we are increasing our non GAAP product gross margin guidance. We now expect non GAAP product gross margin of 77%. We still expect a product gross margin headwind And the Q4 associated with new products, we are increasing our fiscal 2024 non GAAP operating margin guidance. We now expect non GAAP operating margin of 7%.

Speaker 3

We are increasing our fiscal 2024 non GAAP adjusted free cash flow margin. We now expect non GAAP adjusted free cash flow margin of 27%. For the full year, we expect diluted weighted average shares outstanding of 3 We are on track to add more than 1,000 employees this year inclusive of M and A. With that operator, you can now open up the line for questions.

Operator

Absolutely. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question is from the line of Mark Murphy with JPMorgan. Please proceed.

Speaker 4

Thank you so much. I love the 11 minute earnings call, and congrats on a fantastic result. So Frank, We are hearing broadly that conversations are starting with generative AI and they're stopping at data, because they find their data estates aren't in good enough shape. Are you sensing more tangible uplift there around that concept that Snowflake might be on the front edge Of AI projects and perhaps seeing that spillover into customer conversations or drive more pipeline For some of your other products like Snowpipes and Snowpark and data sharing?

Speaker 2

Generally speaking, yes. One of the interesting things is that customers are Now getting preoccupied with their data estates, because they have to get them into shape where they can productively Take advantage of the newer technologies, which we are now also showcasing and delivering where they can just turn it on And have well governed frameworks to run them with all the things that they're used to from Snowflake. So it's definitely true that the frenzy and the high degree of interest in AI has a knock on effect On the interest in data strategy, data platforms, and people are also not just looking at the quality of their data and the optimization organization curation of data, But also what kind of data they need to be able to have access to, so people are taking a much broader view of their data states as well in terms of what's in it and what should be in it.

Speaker 5

Thank you very much.

Operator

Thank you, Mr. Murphy. Our next question is from Keith Weiss with Morgan Stanley. Please proceed.

Speaker 6

Great. Thank you. You have steotune on for Keith. Maybe just start off with a quick question on sort of you mentioned several times on the call the stabilization that you're seeing With the new growth and we've obviously heard that from sort of your hyperscaler peers as well. When you're looking at an account level, Could you give us sort of an idea like how much of the stabilization is coming from cost optimization scrutiny alleviating Versus sort of existing customers who slow walk migrations leaning in more versus customers leaning more into new products, Is there any way that you can kind of give us more color of what parts are playing out already and which are yet to come maybe into next year?

Speaker 2

Keith, one of the things, Frank, what I mentioned is that our customer base has evolved in recent years to include much larger enterprises and institutions, who are typically not prone to overconsumption And unbridled expansion that they then later have to reset and rationalize. Because of that, the exposure To these drastic resets and optimizations that we saw earlier in the year is getting less and less with each incremental quarter. Secondly, People have really driven themselves through these processes and rationalized themselves and are now in a good place to move forward. You can only optimize and rationalize so much at some point diminishing returns. People get tired of it and they're moving on to things that are now new and interesting, namely preparing for enabling AI and Namely preparing for enabling AI and ML technologies.

Speaker 3

Yes. I'll add to that too that Why we see that stabilization is 9 out of our top 10 customers all grew quarterly sequentially. And the other point I'll make is we are seeing a shift as Frank mentioned. Our biggest customers are mature enterprises we're seeing now And mature enterprises have always scrutinized cost. They always will.

Speaker 3

And so there's nothing new there and that will continue. And that's just the way anyone should run a business.

Speaker 6

Got it. That's helpful. And then maybe one quick question on your sales and marketing headcount. Obviously, we noticed it's basically flat quarter over quarter this quarter. But then again, it's only sort of one number.

Speaker 6

Can you shed some light in terms of like what regions are you maybe leaning more into versus Getting more efficiencies or any sort of areas that you're investing in still because obviously your growth seems Pretty healthy. So just some color on where you're investing was not would be helpful.

