Snowflake Inc. Form 10-Q Summary
Business Context and Reporting Period
Snowflake provides a cloud-based, consumption-based data platform and Data Cloud across AWS, Microsoft Azure, and Google Cloud Platform. This unaudited Form 10-Q covers the three and nine months ended October 31, 2022, within fiscal 2023. Snowflake had 7,292 customers at period-end, including 543 Forbes Global 2000 customers, and operated as a single reportable segment.
Financial Performance and Position
| Metric | Three Months Ended October 31, 2022 | Year-over-Year Change | Nine Months Ended October 31, 2022 | Year-over-Year Change |
|---|---|---|---|---|
| Revenue | $557.0 million | 67% | $1.477 billion | 77% |
| Product revenue | $522.8 million | 67% | $1.383 billion | 77% |
| Gross profit | $366.3 million | 71% | $964.8 million | 89% |
| Gross margin | 66% | Up from 64% | 65% | Up from 61% |
| Operating loss | $206.0 million | Widened from $157.3 million | $602.5 million | Widened from $563.0 million |
| Net loss attributable to Snowflake | $200.9 million | Widened from $154.9 million | $589.5 million | Widened from $547.8 million |
| Net loss per share | $0.63 | Loss widened from $0.51 | $1.86 | Loss widened from $1.84 |
Product gross margin was 72% in both the quarter and year-to-date period, compared with 70% and 69%, respectively, in the prior-year periods. Total operating expenses were $572.3 million in the quarter and $1.567 billion year to date. Stock-based compensation was $229.2 million in the quarter and $610.8 million year to date, representing approximately 41% of revenue in both periods. Unrecognized compensation cost for unvested awards was $2.5 billion as of October 31, 2022.
Net cash provided by operating activities was $79.3 million in the quarter and $328.3 million year to date, compared with $15.5 million and $31.3 million, respectively, in the prior-year periods. Reported free cash flow, a non-GAAP measure, was $65.0 million in the quarter and $172.4 million year to date. Cash flow benefited materially from non-cash stock compensation and customer collections.
At October 31, 2022, Snowflake held $819.0 million of cash and cash equivalents, $3.124 billion of short-term investments, and $943.1 million of long-term investments. Cash, cash equivalents, and investments totaled approximately $4.9 billion. Current liabilities were $1.479 billion, including $1.200 billion of deferred revenue. The filing does not disclose outstanding debt; liabilities primarily comprise deferred revenue, operating lease liabilities, and operating obligations. Total assets were $7.156 billion and accumulated deficit was $2.509 billion.
Material Changes Versus the Prior Comparable Period
- Revenue increased 67% in the quarter and 77% year to date, driven primarily by greater consumption from existing customers.
- Net revenue retention declined to 165% from 172% at October 31, 2021 and 177% at January 31, 2022, but remained strong.
- Customers increased to 7,292 from 5,432 a year earlier and 5,966 at January 31, 2022. Customers with trailing 12-month product revenue above $1 million increased to 287 from 148 a year earlier.
- Remaining performance obligations increased to $3.0 billion from $1.804 billion at October 31, 2021. Management expects approximately 55% to be recognized as revenue in the twelve months ending October 31, 2023, although recognition depends on customer consumption.
- Gross margin improved, but operating and net losses increased as Snowflake continued to expand sales and marketing, research and development, and infrastructure capacity.
- Interest income increased to $21.9 million in the quarter and $38.3 million year to date because of higher investment yields.
- Other expense was $13.3 million in the quarter and $44.7 million year to date, primarily reflecting impairments and unrealized losses on strategic equity investments, compared with other income in the prior-year periods.
- Cash used in investing activities increased to $533.1 million year to date, including $352.6 million for business combinations. Financing cash flow changed to a $52.5 million use, primarily because of $135.8 million of taxes paid related to net share settlement of equity awards.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expects product gross margin to remain relatively flat for fiscal 2023 and expects continued growth in operating expenses, while stating that sales and marketing, research and development, and general and administrative expenses should decline as percentages of revenue over time.
- Management expects positive operating cash flow for fiscal 2023 and believes existing cash, investments, and operating cash flows will support working capital and capital expenditures for at least the next 12 months and beyond.
- Snowflake acquired Streamlit on March 31, 2022, for approximately $650.8 million, including $438.9 million of stock, and acquired Applica on September 23, 2022, for approximately $174.7 million in cash. These transactions increased goodwill and intangible assets and added amortization and stock-based compensation.
- On November 25, 2022, after quarter-end, Snowflake agreed to acquire another privately held company for approximately $75 million in cash, subject to customary adjustments and closing conditions.
- Management highlighted customer optimization of cloud spending, higher inflation and interest rates, capital-market volatility, foreign exchange movements, and potential reductions in cloud consumption as macroeconomic risks.
- Key operating risks include intense competition from AWS, Azure, GCP, and other data-platform providers; dependence on third-party public-cloud infrastructure; platform outages and cybersecurity incidents; variable customer consumption; sales execution and talent retention; international expansion; regulatory and data-privacy requirements; and acquisition integration.
- The company reported no material pending legal proceedings and stated that its disclosure controls and procedures were effective as of October 31, 2022.
Most Important Facts for Investors to Verify
- Whether consumption growth and revenue remain resilient as customers optimize cloud budgets and macroeconomic conditions evolve.
- Whether net revenue retention stabilizes or continues to decline from 165% and whether the $3.0 billion RPO converts at the expected pace.
- The sustainability of positive operating and free cash flow after considering substantial stock-based compensation and employee equity-tax payments.
- The path toward profitability given the $589.5 million year-to-date net loss, $2.5 billion accumulated deficit, and continued investment plans.
- The effect of Streamlit, Applica, and the announced subsequent acquisition on growth, integration costs, amortization, dilution, and future cash requirements.
- Exposure to public-cloud providers, strategic-investment volatility, cybersecurity and privacy obligations, and contractual commitments, including $16.8 million of collateralized letters of credit and a $68.0 million modified lease commitment.