Snowflake Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 23, 2023

Key Takeaways

  • Q2 product revenue increased 37% year-over-year to $640 million, with non-GAAP product gross margin expanding to 78% and non-GAAP adjusted free cash flow up 50% to $88 million.
  • Snowflake’s role as the “epicenter” of highly curated and trusted enterprise data underpins its generative AI strategy, highlighted by the private preview of Document AI and Snowflake Container Services supporting LLMs.
  • Customer engagement strengthened to 639 Global 2000 accounts, data sharing users rose to 26% (from 20% a year ago), and Snowpark consumption grew ~70% quarter-over-quarter with over 400 new customers.
  • Remaining performance obligations climbed 30% to $3.5 billion and net revenue retention held at 142%, with 402 customers exceeding $1 million in trailing 12-month product spending.
  • Q3 guidance calls for $670–675 million in product revenue (28–29% YoY growth) and a non-GAAP operating margin of 4%, amid stabilization but not full recovery in large-customer consumption.
AI Generated. May Contain Errors.
Earnings Conference Call
Snowflake Q2 2024
00:00 / 00:00

There are 17 speakers on the call.

Operator

Afternoon, and thank you for joining the Snowflake Q2 Fiscal Year 20 24 Earnings Conference Call. My name is Kate, and I will be the 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 call over to your host, Jimmy Sexton, Head of Investor Relations at Snowflake. You may proceed.

Speaker 1

Good afternoon, and thank you for joining us on Snowflake's Q2 fiscal 24 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

Operator

Excuse me, ladies and gentlemen, it does look like the speakers have disconnected. One moment while we get them reconnected. Thank you for your patience, ladies and gentlemen. We do appreciate that, and we do ask that you remain Holding for a few more moments while we get the speakers reconnected. Again, ladies and gentlemen, we do appreciate your patience, and we do ask that you remain holding for just a few more moments while we get these speakers reconnected to the call.

Operator

Again, ladies and gentlemen, we do appreciate your patience, and we do ask that you remain holding for a few more moments while we get the speakers reconnected. Again, ladies and gentlemen, we do appreciate your patience, and we do ask that you remain holding for a few more moments.

Speaker 2

It was like the first.

Operator

Ladies and gentlemen, we have the speakers back in the call. You may proceed with the presentation.

Speaker 1

Good afternoon again, and thank you for joining us on Snowflake's Q2 fiscal 2024 earnings call. With me and Bozen, Montana are Frank Slootman, our Chairman and 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 Q2 fiscal 2024 and discuss our guidance for the Q3 and full year fiscal 2020 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. Information concerning these 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 April 30, 2023, and the Form 10 Q for the quarter ended July 31, 2023 that we will file with the SEC.

Speaker 1

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 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. 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.

Speaker 1

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 3

Thanks, Jimmy. Welcome and good afternoon. Q2 product revenue grew 37% year over year to reach $640,000,000 Non GAAP product gross margin expanded to 78% Non GAAP adjusted free cash flow was $88,000,000 representing 50% year over year growth. Q2, continue to execute in unsettled macro environment, but with incremental improvement in general sentiments and engagement. Generative AI is at the forefront of customer conversations.

Speaker 3

However, enterprises are also realizing that they cannot have an AI strategy Without a data strategy to base it on, we have a head start in this race as the epicenter of highly curated, optimized And trusted enterprise data. We now have a presence with 639 Global 2,000 customers. AI reaches beyond enterprise boundaries. Models need external data to answer challenging questions. Data sharing makes Snowflake uniquely positioned to enable AI workloads.

Speaker 3

As of Q2, 26% of Snowflake customers are data sharing, up from 20% in the same period last year. Approximately 70% of customers with more than 1 product revenue, our data sharing with an average of 6 stable edges. For years, we focused on the programmability of our platform via Snowpark, we are seeing momentum. In Q2, we added more than 400 Snowpark customers and our consumption grew approximately 70% quarter over quarter. 63% of our Global 2,000 customers are using Snowpark on a weekly basis.

Speaker 3

Document AI is now in private preview. With Document AI, customers can use natural language to ask questions of unstructured data. Legal contracts or invoices are now available for inquiry and analytics. This is an early example of how language models are expanding our opportunity. With Snowflake Container Services, we are bringing LLM models like Rekha and NVIDIA's Nemo into Snowflake.

Speaker 3

You heard in my conversation with Jensen, Snowflake is sitting on a gold mine of data. Together, we can help customers turn that gold mine into intelligence. We announced Snowpark container services 2 months ago. Since then, hundreds of customers have requested access to the private preview. With our support of Iceberg Tables, we are expanding our data lake scope.

Speaker 3

Many customers already use Snowflake as a data lake. Large Financial Services customer consolidates data in Snowflake to eliminate useless extracts in transfers of data. This means new use cases are deployed 80% faster. Iceberg tables will bring additional scope and open file formats We expect to unlock more data lake opportunities with these capabilities. We've also reached an inflection point on the application front.