Speaker 3

Yes. So first In general, with sales and marketing heads, most of those typically are added right at the end of Q4 Or even more so the beginning of Q1 so people can get involved in our sales kickoff. And what I would say is We are continuing to invest very heavily in our sales and marketing function, in particular in Europe. We talked about 6 months ago or so we added a new leader there. We have been changing out some people and investing and we're continuing to And we will continue to prune underperformers globally and invest more in the right people as we go forward and APJ is another one that we continue to And invest in.

Speaker 6

Excellent. Thank you.

Operator

Thank you, Mr. Weiss. Our next question is from the line of Raimo Lenschow with Barclays. You may proceed.

Speaker 7

Thank you. Congrats from me as well. Guys, you have like a crazy amount of new exciting products coming out. How do you Think about the sales setup here now going forward because you're going to be able to address lots of different areas from like classic data to kind of more AI. Does that mean your sales approach needs to change, Frank, here going forward?

Speaker 7

And it doesn't sound like you are going to have a crazy sales force expansion here. Like, do you want to do that going forward to ensure that all these new products are actually finding the market? Thank you.

Speaker 2

Yes. That's actually an excellent observation. We have historically had sort of One dominant selling motion that we sort of deployed everywhere and anywhere, it has served as well. But as you correctly observe, The market has really changed. You go back to 2015, Snowflake really swam In swim lanes that were very narrowly defined and very well understood, now we're in the mega market, right?

Speaker 2

These are very, very broad based Platforms that are incredibly capable in many directions and we've been working very hard as you've seen in recent years and delivering just An absolute ton of capabilities to enable these platforms in all these different directions. I mean, our drive towards applications, The whole programmability framework, the onslaught of AI and AML capabilities, all of that is coming to fruition. Now we have had a ton of irons in the fire, and they're now all getting hot. So from a sales standpoint, we have Much more specialization happening, and that is going to literally go on all over the world because it is impossible for a single person To be expert in all these technologies and all these disciplines. So we're going to have people that have general purpose capabilities, sort of core Skills, if you will, and then we will have teams of specialists that will augment these groups wherever they're needed.

Speaker 2

So Our basic selling motions and how they are supported will evolve rapidly in the coming year.

Speaker 7

Okay, perfect. Makes sense. Thank you.

Operator

Thank you, Mr. Linshaw. Our next question is from the line of Kirk Materne with Evercore ISI. Please proceed.

Speaker 8

Yes. Thanks very much and congrats on the quarter. I guess, Mike, could you just talk about The impact that some of these newer unstructured data workloads are having on consumption at all, meaning, I assume it's still a very, very small part of overall consumption when you look at it. But is that helping with the When you look at it, but is that helping with the stabilization? Can they turn into sort of catalysts for acceleration as we get into 'twenty four?

Speaker 8

Anything you do to sort

Speaker 3

Well, they're definitely Helping with stabilization, I can't quantify exactly what, unstructured is doing, but it's not just that. It's also We're starting to see the effects more of Snowpark that's doing very well for us right now. Some of the new things we're already seeing very early uptick in streaming and dynamic tables. We really I would say Streamlit is built into our forecast for next year. The other products because they're new, we really don't build much in for that because we need history Before we can do that, clearly, we think a lot of these new products that are just going into public preview now and GA next year will be a catalyst For growth for us in 2025.

Speaker 2

One follow on, Curt. Document AI is a technology that we've been working on for quite a while, and it really was on the basis of an acquisition we did Over a year ago, that is now going into preview, and It is incredibly popular out there and what Document AI does returns an unstructured document Into a semi structured document, so I can become a full participant in analytical processing. There is a ton of interest in that. And so That really brings the entire state of unstructured data, which is 80% of the world's data into the analytical sphere. So we do expect that to become very important and especially because AI and LLMs are so heavily focused on unstructured data, textual data at least today.

Speaker 2

This will be something that will be a driver in our business.

