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 application development. The filing covers the fiscal quarter and six months ended July 31, 2021, compared with the periods ended July 31, 2020. Fiscal years end January 31. The financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Revenue | $272.2 million | $133.1 million | $501.1 million | $242.0 million |
| Product revenue | $254.6 million | $125.2 million | $468.5 million | $227.0 million |
| Gross profit | $166.1 million | $82.7 million | $297.6 million | $149.0 million |
| Gross margin | 61% | 62% | 59% | 62% |
| Operating loss | $200.1 million | $77.7 million | $405.7 million | $174.1 million |
| Net loss | $189.7 million | $77.6 million | $392.9 million | $171.3 million |
| Net loss per share | $0.64 | $1.31 | $1.33 | $3.01 |
| Net cash from operating activities | Not separately disclosed | Not separately disclosed | $15.7 million | $(45.3) million |
Product gross margin was 68% for the quarter and 67% for the six-month period, compared with 66% in both prior-year periods. Total gross margin declined because professional services and other revenue generated gross losses of $7.5 million in the quarter and $17.7 million for the six months, largely reflecting increased personnel costs and stock-based compensation.
Stock-based compensation was $170.9 million for the quarter and $328.2 million for the six months, compared with $18.4 million and $39.4 million, respectively, in the prior-year periods. Unrecognized compensation cost for unvested awards was $1.5 billion as of July 31, 2021, expected to be recognized over a weighted-average period of 3.1 years.
As of July 31, 2021, cash and cash equivalents were $698.5 million, short-term investments were $3.4 billion, and long-term investments were $956.0 million. Cash, cash equivalents, and investments totaled approximately $5.1 billion, excluding $16.8 million of restricted cash. The filing does not disclose outstanding debt borrowings; liabilities primarily included $708.9 million of deferred revenue and $194.9 million of operating lease liabilities.
Six-month investing cash outflow was $228.0 million, including net investment purchases, intangible asset purchases, property and equipment, and capitalized internal-use software. Financing cash inflow was $92.3 million, primarily from stock option exercises and the employee stock purchase plan. Management stated that available liquidity should support working capital and capital expenditures for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue increased 104% year over year for the quarter and 107% for the six months, driven primarily by higher customer consumption and increased capacity sales prices.
- Product revenue increased 103% for the quarter and 106% for the six months. Product revenue represented 94% and 93% of total revenue, respectively.
- Operating expenses rose substantially: sales and marketing increased 97% for the quarter and 84% for the six months; research and development increased 223% and 226%; and general and administrative increased 109% and 101%.
- Net losses increased in absolute dollars, although reported net loss per share improved because weighted-average shares increased significantly following the 2020 IPO and subsequent equity activity.
- Operating cash flow improved from an outflow of $45.3 million to an inflow of $15.7 million for the six months, primarily due to higher customer collections, deferred revenue, and substantial non-cash stock-based compensation.
- Customers increased to 4,990 from 4,139 at January 31, 2021 and 3,117 a year earlier. Net revenue retention increased to 169% from 168% at January 31, 2021 and 158% a year earlier.
- Remaining performance obligations increased to $1.5 billion from $688.2 million a year earlier; approximately 56% was expected to be recognized as revenue in the following twelve months based on historical consumption patterns.
- On March 1, 2021, all outstanding Class B shares converted into Class A shares, eliminating the dual-class common-stock structure and the former ten-votes-per-share Class B voting feature.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide a clear quantitative revenue or earnings forecast. Management expects to continue investing heavily in sales, marketing, research and development, infrastructure, international expansion, and professional services rather than optimize for near-term profitability or cash flow.
- Management expects product gross margin for fiscal 2022 to improve from fiscal 2021 levels and expects net cash used in operating activities to decrease for fiscal 2022. Improvement may be affected by customer consumption mix, discounting, cloud infrastructure pricing, and continued investment.
- The consumption-based model creates limited visibility into the timing of revenue recognition. Customers may consume capacity faster or slower than expected, roll over unused capacity, or purchase additional capacity, causing revenue and margin volatility.
- COVID-19 did not adversely affect reported results for the quarter or six months, but management noted longer sales cycles, delays in professional services and training, remote-work effects, uncertainty regarding office reopening, and potential future customer spending reductions or collection problems.
- Strategic investments in privately held equity securities increased to $92.0 million from $41.0 million at January 31, 2021. The company recorded $8.1 million of unrealized gains from observable price adjustments during the six months, which increased other income.
- Key risks include intense competition from AWS, Microsoft Azure, Google Cloud Platform, and legacy data vendors; dependence on third-party public cloud infrastructure; security breaches and service outages; customer concentration and consumption volatility; recruiting and retention; international expansion; data privacy and regulatory compliance; stock-based compensation and dilution; and continuing operating losses.
- One customer represented 14% of accounts receivable at July 31, 2021, but no customer represented at least 10% of revenue in the periods presented. No current legal proceedings were expected to have a material adverse effect.
- Snowflake remained an emerging growth company during the period but expects to cease that status on January 31, 2022, which may increase reporting, accounting, audit, and compliance costs.
Most important facts for investors to verify
- Whether consumption growth, 169% net revenue retention, customer additions, and RPO conversion continue at comparable rates.
- Whether product gross margin improves while professional services scale and third-party cloud costs increase.
- The effect of $1.5 billion of unrecognized stock-based compensation on future expenses, dilution, and non-GAAP performance measures.
- Whether the company can reduce operating cash usage while continuing aggressive investment and remains cash-flow positive over a sustained period.
- The concentration, pricing, minimum-commitment, and competitive risks associated with AWS, Azure, and Google Cloud Platform.
- How COVID-19, macroeconomic conditions, enterprise budget cycles, and customer consumption patterns affect sales cycles and revenue timing.
- The timing and cost impact of becoming subject to full emerging-growth-company reporting requirements after January 31, 2022.