Speaker 3

At Summit, we launched so called native apps in public preview. We have over 25 native application providers today. Snowflake is a safe certified and sanctioned place to deploy applications. Grassroots support is building. We now have more than 145,000 monthly active developers on Streamlit.

Speaker 3

This represents an increase of 160% year on year. Our startup program allocates resources to developers planning to build on Snowflake. Approximately 20% of new customers landed in Q2 Landed on Snowflake through our startup program. General sentiment appears to be incrementally embedded. Snowflake Summit in June was Highlight of energy and excitement about what is becoming possible in the world of data.

Speaker 3

We hosted over 20,000 on-site and virtual attendees. This was up over 85% from last year. Next up is our Data Cloud World Tour. The World Tour brings Summit Messaging to a wider audience. We To double the attendance of Summit, this is in 26 cities worldwide.

Speaker 3

With that, I'll turn the call over to Mike.

Speaker 4

Thank you, Frank. Consumption came in line with our expectations for the quarter. In May, we saw a return to growth with strength continuing into June July. From a booking standpoint, we saw promising signs of stabilization with new bookings outperforming our expectations. However, we believe productivity has room for further improvement.

Speaker 4

Q2 remaining performance obligations grew 30% year over year totaling $3,500,000,000 Of the $3,500,000,000 in RPO, we expect approximately 57% to be recognized as revenue in the next 12 months. This represents a 32% increase compared to our estimate as of the same quarter last year. Our net revenue retention rate of 142% includes Six new customers with $1,000,000 in trailing 12 month product revenue. We now have 402 customers With trailing 12 month product revenue greater than $1,000,000 we continue to focus on growth and efficiency. We generated $88,000,000 in non GAAP adjusted Free cash flow outperforming our Q2 target.

Speaker 4

Q2 represented another quarter of continued progress on profitability. Our non GAAP product gross margin was 77.9%, benefiting from a one time credit from one of our cloud service providers. Non GAAP operating margin was 8% benefiting from tight controls and headcount additions and the overachievement in product gross margin. Our non GAAP adjusted free cash flow margin was 13%. We continue to have a strong cash position with $4,900,000,000 in cash, Cash equivalents and short term and long term investments.

Speaker 4

We did not repurchase any shares in the quarter, but plan to opportunistically Purchase shares using our free cash flow. Now let's turn to guidance. Our forecast assumes that our largest customers will continue to be a growth headwind. We are seeing encouraging signs of stabilization, but not recovery. Our forecast calls for these customers to more closely align their consumption With their annual contract value.

Speaker 4

For the Q3, we expect product revenues between $670,000,000 $675,000,000 representing year over year growth between 28% and 29%. Turning to margins, we expect on a non GAAP basis 4% operating margin and we expect 364,000,000 diluted weighted average shares outstanding. For the full year fiscal 20 24, we expect product revenues of approximately $2,600,000,000 representing year over year growth of approximately 34%. Turning to profitability for the full year fiscal 2024, we expect on a non GAAP basis approximately 76% product gross margin, 5% operating margin and 26% adjusted free cash flow margin and we expect 3 62,000,000 diluted weighted average shares outstanding. We will continue to prioritize hiring in product and engineering.

Speaker 4

We still expect to add approximately 1,000 employees in fiscal 2024 inclusive of M and A. With that operator, you can now open up the line for questions.

Operator

Absolutely. We will now begin the question and answer Remember to pick up your handset before asking your question. The first question will be from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Speaker 5

Excellent. Thank you for taking the question guys. Mike, I wanted to dig into the comment about kind of a large customer activity. You talked to us about sort of consumption coming more in line with their committed contracts. Can you give us any visibility what's happening on the Because as you go through these big contract renewals, are you seeing any change in their behavior of what the large customers are willing to commit to?

Speaker 5

And any impacts that we should be thinking about on how that's going to impact bookings and sort of RPO on a go forward basis?

Speaker 4

Yes. No, we're seeing customers renew. This quarter was a good renewal quarter. We had our largest customer. They renewed under their existing terms.

Speaker 4

They did $100,000,000 3 year renewal, even though their revenue run rate is at a higher amount than that. I think we did $9,000,000 or $10,000,000 $10,000,000 plus TCV deals this quarter and most of those were renewals. And so customers are doing that, but remember that doesn't necessarily equate to a consumption and we do know Some of our largest customers are trying to consume at their contract rate rather than going above that.

Speaker 5

Got it. So the dynamic is really on consumption, it is not on contracting as of yet?

Speaker 4

No, it's on consumption. As I said, the contracting Actually feel that the sentiment really seemed to change in July with customers really reengaging with us. And so, and I think we'll have good bookings, but that doesn't equate to consumption. It takes time for the consumption To come in.

Speaker 5

Got it. Got it. And if I can sneak one in for Frank as well. You talked about, you need a good data strategy to have a good AI strategy and that's something we hear a lot when we're talking to Customers and people out there in the field, so that really resonates. When it comes to kind of go to market and sort of the selling motion, does Having to have the Gen AI conversation while a long term positive, does that disrupt the sort of typical kind of Data cloud discussion that you guys have been having for the past like 5 years with these customers, does it risk or has it been elongating the sales cycles in any real way?