Speaker 8

Thanks. And Mike, can you just give us an update on where the federal sort of opportunity stands? I know you guys were waiting to hear back on FedRAMP. Any update on that? Thanks.

Speaker 3

Federal is a huge opportunity, and I would say it's upside for us because it's such a small piece. But We should have our FedRAMP high authorization literally Any day. I actually thought I might have had it today. So stay tuned. You'll see an announcement on that very soon.

Speaker 5

Thanks. Appreciate it.

Operator

Thank you, Mr. Materne. Our next question is from the line of Brad Reback with Stifel. You may proceed.

Speaker 8

Great. Thanks very much. Just a quick technical question. With Graviton4 now being announced by Amazon, should we think of Any potential headwinds there?

Speaker 3

Well, as we told you before, every year we count on a 5 Headwind associated with software hardware improvements Graviton4 was just announced recently. We really have not Tested that and not all hardware improvements benefit our software. We expect there will be some, but we just don't know. It's Too early. Stay tuned and we'll update you when we have more information.

Speaker 8

Great. Thanks very much.

Operator

Thank you, Mr. Reback. Our next question is from the line of Alex Zukin with Wolfe Research. Please proceed.

Speaker 5

Hey, guys. This is Ethan Brook on for Alex Zukin. Congrats on the nice quarter. My question is, if you're assuming the consumption trends Persist through 4Q and that's how you're guiding. I guess what would be the biggest puts and takes to accelerate growth next year?

Speaker 5

And in the same vein, When we think about NRR, just given the stabilizing consumption trends, I guess, directionally, when should we think about when we expect NRR to stabilize trough And around like what level would you expect?

Speaker 3

So I'll start with I'm not going to guide to NRR. I do see it stabilizing. It could dip a little bit more. I do expect over time NRR, as we've We'll converge with our revenue growth at the size we're at. And clearly, the biggest puts and takes for next year is going to be the To continue to see the stabilization we have, we're seeing right now and what the impact of a lot of our new initiatives are going to be next year and it's just Too early to tell right now and to guide to that.

Speaker 3

So stay tuned for our February call when we give guidance for next year.

Speaker 5

Great. Thank you very much. Congrats again.

Operator

Thank you, Mr. Zukin. Our next question is from the line of Brent Thill with Jefferies. You may proceed.

Speaker 9

Thanks, Mike. I think you mentioned there is a higher utilization on the higher tiers That you're offering, can you just extrapolate what you're seeing there?

Speaker 3

Well, typically large enterprises are the ones Our business critical in VPS and those guys are becoming bigger and bigger customers. And as a result, we do see More of our revenue being derived from these very large companies who are using our higher SKU, which has higher margin for us And that's what we're seeing there.

Speaker 9

Okay. And quickly for Frank, when you think about Just the overall AEI impact, do you feel that this is a bigger tailwind in the back half of twenty twenty four? Do you think you'll see it coming in early twenty twenty four? How are Your thought process in terms of adoption in this wave helping you, when does that impact hit from a monetization perspective?

Speaker 2

There's going to be a lot of nuances to how AI is going to unfold and translate itself into the effects onto our business. It's not just like turning on the switch and all of a sudden you see incremental Consumption happening. As we said during the prepared remarks, we're already seeing that the interest in AI He's also driving interest in the data strategy, which then has a knock on effect on consumption. It's also the Attention of the data universe that people are bringing in, the quality of the data initiatives, All of that is going to bring incremental workload utilization to Snowflake even though You would normally not necessarily characterize that as AI, but these are things that are going to enable AI. And it might well be That a ton of the workload of AI is actually the proverbial iceberg where only the tip of it that's ticking above the water is really AI, but everything that has to happen to support it is happening below the surface and we're going to be a huge beneficiary of that.

Speaker 2

We think that Snowflake is super well prepared because our data estates In a very, very advanced state because our customers have spent years years years And in some cases, literally decades from prior legacy platforms to building these states and curing the data and organizing and optimizing And for the data to be completely trusted and sanctioned in their environments, and that is a huge value when you start tackling AI and ML models.

