Snowflake Inc. Form 10-Q Summary
Business context and reporting period
Snowflake provides a cloud-based, consumption-based data platform and Data Cloud for data storage, compute, transfer, sharing, analytics, and applications. The filing covers the three and nine months ended October 31, 2021, within fiscal 2022. The statements are unaudited and prepared under U.S. GAAP.
Snowflake operated across three public clouds and 28 regional deployments. Customers increased to 5,416 from 4,139 at January 31, 2021. Dollar-based net revenue retention was 173%, compared with 168% at January 31, 2021.
Key financial metrics
| Metric | Three months ended October 31, 2021 | Year-over-year change | Nine months ended October 31, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $334.4 million | 110% | $835.6 million | 108% |
| Product revenue | $312.5 million | 110% | $780.9 million | 108% |
| Gross profit | $213.7 million | 130% | $511.3 million | 111% |
| Gross margin | 64% | Up from 58% | 61% | Up from 60% |
| Operating loss | $157.3 million | Improved from $169.5 million | $563.0 million | Worsened from $343.5 million |
| Net loss | $154.9 million | Improved from $168.9 million | $547.8 million | Worsened from $340.2 million |
| Net loss per share | $0.51 | Improved from $1.01 | $1.84 | Improved from $3.63 |
Product gross margin was 70% for the quarter and 69% for the nine-month period, compared with 65% for both prior-year periods. Professional services remained loss-making, with gross margins of negative 30% for the quarter and negative 44% for the nine-month period.
Sales and marketing expense was $191.0 million for the quarter and $540.7 million for the nine months. Research and development expense was $115.9 million and $343.8 million, respectively. General and administrative expense was $64.1 million and $189.8 million, respectively.
Stock-based compensation was $144.4 million for the quarter and $459.4 million for the nine months, representing approximately 43% and 55% of revenue, respectively. Unrecognized compensation cost for unvested awards was $1.5 billion at October 31, 2021, expected to be recognized over a weighted-average period of 3.1 years.
Cash flow, liquidity, debt, and balance sheet
- Cash flow from operations was positive $31.3 million for the nine months, versus negative $65.0 million in the prior-year period.
- Investing cash flow was negative $57.0 million, primarily reflecting investment purchases and spending on property, equipment, intangible assets, and capitalized software.
- Financing cash flow was positive $142.7 million, mainly from stock-option exercises and the employee stock purchase plan.
- Cash, cash equivalents, and restricted cash totaled $952.2 million at October 31, 2021.
- Cash, cash equivalents, and short- and long-term investments totaled approximately $5.1 billion and were identified by management as the principal liquidity source.
- The balance sheet lists no borrowings or senior debt. Liabilities primarily consisted of $759.7 million of current deferred revenue, $7.1 million of non-current deferred revenue, and operating lease liabilities.
- Total assets were $6.2 billion, total liabilities were $1.2 billion, and stockholders’ equity was $5.0 billion at October 31, 2021.
Management believes existing liquidity will support working capital and capital expenditure requirements for at least the next 12 months. The company expects net cash used in operating activities for fiscal 2022 to decrease compared with fiscal 2021.
Material changes versus the prior comparable period
- Revenue grew 110% in the quarter and 108% for the nine months, driven primarily by increased consumption by existing customers, higher capacity sales prices, and increased sales of higher product editions.
- Customers with more than $1 million of trailing-12-month product revenue increased to 148 from 65 a year earlier; these customers generated approximately 53% of trailing-12-month product revenue.
- Gross margin improved, primarily due to cloud infrastructure volume discounts, consumption mix, higher product editions, and greater scale across regions.
- Operating expenses increased substantially as Snowflake expanded its workforce and invested in sales, marketing, research and development, professional services, and public-company infrastructure.
- Nine-month net loss increased to $547.8 million from $340.2 million, despite strong revenue growth, reflecting continued investment and higher stock-based compensation.
- Operating cash flow improved to positive $31.3 million from negative $65.0 million, helped by increased collections and a $124.0 million increase in deferred revenue.
- All outstanding Class B shares converted into Class A shares on March 1, 2021, eliminating the dual-class common-stock structure.
Outlook, commentary, risks, and unusual items
- Remaining performance obligations were $1.8 billion, with approximately 55% expected to be recognized as revenue during the twelve months ending October 31, 2022. Recognition remains dependent on customer consumption and may extend beyond contract terms.
- Management intends to continue significant investment in platform development, sales and marketing, international expansion, and professional services rather than optimize for near-term profitability or cash flow.
- Management expects product gross margin to improve for fiscal 2022, although consumption mix, discounting, competition, cloud infrastructure costs, and efficiency improvements could limit improvement.
- COVID-19 had not adversely affected reported results for the period, but it lengthened some sales cycles and delayed certain professional services and training activities. Future customer spending, collections, staffing, office costs, and operating expenses remain uncertain.
- In November 2021, investees completed orderly funding transactions. Snowflake expected to recognize approximately $20 million of non-cash gains on non-marketable equity securities in the quarter ending January 31, 2022, subject to further adjustments or impairment.
- Strategic investments totaled $124.7 million, up from $41.5 million at January 31, 2021, creating potential earnings volatility from market changes, remeasurements, and impairments.
- Key risks include continuing operating losses, consumption-based revenue variability, intense competition from AWS, Microsoft Azure, Google Cloud, and legacy vendors, reliance on public cloud providers, cybersecurity and availability incidents, data privacy regulation, international expansion, talent retention, and elevated stock-based compensation.
- The company had $17.0 million of cash-collateralized letters of credit, substantially for leased facilities. Management reported no material adverse legal proceedings and no material off-balance-sheet financing arrangements.
Important facts for investors to verify
- Whether customer consumption, net revenue retention, and large-customer expansion sustain the reported growth rates.
- The timing and durability of product gross-margin improvement, including the impact of cloud-provider pricing and usage efficiency.
- The path to profitability after considering ongoing operating investment and $1.5 billion of unrecognized stock-based compensation.
- Whether the $1.8 billion RPO and expected 55% near-term recognition translate into revenue at the anticipated timing, given consumption variability and rollover provisions.
- The composition, liquidity, and market sensitivity of the approximately $5.1 billion investment portfolio and $124.7 million strategic-investment balance.
- The effect of the expected approximately $20 million non-cash investment gain in the January 31, 2022 quarter and any subsequent valuation changes.
- Exposure to public-cloud concentration, service outages, cybersecurity incidents, data privacy requirements, and competitive actions by cloud providers.
- Additional public-company compliance costs when Snowflake ceases to qualify as an emerging growth company on January 31, 2022.