Speaker 3

No, I wouldn't say so. Keith, we were actually saying that having highly organized optimized Trusted sanction data is incredibly important for deploying large language models. If you think you can just drop a model on top of a data lake and just see what happens. That's not going to end well And that's what people are realizing. So they really got to get super serious about their foundations Before we if you don't have a good foundation, there's not much you can build on top of that.

Speaker 3

There's tons of governance issues involved as well. We spent literally decades as an industry making data highly governed. In other words, who can have access to what. So that now needs to translate into the world of large language models as well. So there's tons of questions that are coming up That are really important for the enablement of language models and AI generally.

Speaker 3

So being extremely organized on your data It's going to become a premium thing. And we're obviously that's we've been on that, but it's become more important as a function of this.

Speaker 5

Got it. Yes, it definitely resonates with the conversation we're having as well. So thank you very much for the time guys.

Operator

Thank you. The next question will be from the line of Mark Murphy with JPMorgan. Your line is now open.

Speaker 6

Thank you very much. Frank, I'm wondering if you can speak to the expanded Microsoft relationship. I believe you referred to it as nearly a doubling of the commitment. And I'm wondering if you're optimistic on seeing that alignment in the field coming together and perhaps unlocking Some new opportunities relating to Azure or even some of the OpenAI workloads that you wouldn't have seen previously. Then I have a quick follow-up.

Speaker 3

Yes. Look, the bottom line of working with the cloud vendors is not what gets set at the top levels, Good intentions. What matters is what are the incentives when you get 14 layers down at street level, how do you get people get paid? That determines whether they are either going to fight you and double and triple down on that or they're going to partner with you. And we see models where we've worked out really, really well, of course, with AWS.

Speaker 3

But with Microsoft, we were not in the place that we wanted to be at street level in terms of the incentives. So we really took this opportunity when we were renegotiating our Our relationship with Microsoft to say, hey, we have to tackle this, right? And Microsoft very much wanted to be a bigger percentage Of our business because they're not punching at their weight at all. They're not as big a percentage of our business as they should be based on our market share And they want to be, and this is the way to do it. It's really you need to bring alignment to the field organizations, then you're going to get partnerships, And then you're going to get joint selling, and then you're going to get your fair share.

Speaker 6

Okay. Thank you for that. And Mike, as a follow-up, in Q2, did you observe any customers adjusting their indexing or reducing data retention timelines? It Looks like the quarter went well overall. But I'm curious if you sense any more or less of that optimization activity heading into the second half here.

Speaker 4

In terms of customers changing their retention policy, we really didn't notice any of that. If anything, we saw growth in the amount of storage in the quarter. And I just want to call it, that was really one large customer that changed their retention from 5 to 3 years. That was pretty unusual. And in terms of optimizations, we continually work with customers on their own optimizations, but we're continuing to optimize Our software as well too because we are really dedicated to delivering price performance for our customers.

Speaker 4

And I want to stress, We've been talking about optimizations with investors since we went public. These will always continue optimizations whether it's Customer or us doing the optimizations because when history has shown when we improve price performance more workloads come to us.

Speaker 6

Thank you very much.

Operator

Thank you. The next question will be from the line of Kirk Materne with Evercore ISI. Your line is now open.

Speaker 2

Yes, thanks very much. Mike, I was wondering if you could just talk a little bit more about the comment you're seeing stabilization in consumption, but not recovery. I'm just kind of curious, when you say that, is that the pressure from the top down on practitioners starting to ease a little bit and Yes. They're starting to feel better about what they can consume. And they're just waiting for budgets to kind of get refreshed to sort of get going on the recovery side.

Speaker 2

I'm just kind of curious if it's sort of the top down easing or it's more that they're taking a little while to sort of ramp back up on projects that perhaps they Yes, slowed down 6 months ago, 3 months ago.

Speaker 4

I actually think it's both, but I definitely think the fact that we Kind of saw customers more reengaging with us in July on contracts and that continues into this quarter. I think it is easing a little bit at the top level In terms of approvals for customers and they're willing to commit, but it takes time to convert that to consumption. With that said, Consumption is good. It was really good today as an example, but it's only one data point. It's we want to see more days of that before We think the we're into a real recovery.

Speaker 4

I think stabilization is the right term. We're not seeing Customers reduce their consumption right now.

Speaker 2

Okay. And then Frank, just as you spoke to a lot of executives at Summit, Do they recognize the fact that the road to AI does require perhaps a heavier level of investment than they were thinking 12 months ago? How do you think that factors into sort of their thinking on budgets as we go into 2024? Thanks.