Speaker 9

Thank you.

Operator

Thank you, Mr. Chil. Our next question is from the line of Patrick Colville with Scotiabank. You may proceed.

Speaker 10

All right. Thank you so much for taking my question. In your prepared remarks, you talked of very strong consumption in September. Consumption continued to grow in October. We're now 29 days through November.

Speaker 10

Can you just talk about trends thus far this month?

Speaker 3

What I would say is trends are good, but you have to remember it also has A big holiday in the U. S. And the week of Thanksgiving is typically a slow week. With that said, I'm happy with the consumption we're seeing and that's reflected in our guidance.

Speaker 10

Perfect. Thank you so much.

Operator

Thank you, Mr. Colville. Our next question is from the line of Tyler Radke with Citi. You may proceed.

Speaker 9

Hi, good afternoon. Thanks for taking the question. Wanted to ask you about container services. So it sounds like You're seeing some good early momentum there, more than 70 customers in private preview. I'm curious how many of those are deploying large language models directly on their Snowflake data.

Speaker 9

And for those customers that are doing that, what type of uplift or How you kind of characterize that consumption when they do that? Thank you.

Speaker 11

Yes. Hi, this is Christian. Yes, we have seen a variety of use cases, but a good number of those private preview customers are leveraging GPU instances in software container services for use of large language models. So for sure it's a meaningful Part of the early adoption use cases and we've got lots of encouragement and excitement to continue the rollout of the preview.

Speaker 9

Great. And just a question on go to market. So I think earlier this year, you talked about some execution issues, and it Seems like that's been partially resolved to get good results in APAC. I guess, do you feel like you have all the right key sales Leaders in place at this point or are there still some roles you're looking for? And I guess ultimately do you feel like You've turned the corner on those execution issues as well.

Speaker 2

Yes. Frank, look, in And the global sales organization that we're running, and we're running all the way from an on demand selling motion that's unattended, if you will, by salespeople to an SMB, If you will by salespeople to an SMB, to an ISV, to mid range, Large and then the extremely large customers, it's always a work in process. There's always opportunity for improvement. That's been true for as long as I've been here. That said, I feel we're getting incrementally Better, stronger, deeper in terms of our ability to sell.

Speaker 2

We're becoming much more consistent And more and more productive every day. So a lot of stability and a lot of progress, but This is something that's never over. Anybody has been in this business knows how this work. It's a very dynamic mix of things. But on the whole, We have to as a company at a $3,000,000,000 or something of that order of magnitude run rate, we lean hard on our organization To show up and deliver those results every quarter.

Speaker 2

So it's becoming a formidable enterprise in terms of our go to market capabilities.

Speaker 5

Great. Thank you.

Operator

Thank you, Mr. Radke. Our next question is from the line of Brent Bracelin with Piper Sandler. You may proceed.

Speaker 12

Thank you and good afternoon. Frank, we'll start with you here. I think last quarter, unstructured data was mentioned Twice. You've called it out here more than a dozen times. You talked about October trends being up, I think, 17x increase year over year.

Speaker 12

How much of a game changer is this, particularly as we think about Document AI and Snowpark Containers coming out next You're clearly a focus here. It certainly hasn't been an area you supported in the past, but it feels like there's a See change movement here. How much of a game changer is unstructured data support relative to growth opportunity going forward? Thanks.

Speaker 2

Look, unstructured data, as I said earlier, is the majority of the world's data. And until relatively recently, it's been borderline unusable for analytical Purposes, because it is unstructured and you can't reference it in analytical workloads. It's ironic that both through the onslaught of large language models that is also extraordinarily capable of dealing with textual data As well as things such as Document AI that Snowflake developed and is bringing to the market that this data is going to become a full participant In these types of workloads, it's super exciting because it's going to really enrich and really unlock Insights and outcomes and all of that, that we haven't had before. So this is going to be a driver Of our world as we know it in terms of this type of computing.

Speaker 12

Helpful. And then Mike, if I look at average consumption revenue per customer, those metrics improved on a growth perspective slightly year over year For the first time in over a year, what are the driving factors there? How much of this is just the optimization headwinds now starting to ease Versus net new workloads coming on the platform? Thanks.

Speaker 3

What I would say and I'll repeat what I've said Numerous times to investors optimizations are part of our life. They've been happening at Snowflake from day 1. They will continue to happen. Nothing is new with optimizations. I don't see any big ones happening now, but that's not to say they won't happen in the future because history has shown they happen all the time.

Speaker 3

Most of the growth that we're seeing within our customers is we talked about 2 of our biggest growth customers was On prem legacy migrations into Snowflake. So there's initial migrations, but we're also seeing new workload expansion within existing customers As well too. So it's there's no one thing that's driving it. It's just general consumption we're seeing. And I will say Snowpark is starting to Kick in for us.

Speaker 3

Still not 10% of our revenue. That's a long ways to get there, but it's still meaningful for us.

Speaker 12

Great to hear. Thank you.

Operator

Thank you. Mr. Bracelin? Our next question is from the line of Derrick Wood with TD Cowen. You may proceed.

Speaker 13

Great. Thanks. I guess I wanted to dovetail off of that on premise legacy migrations. And I guess for Frank, I mean, When we saw the macro hit, I think it did cause a slowdown in customers looking to replatform from on prem to cloud. Just curious, I mean, I know you guys are kind of highlighting consumption trends improving here, but wondering what you're seeing in the pipeline for new Global 2,000 accounts, and if you're seeing legacy replatforming initiatives start to kick back up now that the macro environment has gotten a little bit more stable.

Speaker 2

Well, I mean, there's no doubt that legacy replatforming is sort of The hard core of our business and almost surprisingly, there is just an enormous amount of workload still sitting on premise That is still waiting to get migrated to the cloud. So I expect this to continue for a very long period of time. But that's what Mike said is very important. Once you get those data states into the cloud, our new architectures and our new technologies are now enabling Opportunities that people haven't had before. And so that drives workload expansion.

Speaker 2

So it's not just like, okay, we're

Speaker 5

going to be doing in

Speaker 2

the cloud where we used to be doing on premise, and that's the foundation of the business. It is definitely foundational, but the opportunity is really what grows from that. That's been the Snowflake story from day 1 Because of what's now possible, we don't have the capacity constraints and people can run unlimited numbers of workloads. And now with all the new technologies in terms Programmableity, AI and ML, the sky is the limit. I mean, in our conversation with customers, I always tell them, I says Your problem is no longer the technology.

Speaker 2

Your problem is your imagination and your budget, right? Not that those are easy things, but Technology is not holding us back anymore. It's our ability to harness the technology and then of course you have to pay for it as well. Yes.

Speaker 3

I'll just add to that, Derek, too, on your question about Global 2,000. Yes, we added 2 Global 2,000 last quarter. And as I've said many times before, Selling into a Global 2000 as a campaign, it's a 1 to 2, sometimes 3 year sales cycle. With that said, we have a number of Global 2,000 and our pipeline for Q4. And what I also want to see too is not every Global 2,000 Starts with an on prem migration.

Speaker 3

Many of them start with a 1st gen cloud solution they had purchased to migrate to Snowflake. Yes, Almost all of them have a on prem state, but that doesn't always happen at first. It really varies by customer. But with that said, we still see a lot of on prem migration to be done over the coming years and it's going to be for many, many years.

Speaker 13

Got it. And Mike, a follow on for you, really around RPO. And we've heard of more companies looking to take a Pay as you go approach. So can you speak to what extent customers are shifting to that approach versus annual or multiyear commits? And How that may play into your RPO growth trends looking forward?