Speaker 3

The reality is they don't really know yet in any real definitive terms what this is going to take. I mean, I A lot of people, I think this is correct. They have characterized their foray into language models as experimental, Exploratory and sort of trying to get their arms around, how big a breadth box is this. So it's going to take a while before we get a real read on what the level Of investment is that people are going to stomach to do this. I mean, one of the challenges, one of the great things about Search historically has been that Search also had a very Business model that go with it to pay for it and we cannot sort of unleash AI and have no business model to pay for it.

Speaker 3

People will get tired of that really, really quick. So these are these GPUs from NVIDIA, they aren't cheap, as powerful as they are. So we all have to bring that into alignment And into focus and have a sensible go forward strategy. So a lot of the use cases will focus on what are we getting for this, Right. This is not just fun and games and planning your next trip to Yellowstone.

Speaker 3

I mean, people are going to be asking very, very hard hitting questions. What is this doing for us?

Speaker 5

Thank you.

Operator

Thank you. The next question will be from the line of Raimo Lenschow with Barclays. Your line is now open.

Speaker 7

Thank you. Great to see the stabilization as well from my end. Congrats there. Frank, one for you, Mor. As you as we all realize that data is kind of the new fuel, we do see More of interesting like, oh, no, I have the data, I have the data, which kind of in a way like kind of puts them on a slightly different course than it used to be Compared to your partnership, how do you see that competitive landscape evolving for you since you in theory are the natural Kind of holding source for data that is used in AI.

Speaker 7

How do you see this playing out for you guys? Thank you.

Speaker 3

Well, we see it play out really well. I think we agree with you. I mean, we think that data is becoming infinitely valuable And that's for all kinds of reasons because we can no longer run enterprises and institutions based on what we call anecdotal observation because The world is too dynamic, too disruptive, and we have this massive disintermediation happening. We no longer Have all these intermediaries between us and the end customer. You can only run direct to consumer businesses with data.

Speaker 3

I mean, you see that, for example, in insurance like auto industry, companies like GEICO and Progressive and Liberty Mutual. I mean, you can only run these businesses On top of data, telemetry data being really important, and we think every business, every institution is going to develop a complete and total dependency, not just on data, The ability to harness that data. So this is a full on transformation really of how industry And institutions have operated and we're at the leading edge of it, but we're also very much at the beginning of it.

Speaker 7

Okay. Thank you.

Operator

Thank you. The next question will be from the line of Karl Keirstead with UBS. Your line is now open.

Speaker 8

Thank you. So Mike, just one maybe 2 quickies. You mentioned there was a one time credit from one of the CSPs. Are you able to Define how material that was, it sounds like it might have certainly hit gross margins, but just wanted to clarify.

Speaker 4

That was about $4,000,000 that hit in the quarter.

Speaker 8

Okay, got it. Thanks for that. And then maybe just a follow-up, Mike, what I'm hearing you describe is an effort you mentioned certainly your largest customer, but perhaps others Taking their usage a little bit closer to their ACV. So one would think that that would result in a decent amount of headwind, yet your guidance for the Q3, And my judgment anyway is relatively solid. So what's the offset?

Speaker 8

What customer segment might be ramping nicely to Offset to some extent the headwinds from your large customers. Thanks so much.

Speaker 4

Well, we're now at 639 Global 2,000 that are only consuming on average on a trailing 12 months at around $1,500,000 $1,600,000 a lot of those are still Doing our migrations and we don't see that stopping. It's the larger customers. They just are not forecast to grow as quickly. They're still growing, But at a slower pace. Now that could get once again, this is a consumption model that could turn around tomorrow.

Speaker 8

Yes, I get it. Okay. Thank you, Mike.

Operator

Thank you. The next question will be from the line of Kash Rangan with Goldman Sachs. Your line is now open.

Speaker 9

Thank you so much, Frank. I think your fireside chat with Jensen was absolutely illuminating. He was looking at the opportunity set with Structured data in the Snowflake ecosystem and almost salivating, and yet you seemed a little moderated and that you need to have a business case. So When are we likely to reach the point where generative AI coupled with Snowpark could really lead to A tangible increase in consumption outside of the core data cloud business. And one for you, Mike.

Speaker 9

If we were to read your comments, 3 months of stability, 4 months of stability, it looks like including August, does that mean that net expansion rates reach a bottom and could Potentially start to stabilize and rebound as we head into the later part of the year. Thank you so much.

Speaker 3

This is Frank Cash. In the really short term, I'm really talking days, weeks months here, where you're going to see Language model begin to immediately impact the business is that SQL generation, I mean, in other words, the analyst job is going to be up leveled so much. I mean, people are going to be able to Drive queries into the data much better, much faster with far less skill requirement than they ever have before and We're showing that off every day. So I mean these days you don't even have to be literate in order to be able to have Interactions with your data. So that really is an expansion vector that is just enormously and it's very close to home because it's really how you use Data and how you use a platform like Snowflake.