Speaker 3

I don't see that that much. The only time you see pay as you go are ones that who had signed a 3 year contract and then they run out of capacity And then they just pay as they go. Actually one of our top ten customers is like that. They have until April to continue before they have to do another contract if they want to get the same pricing that they have. I actually expect Q4 is going to be a Pretty significant bookings quarter with a number of renewals that are up or customers are going to have to do something.

Speaker 3

And we continue to push for 3 year contracts with our customers. Payment terms, I do expect That is one of the things I'd rather give up on payment terms and discount the price per credit. And that's really I've said it along, I anticipate longer term customers will want to do more monthly In arrears payment terms and that is available to customers. It all comes down to what price you want to pay per credit. And to date, most people want

Operator

Thank you, Mr. Wood. Our next question is from the line of Joel Fishbein with Tuohy. You may proceed.

Speaker 8

Thanks for my question and congrats on the great quarter. I guess, Frank, this is for you. At Snowflake Summit, you announced the expanded partnership with Microsoft. And I'm just curious how that partnership is Going and you also announced some joint product integration. So I'd love to get an update how that's going and how

Speaker 5

you feel about that going forward.

Speaker 14

This is Frank.

Speaker 2

Yes, we actually saw quite a bit of energy Coming from the Azure platform this quarter, the things that we worked on in the renewed relationship with Microsoft is really Much better alignment in the field from a compensation standpoint that is just super, super important in our world. And we're seeing the effects of that and the Microsoft platform really uptick during the quarter. I don't know the exact numbers at hand, but it was It measurably ticked up. So we're encouraged by the behavior we're seeing in the field, and we're encouraged in The overall sentiment that's developing in the field, so it's definitely Healthier than the relationship with Microsoft has been historically. So we're pleased and optimistic about it.

Speaker 8

Any milestones we should be looking for there from the partnership?

Speaker 3

Not really.

Speaker 2

Thanks.

Operator

Thank you, Mr. Fishman. Our next question is from the line of Mike Sicos with Mike Sicos. Please proceed.

Speaker 5

Hey, thank

Speaker 9

you for getting me on here and good to hear some of the earlier comments around Snowpark, which is consistent with some of the growing momentum we've heard in some of our checks. I think the question is probably more for maybe Mike or Christian, but is there enough empirical data or sizable enough customer base yet for Snowpark To start talking about how these Snowpark customers I guess what adoption of Snowpark does for Consumption versus non snow part customers or maybe how we should think about usage building over time as snow part becomes a larger part of those customers' workflows?

Speaker 3

I think it's still too early to tell. I will say, We have one customer doing a significant migration, which will increase their Consumption on Snowflake too, roughly 1,500,000 a year. And there are a number of those that we've identified in POCs, But we haven't done the migrations. I see that one customer going to production right now, which by the way has saved them significantly On their legacy vendor. So clearly, there with some customers is quite meaningful, the consumption we're starting to see.

Speaker 3

And we expect that trend will continue into next year.

Speaker 9

Understood. Thanks for calling that out, Mike.

Operator

Thank you, Mr. Cikos. Our next question is from Patrick Walivans With JMP, you may proceed.

Speaker 14

Hi. This is Owen Hobbs on for Pat. Thanks for taking the question and congrats on the strong quarter. So starting off, I guess, how much consumption comes from the different hyperscalers? Is there one that kind of is it split evenly between the 3 or does one kind of have the majority of compute share there?

Speaker 3

No. AWS by far is our biggest, Followed by Azure and then GCP. GCP is up to 3% right now. Microsoft Azure is the fastest growing one, but AWS is still 76 percent of our business with Microsoft being 21%, as I said GCP is 3%. I will tell you, one of the reasons why GCP is not as big is just so much more Expensive for our customers to operate in GCP than it is in AWS and Azure.

Speaker 3

And as a result, our salespeople are really not inclined to do much And GCP.

Speaker 11

Thank you. And then going

Speaker 14

bigger picture, maybe this is a question for Christian as well. How is the role of the data scientist you serve kind of changed as we move through the era of big data and machine learning and now into AI? And I guess where do you see that going in the future?

Speaker 11

Yes. We see actual interest on both the traditional data science and ML platform. And we had a number of announcements at Snowflake Summit for those types of use cases. But we obviously see lots of interest on Generative AI and Large Language Models, where we have also expanded Snowflake's capability to do Both hosting via Snowflake Container Services, but more seamless inferencing via the new Snowflake Cortex. So We see strong demand from our broadcaster base for both types of use cases.

Speaker 11

Good. Thanks so

Operator

much. Thank you, Mr. Walgreens. Our next question is from the line of Greg Mosowitz with Mizuho. You may proceed.

Speaker 9

All right. Thank you very much. Frank, since you speak with a lot of large company execs, I'm curious to hear any thoughts you have on IT budgets next year As well as whether there will be incremental budget dollars approved for AI in calendar 2024 or if the AI spend Will primarily or maybe even entirely come from other areas of IT.

Speaker 2

I don't even hear the words AI and budget in the same sentence. In other words, they're going to make resources available To enable it, but if anything is holding the back is really understanding how to do It takes time in tech to mature and evolve deployment architectures where everybody involved is Fully confident and comfortable that these are the right ways to do it. So you see a lot of benchmarking, compare and contrast experimentation, Testing all these kinds of things, and you're going to go through many, many iterations of that. We will as well. And I think the field will become Very proliferated with large foundational models and many, many, many sub Sector specialized models that are very, very, very deep, but also very, very narrow in purpose.

Speaker 2

So It's going to become an enormous field. I will tell you that when you talk to the C suite in large enterprises, people Looking for a reset of economics, for example, in contact centers, pricing optimizations, Supply Chain Management, I mean, really very, very big impact opportunities. These are not sort of marginal incremental Thanks and that has the attention. Data has always had That promise, but it's really on steroids now under the influence of the newer technologies that we're all excited about.

Speaker 9

Very helpful. Thanks. And then for Mike, really encouraging of course to hear that for 3 weeks consumption grew faster than any other period over the past 2 years. Over which 3 weeks though did you see that particularly strong consumption? Was that post Labor Day or did it span a different time period?

Speaker 3

It's post Labor Day.

Speaker 9

All right, perfect. Thank you.

Operator

Thank you, Mr. Moskowitz. Our last question is from the line of Will Power with Baird. You may proceed.

Speaker 15

Okay, great. Thanks. Mike, you referenced that 9 of your top 10 customers, it sounds like grew nicely Quarter over quarter, I guess I wonder, were there any common use cases or products or common threads kind of Driving that, any other color behind the strength there?

Speaker 3

No. These are just all very large customers with massive data states That continued to one was doing a big migration, but the others are just continuing to move workloads to Southlake.

Speaker 2

Very industry specific as well.

Speaker 15

Okay. And maybe just a quick question on product gross margins. Last couple of quarters, you're kind of already at your longer term target, I think. It sounds like there may be a couple of headwinds there in Q4. But is this kind of the general level to expect going forward?

Speaker 15

And maybe any color on kind of the upside I guess if you will, again, it seems like you've gotten there faster than you might have expected.

Speaker 3

Yes. I don't really see a lot of Upside in our long term guidance and for a number of reasons. The big headwind that we're seeing this quarter to our margin is with all these new products That are going into public preview, we have to start to amortize the cost associated with the software development costs that we're required to Under GAAP that are now going to start to be amortized on top of that, in particular something like Unistore. A lot of times when we introduce new products, Many times, we actually have negative contribution margins until it takes us usually up to a half a year to 9 months to actually Fine tune the software to get the, to take costs out of operating those new features. And so, We just have so many new products that are coming out this quarter that is going to have a headwind on the margin.

Speaker 15

That's helpful. Thank you.

Operator

Thank you, Mr. Fowler. That concludes the question and answer session as well as today's call. Thank you for your participation. You may now disconnect your

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