Speaker 3

The other area where you're going to see drivers of workload is that People get to search for data related to what their general angle of inquiry is in a much more effective manner Then I have been able before and this is also where it's very important that you can search beyond enterprise boundaries because the context of data No, he's not limited by your enterprise boundaries. We can go on and on and on about use cases. There is a million of them. If you get further You start asking really, really hard questions that in prior periods, prior eras, we really needed to launch whole analyst teams to go Research and investigate topics where now the data will be able or the systems will be able to generate queries and the type of data We'll immediately very, very quickly begin to generate insights. And that's by the way, that's going to become the leading edge for structured proprietary data, which is The center of our universe.

Speaker 4

And on your question on net revenue retention, I just want to remind you, I'm not going to guide to net revenue retention. But I do think over time it is going to continue to converge closer to our growth rate. I do think it will Stabilize, but I do expect it's going to come down slightly from where it's at right now, just in what we're seeing today.

Operator

Thank you. The next question will be from the line of Brad Zelnick with Deutsche Bank. Your line is now open.

Speaker 10

Great. Thank you so much. I've got one for Frank and one for Mike. Frank, stable edges continue to tick up, which is great to see and I know it's an important metric For the company and its strategic vision, anything else perhaps qualitative that you can share in terms of how data sharing is progressing? And for you, Mike, Great to see the margin upside.

Speaker 10

Everybody's happy about it. But with such a huge opportunity, how can you be sure you're striking the right balance of investment, Especially when you're up against such well capitalized competitors. Thanks, guys.

Speaker 3

On the topic of data sharing, We instrument that whole side of the business very, very carefully and we drive it on a But sometimes, data edges are very enterprise specific. In other words, they do just have things, the use cases That just pertain to their business, and it's these are bilateral relationships between Snowflake accounts and different institutions. But what gets really interesting, where you get real network Kicking in is when you have industries or sub industries where data sharing just makes sense. And obviously, financial institutions, Financial institutions inherently have been pumping data around massive, massive volumes literally for generations. This is an absolute no brainer and we do the vast majority historically data actually have been in the financial services Sectors become almost a standard.

Speaker 3

This is how we move data from A to B to C. Asset Management particularly has a really big need for that. But the other area and again this is an industry in supply chain management. In the supply chain there are multiple entities to the degree that they all have Snowflake accounts. It's very easy to get visibility in the supply chain across entities and being able to flag supply chain events Much earlier and get visibility to that.

Speaker 3

So once you're in the supply chain, the need to be on Snowflake and share data with your supply chain partners It's going to become very, very compelling. And we announced at Summit and even earlier our relationship With Blue Yonder, for example, it's really the largest software company in the world of supply chain management, but they are replatforming on Snowflake. So we think that's another Sure, industryindustry, where every manufacturer, every retailer, it's going to become an opportunity there for us.

Speaker 9

So just a little bit

Speaker 3

of color on how these things develop from our perspective.

Speaker 4

On your question on investments in the Brad, given the opportunity, we are investing as fast as we think we need to invest. You did see I guided margins to 4% for operating margin where we just did 5% this quarter. That's because we're investing as an example. We have 1,000 H100 GPUs reserved. That's an extra $1,000,000 a month as we're working on AI.

Speaker 4

I'm not getting requests that people need more headcount in the engineering organization, the sales and marketing until we see an increase in productivity. We're going to be very methodical about how we All about how we add resources into those areas. So we're definitely not under investing in the business. I'm not getting the feedback from any of the executive team with regards to that.

Speaker 10

Thanks for the additional color.

Operator

Thank you. Your next question will be from the line of Tyler Radke with Citi. Your line is now open.

Speaker 5

Yes. Thanks for taking the question. First question just on the commentary around some of the projects, you're starting to see better momentum there, particularly in July. I was wondering if you could just comment on the nature of those projects. Are they larger deals than you typically see or maybe they include More generative AI or data science given all the new products that you released, if you could just kind of contrast The pickup and kind of where that's coming from?

Speaker 4

You want to go ahead.

Speaker 3

You shouldn't equate projects with deals, okay, because there's tons and tons of projects Probably related to use cases and workloads and applications. We said in the prepared remarks is We've really seen a sort of a sentiment change from the early quarters where people were sort of trying to cut out their limbs to fit within budgetary Constrained and all this kind of stuff and where do and that's where you see our NaturalX to save money. That has really I did considerably, and the conversation has really gone back to where it historically has been as we want to do these applications, these workloads, these migrations. And of course, we're pushing the boundaries on the much more sophisticated use cases in machine learning. And obviously, people want to understand How do I deploy large language models on a Snowflake platform?

Speaker 3

And we have outlined that in excruciating detail and demonstrated, Showcase how we are doing that and we're super excited about how that's unfolding for us and our customers.

Speaker 5

Great. And then follow-up just in terms of the Snowpark revenue, any update on kind of where you're expecting that So track as you exit this year and then these related services, whether it's the native app store or container services, would that all fall under Snowpark, theoretically when that goes GA next year. Thank you.

Speaker 4

In terms of Snowpark, as we said, we're Frank talked about seeing 70% growth in Snowpark consumption. Still relatively small, but meaningful. We have a number of customers that are in the process of doing their migrations, a few quite large ones. I do think next year it will be more meaningful to Revenue, but on $2,600,000,000 in revenue, it's a couple percent of our revenue this year.

Speaker 3

Once container services, Yes, it will be on prime time and that is part of Snowpark. Obviously, that means any workload that comes for our game to be deployed On Snowflake, this is obviously running close to the data inside our governance perimeter. It's Virtually virtualization for the cloud. So we think there is enormous upside for us once those services become generally available Across all the cloud platforms,

Speaker 4

which will be next year.

Speaker 11

Thank you.

Operator

Thank you. The next question will be from the line of Brent Thill with Jefferies. Your line is now open.

Speaker 5

Mike, you mentioned at the Analyst Day you were idling back quota carrying sales capacity on the new hire front. Have you Do you mean any different to lean back into hiring quota reps in 2023?

Speaker 4

It really depends On the territory and the opportunity, there are some territories where kind of regions we're shrinking where it's overcapacity and we're We're shifting those heads to other more productive territories as we're I'm not planning on adding Net, a lot of new ones for the balance of this year, but as we're starting to plan for next year, there are there is Additional headcount going into the quota carrying rep area.

Speaker 5

Great. And for Frank, on the vertical side, are any verticals that are showing more excitement that perhaps weren't online that We're firing up. Are you seeing anything change here?

Speaker 3

Actually, yes, that's a great question because We had massive outperformance by our healthcare vertical this quarter, and healthcare usually runs 4th or 5th in the lineup of verticals and Really excited about it feels like that Healthcare is really getting a move on, if you will. They have not Traditionally been an aggressive adopter of technology, but in the world of data, They are moving. They are moving hard, and you see it on the provider side, you see it on the payer side, you see it on the pharma side. So I think that's Going to become a great contributing segment for us.

Speaker 4

Yes. Healthcare and Life Sciences grew 61% year over year in revenue for us.

Speaker 12

Thanks for the color.

Speaker 4

Very good too.

Operator

Thank you. The next question will be from the line of Michael Turrin with Wells Fargo. Your line is now open.

Speaker 5

Hey, great. Thanks. I appreciate you taking the questions. I

Speaker 13

think one

Speaker 5

of the comments mentioned new bookings outperformed expectations. Appreciate you're still seeing room for improvement, but anything you can add around what drove the improvement versus last quarter? It sounded like healthcare from the prior commentary, but wondering If some of that are certain product releases maybe also contributed there.

Speaker 4

Yes, hard to say whether it was I don't think it was Product release, I would say we saw some nice renewals from customers with growth. We also saw Two very large Cap Ones, one large one in Europe, which was a Cap One is an initial deal, it was a $22,000,000 TCV deal in an insurance industry. And we saw a large gaming company in Korea commit to $9,500,000 as a Cap One. So Clearly, our message is getting across to these customers and they see what we're doing and a lot of these want to do more in The area of AI, but first they need to get their data into Snowflake and it's going to be a journey for these people. It's not going to happen overnight AI for our customers.

Speaker 5

Like and appreciate those large deal stats. Maybe just quickly on the back half, If you can just help level set what's embedded in the rest of your outlook. We've seen multiple comments around stabilization. Is that Fairly consistent with what informs the outlook and maybe just any refresh on second half seasonality as expected. Thank you.

Speaker 4

Well, Q4 is usually one of our largest bookings quarter and it's shaping up, but that's not necessarily consumption. And, but the sentiment within our sales team has definitely shifted from where it was in the first half of the year.

Speaker 13

Thank you.

Operator

Thank you. The next question will be from the line of Patrick Colville with Scotiabank. Your line is now open.

Speaker 14

All right. Thank you so much for taking my question. Just I want to double click on your comments. I think you said customers are reengaging in July. You said that in the prepared remarks.

Speaker 14

I mean, I guess, what do you mean by that? Is that new customers, Existing customers, consumption, contract negotiations and then any color you can give us on thus far in August would be helpful.

Speaker 4

All three of the above. We have new customers. I just pointed out those 2 large cap ones. We usually don't do cap ones that big. And it was a very good quarter with some large new customers.

Speaker 4

We're seeing our existing customers. We saw some nice early renewals with customers where they were consuming faster and We're seeing customers willing to do larger deals rather than just do a co term to bridge them through to Another period. So that's what I mean by the sentiment is changing with our customers.

Speaker 14

All right. I guess my follow-up is NVIDIA reported results tonight. I think looking at The numbers, I think that data center revenue rose 150% sequentially. But clearly, like AI spend is hitting the silicon layer. I A question I get from investors is when will AI spend more clearly hit the software layer?

Speaker 14

I mean, do you

Speaker 12

have any thoughts on that?

Speaker 4

I think it's going to be next year. As I said, it's going to take some time for AI. And people are still struggling to get GPUs and there is a time lag between when a chip manufacturer sells their chips to it gets built into the Hardware that actually gets deployed in a rack in a data center and it gets deployed to customers.

Speaker 3

I think you will see the leading edge of it happening in months to come with a material impact. I think Most analysts out there are seeing those 2024 thing and we tend to agree with that.

Speaker 4

And I would say in my prior life when we were buying Racks of servers, there's a 6 month delay between when we bought them and when they were actually going into production. And I don't see that any difference with GPUs.

Operator

Thank you. The next question will be from the line of Alex Zukin with Wolfe Research. Your line is now open.

Speaker 12

Hey guys, this is Ethan Bruck on for Alex Yuchen. I just had a quick kind of numbers question. So if we calculate the product revenue CRPO booking growth, it decelerated to 13% from about 30% last quarter. So just curious, how should we think about this as an indicator of future consumption for future product growth?

Speaker 4

So I guided full year revenue at 2,600,000,000 And we'll guide next year, next year.

Speaker 12

Okay. And then I guess to ask the August trends question in a different way. I guess, has some of the stability you called out trended into August kind of the 1st month of the quarter? And then just on the seasonality, is

Speaker 5

there any kind of month to note as

Speaker 12

we think about the rest of the year that seems that either seasonally short on seasonally weak?

Speaker 4

Well, as I said, August is shaping up very good. I called out yesterday was actually very good consumption, but one day doesn't make a trend. Q4 is definitely seasonality with the holidays with Thanksgiving in the U. S. And the Christmas holidays that does impact daily consumption.

Speaker 4

From a bookings perspective, Q4 though is clearly our largest bookings.

Speaker 6

Got it.

Speaker 12

Got it. Makes sense. Okay. Thank you and congrats on the quarter.

Operator

Thank you. The next question will be from the line of Brent Bracelin One with Piper Sandler. Your line is now open.

Speaker 15

Thank you. I wanted to go back to the discussion around The increase we're seeing in model training capacity, clearly, 1,000,000,000 of incremental dollars going into NVIDIA GPUs You need data to train the models. I appreciate there's going to be a lag relative to when the spend hits the data layer. But are there any Technical hurdles that need to be overcome or do you think this cycle is different and that there are other considerations as well? Just thinking through The investment we're seeing right now in infrastructure and thinking through what are the other factors we need to think about before it starts to impact the data layer?

Speaker 15

Thanks.

Speaker 3

I'll start and maybe Christian can follow and think about your question while I'm talking. You can't characterize this AI as one thing, right? Because you see the things that people are doing with unstructured True data, whole notion of copilots and the systems and tutors and all of that, it's very much focused on contextual data. And we see action with support call records, contact centers and so on. Again, you look at Snowflake, who sits on mountains of structured proprietary enterprise data, No, that's a different realm for AI than the very text model oriented Type of inquiry.

Speaker 3

And I have to say that this is from all my conversation With customers, I mean, people

Speaker 5

are behind, I would say,

Speaker 3

the textual side of the house with proprietary data, how they're going to approach that. We view that as our business and we're driving that very hard and hence the emphasis on getting your data obviously in order Because you just cannot unleash large language model and hope for the best because of all the issues that we've mentioned before around governance And just understanding of what kind of data we are generating in the process. That's why I said The early going, you're going to see a lot of upside from Ignite that analysts are going to be able to generate data Far quicker, far better than they ever have been before and we're really massively reducing the skill sophistication requirements To be able to do that, that in and of itself is going to be a big driver for us.

Speaker 11

Yes. So Christian here, I would add maybe 2 areas in addition to what Frank mentioned. The first one is around Having the right data to be fed into these models, Frank started the call with no AI strategy without data strategy. And it is very interesting that the results of Traditional ML or Gen AI is a function of having the right data, the right data quality, the right metrics. The technology We'll be as good as the data that is fed into all of the investments that we make on data quality and cleansing And pipelines, all of that is very important.

Speaker 11

The other piece that I think will be a technical imperative for everyone doing AI and Gen AI It's around the measurement and feedback. How good are the solutions? How do I know if there are potential bias into the data or there are gaps in the understanding of performance of the model? Those 2 are inherent parts of the life cycle and interestingly now they all run through having a great data foundation enabled service.

Speaker 15

Helpful color. And then lastly for Mike on consumption, one follow-up. The implied Q4 product growth is, I think 26% at the midpoint. I know there's a delta between signing growth and consumption. Exiting this year, do you think Product growth stabilizes in the mid-twenty percent range, maybe starts to reaccelerate next year or is it just too early to tell?

Speaker 4

Let us finish Q3 and then we'll guide to Q4 and I'll see how next year is looking, but I do anticipate There's a lot of new things coming out next year that we think are going to have a very positive impact on our consumption from Remember, we have Streamlit goes into GA, Unistore towards the end of this year, our public preview. We have containerized services next year. There's a number of things that are happening that are all going to have a positive Impact on our revenue growth rate next year. So stay tuned for that.

Speaker 15

Helpful color. Thanks.

Operator

Thank you. The next question will be from the line of Brad Reback with Stifel. Your line is now open.

Speaker 2

Great. Thanks very much. Gentlemen, you've talked about changing sentiment a couple of times during the call. How much of that is Your sales team being better able to engage with the customers selling value, just Looking at the problem from a different perspective given the macro trends versus customers just feeling better about their businesses And the macro unleashing the demand. Thanks.

Speaker 3

This is Frank. Look, it's not the sales team. There's really a change in how customers engage a couple of quarters ago. And like I said earlier, people were doing unnatural acts To force that themselves into a spending envelope and they were doing it almost regardless of consequence Yes, fixation on that reset. We obviously felt that.

Speaker 3

The change in sentiment is that That has passed. We are now sort of okay, we're comfortable with the path that we're on. Now we're talking again about projects Migrations and use cases. We're trying to basically get a grip on deploying large language models. What do we have to do with the data, with the infrastructure, Answering governance questions and so on.

Speaker 3

So in other words, the sentiment is very constructive and engaging on core data strategy. That's a bit changed from where we were a couple of quarters ago. Obviously, the salespeople are perceiving that as very positive. That's where you want to be.

Speaker 2

That's great. Thanks very much.

Operator

Thank you. The next question will be from the line of Derrick Wood with TD Cowen. Your line is now open.

Speaker 13

Thanks. Mike, this was the strongest sequential growth quarter you've had in 3 quarters. I think you were at 6% and 6% and this was 8.5%. Your guidance for Q3 is kind of 5.5% sequential. I'm sure there's some level of conservatism in there.

Speaker 13

But Just in terms of the Q2, are there any kind of one time consumption dynamics to call out? Or does that just really kind of Inform us that the optimization headwinds that you saw in Q4 and Q1 kind of dissipated in Q2.

Speaker 4

Yes. Q2 has more days in it. Remember, our consumption model was actually a 5% quarter over quarter. Working days adjusted was the growth rate and actually Q3 it goes up when you look at the working days in Q3. I'm running consumption model where really kind of 70% is the scheduled work.

Speaker 4

There is a big piece that is tied to workdays That does have an impact. So there is growth next quarter in that guide on a days adjusted basis, working days.

Speaker 13

Okay. Frank or Christian, I just I'm just hoping to double click on the new container services. It seems like it enables you to deploy different types of third party engines, apps, code bases directly in the platform. You can streamline a lot more workflows, which I think when it comes to building AI model seems pretty interesting. So I'm just curious, what are you most Excited about in terms of this new capability and opening up new consumption, especially when it comes to AI.

Speaker 3

Yes. You know, container services was an absolute hit star performer at our Snowflake Summit Conference, I mean customers were just mesmerized by the possibilities that a platform Capability has because we have essentially eliminated any limitation on deployment on Snowflake. And Why do you care? I mean, the thing is, first of all, you want to deploy close to the data for all the reasons that we talk about. This enabled us.

Speaker 3

You get a fully trusted sanction platform where you can deploy applications without Any further questions? I mean, one of the challenges that you have in cloud computing is, who's managing this, right? I mean, what is the safe space to Into and who is really guaranteeing the high trust enterprise grade capabilities of that platform. So we are bringing that in those. So we're going to see a lot of services.

Speaker 3

A lot of them could be on premise legacy Engines that are going to be containerized and reserviced as a cloud service, right. So a lot of things that were old will be new again. So it's virtualization for the cloud and having secure, safe, High performance, very, very efficient spaces to run services and applications in. So the Guys, the limit on this capability and we and our customers and our partners could not be more excited about The potentials and the possibilities here, but specific to AI, this matters a whole lot because the containers Our vehicle, our vessel, if you will, to deploy large language models, there's no limit on which models and how many models and For which segments of the business we can deploy and we can shift gears very, very quickly and we have incredible In terms of deploying these capabilities, because you're going to see a lot of change and a lot of movement. We've already seen an enormous amount that's going to continue.

Speaker 3

So we're Very, very well positioned architecturally platform wise to enable the AI revolution with container services.

Speaker 13

Awesome. Thank you.

Operator

Thank you. And the final question will be from the line of Sterling Auty with MoffettNathanson. Your line is now open.

Speaker 16

Yes, thanks. Hi guys. Just one question from my side. You mentioned sales productivity a couple of times. I'm curious, how would you grade your Sales execution in the quarter and are there any specific changes that you're making to further optimize given the environment for the back half?

Speaker 4

I think in general, our execution in Q2 on the sales side was actually quite good. It improves, but there's still pockets though where there is room for improvement when you look in certain Territories or EOs, we have a new leader in EMEA. EMEA, Certain markets in EMEA are doing good. Others, there's a lot of room for improvement. We have a new leader in EMEA.

Speaker 4

There's certain pockets in Asia that are doing good, But there's others that have a lot of room for improvement. So, but in general overall, as I talked about, you can see through our bookings, it was a good execution From bookings perspective in the aggregate last quarter.

Speaker 16

Understood. Thank you.

Operator

Thank you. That will conclude today's Q and A session and today's conference call. Thank you all for your participation and you may now disconnect your lines.

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